VIEWPOINT Weekly Rating Pages for Veritas Coverage Universe

July 28, 2017

WEEK ENDING JULY 27, 2017

SUMMARY PAGES 3-11 V-LIST 12

WATCHLIST 13

RATING PAGES 14-105 Viewpoint July 28, 2017 C OMPANY R ATING P AGES Click on company name below for a link to the rating page Shading indicates an updated rating page

Agnico-Eagle Mines Ltd. 14 CGI Group Inc. 45 Macy’s, Inc. 76 Aimia Inc. 15 Choice Properties REIT 46 Magna International Inc. 77 Allied Properties REIT 16 Cogeco Cable Inc. 47 Manulife Financial Corp. 78 Air Canada 17 Constellation Software Inc. 48 Maple Leaf Foods Inc. 79 Amaya Inc. 18 Crescent Point Energy Corp. 49 Martinrea International Inc. 80 ARC Resources Ltd. 19 Crombie REIT 50 Metro Inc. 81 Artis REIT 20 CT Real Estate Investment Trust 51 National Bank of Canada 82 ATCO Ltd. 21 Dollarama Inc. 52 Newmont Mining Corp. 83 Badger Daylighting Ltd. 22 ECN Capital Corp. 53 Northland Power Inc. 84 Bank of Montreal 23 Element Fleet Management 54 Peyto Exploration & Development Corp. 85 Bank of Nova Scotia 24 Eldorado Gold Corp. 55 PrairieSky Royalty Ltd. 86 Barrick Gold Corp. 25 Emera Inc. 56 Quebecor Inc. 87 Baytex Energy Corp. 26 Empire Company Ltd. 57 Restaurant Brands International 88 BCE Inc. 27 Enbridge Inc. 58 Rogers Communications Inc. 89 BlackBerry Ltd. 28 Encana Corp. 59 Royal Bank of Canada 90 Boardwalk REIT 29 Enerplus Corp. 60 Shaw Communications Inc. 91 Bombardier Inc. 30 Fortis Inc. 61 Sun Life Financial Inc. 92 Bonavista Energy Corp. 31 George Weston Ltd. 62 Suncor Energy Inc. 93 Brookfield Renewable Energy PTR, LP 32 Goldcorp Inc. 63 Telus Corp. 94 CAE Inc. 33 Granite REIT 64 The Jean Coutu Group Inc. 95 Callidus Capital Corp. 34 Home Capital Group Inc. 65 Toronto Dominion Bank 96 Cameco Corp. 35 Hudson’s Bay Company 66 TransAlta Corp. 97 Canada Goose Holdings Inc. 36 Husky Energy Inc. 67 TransAlta Renewables Inc. 98 Canadian Imperial Bank of Commerce 37 Hydro One Ltd. 68 TransCanada Corp. 99 Canadian Natural Resources Ltd. 38 IAMGOLD Corp. 69 Tricon Capital Group Inc. 100 Canadian REIT 39 IMAX Corp. 70 Valeant Pharmaceuticals Intl. Inc. 101 Canadian Tire Corp. 40 Imperial Oil Ltd. 71 Vermilion Energy Inc. 102 Canadian Utilities Ltd. 41 Kinross Gold Corp. 72 Waste Connections Inc. 103 Canadian Western Bank 42 Linamar Corp. 73 Wheaton Precious Metals 104 Capital Power Corp. 43 Loblaw Companies Ltd. 74 Yamana Gold Inc. 105 Cenovus Energy Inc. 44 MacDonald Dettwiler & Associates Ltd. 75

