Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Robert Hope previewed earnings reports for the dividend-heavy energy infrastructure sector and provided top picks,
“Thoughts for Q3. Overall, our estimates for Q3 are slightly below consensus, and in general, we see modest commodity pricing and softer renewable generation impacting results. Broadly speaking, we are ahead of consensus for the utility group and below for the power group. We are particularly above consensus for (1) TRP (+7%) due to a strong Bruce Power contribution, and (2) CU / ACO (+12% / 7%) due to utility growth and a strong Structures contribution. We are below consensus for (1) ENB due to lower volumes across its Liquids assets, (2) KEY as a result of a softer Marketing contribution, and (3) the renewable group (BEP, BLX, INE, NPI) given weaker renewable generation. We have made some minor tweaks to our models heading into the quarter with a bias downwards. Investor sentiment for pipelines / midstream continues to shift positive. Investor sentiment for the pipeline and midstream group is as positive as it has been in many years, especially for gas-levered names. The group should benefit from the continued ramp up of LNG exports and incremental natural gas demand to serve increasing power demand as well as coal-to-gas conversions. We expect the outlook for data centers to again be a key focus for the conference calls and do believe this will add to demand in the medium-term. Valuations have expanded and are slightly above 10-year average levels, which we view as fair. Our top picks in the group are TC Energy (TRP-T) and Keyera (KEY-T)”
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CIBC analyst Paul Holden sees the potential for lower credit provisions for Canadian banks,
“Lower credit losses and higher capital markets revenue contributed meaningfully to EPS upside this quarter and we believe Canadian trends will likely be similar. U.S. bank stocks have pushed higher in response to strong Q3 results and Canadian bank stocks have performed very well over the last three months. Valuation arguments have become harder to make, with a few exceptions. We think there is room for 2025 consensus PCL forecasts for the Canadian banks to move lower and that could be the next leg higher for the group. U.S. bank results are supportive of this thesis. Canadian banks that would benefit the most from lower PCL forecasts are BNS, TD and BMO. NII [net interest income] increased 2% Q/Q, on average, an improvement vs. last quarter, and better than consensus forecasts. Management expectations for NII going forward was a primary source of questions on many conference calls … Capital markets revenue was a source of upside for the diversified banks while GS and MS both put up big beats. A resurgence in investment banking activity (+27% Y/Y) in particular is driving results. Activity in Canada has not recovered to the same extent, so trends might favour those with larger U.S. platforms—RY, BMO and TD”
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BMO chief economist Doug Porter argued that domestic rates may not have that much more room to fall,
“The BoC was extraordinarily careful to not promise a quick follow up to Wednesday’s super-sized 50 bp rate cut. While Governor Macklem suggested further trims could be expected, the tone definitely lacked urgency. The Bank cited at least two upside risks to inflation: 1) still-hot wages at a time of zero productivity growth, and 2) the risk of a housing market flare-up, especially with easier mortgage rules coming into effect in December. We would offer a couple more. First, the Canadian dollar is flirting with 20-year lows at 72.2 cents. It briefly careened lower when oil prices crashed in early 2016, and again during the pandemic in 2020, but aside from those extremes, it has not been notably lower since 2003. Second, while many are suggesting rates are still in the restrictive zone, that’s not entirely obvious. Yes, it’s true that real rates were consistently negative in the aftermath of the GFC. But that was far from normal. Looking further back, current real short-term rates (of roughly 2 ppts) were far from abnormally high. And note that overall financial conditions are actually quite favourable overall, whether it’s solid equities, a weak loonie, or the drop in short- and long-term rates in the past year’
“BoC Rate Cuts: Going Low, But How Low?’ – (chart, excerpt) X
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Diversion: “‘The Terminator’ Is James Cameron’s Smallest Movie—and Biggest Achievement” - The Ringer
“Market Factors: Top performing TSX sector has more room to run” – Investment Ideas