Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets head of global real estate research Pammi Bir surveyed the domestic REIT sector as the fourth quarter begins,
“After stiff rejection in 1H/24, the TSX REIT Index found some love in Q3, posting a 23% total return and marking its strongest quarter since Q2/09. The 9M/24 return improved to +15%, narrowing the gap to the TSX Composite (+17%) and S&P 500 (22%). REIT returns improved around the world, with CDN REITs outperforming the global index (+13% YTD) …Next step-up from here likely requires more macro aid. Monetary policy easing by the BoC and material compression at the long end of the yield curve likely played starring roles in the sector’s rebound. Frankly, a breather hardly seems unreasonable, with the sector giving back some of its gains in recent days. A material improvement in multiples likely requires a sustained leg down in bond yields, in contrast with RBC Economics forecasts … We forecast 2024-26 annual FFOPU [funds from operations per unit] growth at a healthy 3-5%, and 7% upside in our 1-year forward NAVs. We expect several of our preferred subsectors to lead, including seniors housing (13% 2023A-25E FFOPU CAGR), Canadian-weighted multi-family (8%), industrial (5%) … we see attractive risk-adjusted returns in our top picks (BEI, CAR, CIGI, CSH, DIR, FCR, GRT, HOM, IIP, KMP, MHC, MI, MRG, REI, SRU, SVI)”
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Scotiabank mining analyst Orest Wowkodaw voiced some concern about the sector’s outlook,
“We anticipate the miners to post relatively mixed Q3/24 financial results as improved operating performance is likely to be largely offset by weaker commodity prices (QoQ). However, with cost pressures stabilizing and capex spending easing, we forecast cash margins to expand. Of concern, our estimates appear well below current consensus expectations for most companies, and we expect material negative consensus revisions over the coming weeks. In addition, we anticipate the market to focus on potential negative guidance revisions and select project ramp-up updates. The large and mid-cap producers continue to trade at relatively elevated valuations (we estimate an average implied Cu price of $5.60/lb or +26% above spot), reflecting improved market sentiment on Chinese demand … e forecast CIA-T, CS-T, ERO-T, HBM-T, IVN-T, LUN-T, NEXA-N, and TECK.B-T to miss consensus EBITDA expectations, CCO-T and FM-T to beat, with FCX-N in-line. On an EPS basis, we forecast below-consensus results for all companies. We profile our quarterly EPS, EBITDA, and guidance performance vs. consensus tracker in Exhibits 9-12 and note that CCO-T and FCX-N have the best track record of meeting EBITDA expectations over the past four and eight quarters;ERO-T and FM-T have the weakest”
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In a separate RBC report, global oil strategist Brian Leisen still isn’t seeing a lot bullishness on the crude price despite geopolitical events,
“Crack spreads have continued to remain challenged, particularly on crude rallies, and, barring geopolitical risk turned reality, we think there is more downside risk to our $72.50/bbl 2025 Brent target, as a stronger bearish signal from oil term structure [futures] may be needed to take more production growth off the board. While Middle Eastern supply risk has caused prices to spike across the complex, we’ve seen interest to fade the latest rally coupled with [derivatives] protection , as opposed to outright abandonment of bearish positioning … while a spike in geopolitical tension with crude at the low end of the range has led to a meteoric rise in spot prices over the last few trading days, we’ve seen market participants opportunistically layering in bearish positioning with [upside] protection, profit taking, as well as a material pickup in producer hedging … We would argue that the worse oil trends into year -end, the more likely we could see a directionally constructive setup for 2H’25. Prompt demand, fundamental cross currents, and noise into year -end are muting appetites for directional risk deployment”
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Diversion: “Smart TVs are like “a digital Trojan Horse” in people’s homes” – Ars Technica