R ECENT P UBLICATIONS

COMPANY TICKER RATING RATING CHANGE DATE

FLASHES PUBLISHED

Home Capital Group Inc. HCG SELL Jul.26.2017

NEED-TO-KNOWS PUBLISHED

Encana Corp. ECA SELL Jul.25.2017

Husky Energy Inc. HSE BUY Jul.25.2017

IMAX Corp. IMAX SELL Jul.27.2017

Newmont Mining Corp. NEM BUY Jul.27.2017

PrairieSky Royalty Ltd. PSK SELL Jul.26.2017

Rogers Communications Inc. RCI.b BUY Jul.21.2017

Vermilion Energy Inc. VET BUY Jul.27.2017

Waste Connections Inc. WCN BUY Jul.27.2017 Telecommunications & Technology Desmond Lau [email protected]

Recommen- Most Recent Closing Price Quality Balance Business Corporate Name Ticker Analyst Ranking Intrinsic Value Accounting Cash Flow Total dation Date Ratings Review (Jul 27/17) Rating Sheet Operations Governance

BlackBerry Ltd. BBRY Lau Buy 4/3/2017 6/29/2017 USD 9.74 USD 11.50 Neutral 2.0 2.0 3.0 2.0 3.0 12.0

Cogeco Cable Inc. CCA Lau Buy 4/15/2016 7/17/2017 87.43 85.00 Better 4.0 4.0 3.0 3.0 2.0 16.0

CGI Group Inc. GIB.a Leung Buy 11/10/2016 5/4/2017 66.48 71.00 Better 3.0 4.0 4.0 5.0 3.0 19.0

Quebecor Inc. QBR.b Lau Buy 5/9/2014 5/18/2017 44.28 45.00 Better 3.0 4.0 2.5 4.0 3.0 16.5

Rogers Communications Inc. RCI.b Lau Buy 1/13/2015 7/24/2017 64.87 66.00 Better 3.0 3.0 4.0 3.0 4.0 17.0

Shaw Communications Inc. SJR.b Lau Buy 8/23/2016 6/29/2017 27.75 31.50 Better 3.0 3.0 4.0 4.0 3.0 17.0

Telus Corp. T Lau Buy 5/18/2017 5/18/2017 45.47 50.00 Better 4.0 3.0 4.0 3.0 4.0 18.0

BCE Inc. BCE Lau Sell 5/18/2017 5/18/2017 59.13 60.00 Better 3.5 4.0 4.0 3.0 4.0 18.5

Constellation Software Inc. CSU Leung Sell 1/22/2016 5/18/2017 672.00 520.00 Better 1.0 4.5 4.0 2.0 3.5 15.0

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

July 28, 2017 Financial Services Nigel D'Souza [email protected]

Recommend Most Recent Closing Price Quality Balance Business Corporate Name Ticker Analyst Ranking Intrinsic Value Accounting Cash Flow Total ation Date Ratings Review (Jul 27/17) Rating Sheet Operations Governance

Canadian Imperial Bank of Commerce CM D'Souza Buy 8/28/2015 6/22/2017 107.24 121.00 Best 4.0 4.0 4.0 4.0 4.0 20.0

Manulife Financial Corp. MFC D'Souza Buy 8/10/2012 5/12/2017 25.53 27.00 Better 3.5 4.0 4.0 3.5 4.0 19.0

Royal Bank of Canada RY D'Souza Buy 5/26/2017 6/23/2017 93.22 96.00 Best 4.5 4.0 4.0 4.0 4.5 21.0

Sun Life Financial Inc. SLF D'Souza Buy 2/16/2016 5/12/2017 47.70 50.00 Better 3.5 4.0 4.0 3.5 4.0 19.0

Toronto Dominion Bank TD D'Souza Buy 4/18/2012 6/23/2017 64.23 71.00 Best 4.0 4.0 4.0 4.0 4.0 20.0

Bank of Montreal BMO D'Souza Sell 12/6/2013 6/22/2017 95.72 90.00 Best 4.0 4.0 4.0 4.0 4.0 20.0

Bank of Nova Scotia BNS D'Souza Sell 7/30/2015 6/22/2017 77.63 73.00 Better 3.5 4.0 4.0 4.0 4.0 19.5

Canadian Western Bank CWB D'Souza Sell 3/7/2013 6/23/2017 27.80 25.00 Better 4.0 4.0 3.0 3.0 4.0 18.0

ECN Capital Corp. ECN D'Souza Sell 5/17/2017 6/14/2017 4.03 3.70 Neutral 3.0 2.0 3.5 2.5 1.5 12.5

Element Fleet Management EFN D'Souza Sell 6/16/2016 6/6/2017 9.64 Under Review Risky 1.0 2.0 3.0 2.0 1.0 9.0

Home Capital Group Inc. HCG Levenstadt Sell 2/1/2017 7/27/2017 56.09 12.50 Neutral 2.0 3.5 4.0 2.0 2.0 13.5

National Bank of Canada NA D'Souza Sell 4/18/2012 6/23/2017 56.09 53.00 Better 4.0 3.5 4.0 4.0 4.0 19.5

Veritas Sector Rankings

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

July 28, 2017 Consumer Staples & Consumer Discretionary Kathleen Wong [email protected]

Recommend Most Recent Closing Price Quality Balance Business Corporate Name Ticker Analyst Ranking ation Intrinsic Value Accounting Cash Flow Total Ratings Review (Jul 27/17) Rating Sheet Operations Governance Date

Canadian Tire Corp. CTC.a Wong Buy 9/21/2011 5/15/2017 142.35 170.00 Neutral 3.0 3.0 3.0 3.0 2.0 14.0

Choice Properties REIT CHP.un Wong Buy 8/29/2013 7/28/2016 13.39 14.70 Better 3.0 3.0 3.0 3.0 3.0 15.0

CT Real Estate Investment Trust CRT.un Wong Buy 10/29/2013 8/5/2016 14.54 15.80 Better 3.0 3.0 3.0 4.0 3.0 16.0

Dollarama Inc. DOL Wong Buy 5/3/2017 6/8/2017 124.49 131.60 Better 3.0 4.0 4.0 3.0 3.0 17.0

Empire Company Ltd. EMP.a Wong Buy 6/20/2013 5/7/2017 20.26 23.50 Neutral 3.0 3.0 2.0 3.0 3.0 14.0

George Weston Ltd. WN Wong Buy 3/8/2011 5/11/2017 112.89 135.00 Better 2.0 3.0 5.0 3.0 3.0 16.0

Loblaw Companies Ltd. L Wong Buy 9/30/2009 5/5/2017 68.75 85.00 Better 4.0 3.0 3.0 3.0 3.0 16.0

Macy's, Inc. M Wong Buy 2/28/2017 5/23/2017 24.20 USD 29.00 Better 3.0 3.0 2.0 3.0 5.0 16.0

Maple Leaf Foods Inc. MFI Yu Buy 3/18/2005 5/4/2017 34.14 35.50 Better 3.0 3.5 5.0 3.5 3.5 18.5

Metro Inc. MRU Wong Buy 9/30/2009 4/26/2017 42.30 51.00 Better 3.0 4.0 4.0 4.0 4.0 19.0

Restaurant Brands International QSR Wong Buy 11/8/2016 4/27/2017 USD 61.17 USD 60.00 Better 3.0 4.0 3.0 4.0 3.0 17.0

The Jean Coutu Group Inc. PJC.a Wong Buy 10/14/2008 7/11/2017 20.76 24.00 Better 3.0 3.0 4.0 4.0 2.0 16.0

Aimia AIM Wong Sell 3/1/2013 6/7/2017 1.54 0.90 Neutral 2.0 1.0 2.0 2.0 3.0 10.0

Amaya Inc. AYA Khmelnitsky Sell 10/14/2016 5/12/2017 22.60 19.00 Risky 1.0 2.0 0.0 2.0 0.0 5.0

Canada Goose Holdings Inc. GOOS Wong Sell 3/27/2017 6/6/2017 24.08 22.00 Neutral 1.0 3.0 4.0 3.0 2.0 13.0

Hudson's Bay Company HBC Wong Sell 11/26/2012 6/12/2017 10.77 7.00 Neutral 2.0 2.0 2.0 1.0 3.0 10.0

IMAX Corp. IMAX Leung Sell 1/22/2015 7/27/2017 USD 21.10 USD 19.00 Risky 2.0 1.0 3.0 1.0 2.0 9.0

Veritas Sector Rankings

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

July 28, 2017 Industrials

Dan Fong [email protected]

Waste Connections Inc. WCN McCoubrey Buy 2/25/2016 7/27/2017 USD 65.82 USD 72.50 Better 4.0 5.0 3.0 4.0 3.0 19.0

Air Canada AC Fong Sell 4/26/2017 5/7/2017 2.41 16.25 Neutral 3.0 2.0 3.0 3.0 3.0 14.0

Badger Daylighting Ltd. BAD Khmelnitsky Sell 5/12/2017 5/12/2017 26.53 20.50 Neutral 2.0 2.0 4.0 0.0 2.0 10.0

Bombardier Inc. BBD.b Fong Sell 2/13/2015 5/16/2017 2.41 2.00 Risky 2.0 1.0 2.0 1.0 1.0 7.0

CAE Inc. CAE La Bell Sell 2/9/2015 4/1/2016 20.94 Under Review Neutral 2.0 3.0 3.0 3.0 2.0 13.0

Magna International Inc. MGA Fong Sell 2/7/2017 5/15/2017 USD 48.22 USD 44.00 Better 2.0 2.0 4.0 3.0 4.0 15.0

Martinrea International Inc. MRE Fong Sell 2/7/2017 5/2/2017 10.38 8.75 Neutral 3.0 1.0 2.0 2.0 2.0 10.0

Linamar Corp. LNR Fong Sell 2/7/2017 5/15/2017 69.33 61.00 Better 3.0 3.0 3.0 4.0 2.0 15.0

Veritas Sector Rankings

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

July 28, 2017 Pipelines & Utilities Darryl McCoubrey [email protected]

ATCO Ltd. ACO.x McCoubrey Buy 11/26/2015 4/27/2017 49.69 52.00 Better 3.5 3.0 4.0 3.0 3.5 17.0

Canadian Utilities Ltd. CU McCoubrey Buy 11/2/2012 4/27/2017 41.46 46.25 Neutral 3.5 3.0 4.0 3.0 3.5 14.0

Capital Power Corp. CPX McCoubrey Buy 9/4/2013 5/2/2017 24.79 29.50 Neutral 3.0 2.0 2.0 3.0 2.5 12.5

Enbridge Inc. ENB McCoubrey Buy 2/24/2016 6/12/2017 51.65 66.00 Better 2.5 4.0 3.0 3.5 4.0 17.0

Fortis Inc. FTS McCoubrey Buy 8/4/2015 5/4/2017 44.67 45.00 Better 3.0 3.5 2.5 4.0 2.5 15.5

Hydro One Ltd. H McCoubrey Buy 5/6/2016 7/20/2017 22.43 27.50 Neutral 2.5 3.0 3.0 3.0 2.5 14.0

Northland Power Inc. NPI Akhmedova Buy 2/25/2013 7/7/2017 23.29 25.00 Better 3.0 3.5 3.0 4.0 4.0 17.5

TransAlta Corp. TA McCoubrey Buy 6/9/2016 5/9/2017 8.07 8.00 Neutral 3.5 1.0 2.0 4.0 1.0 11.5

TransAlta Renewables Inc. RNW Akhmedova Buy 9/1/2016 5/8/2017 14.55 15.50 Better 3.0 4.0 4.0 4.0 2.0 17.0

TransCanada Corp. TRP McCoubrey Buy 11/9/2015 2/17/2017 63.56 67.50 Better 4.0 4.0 3.0 3.0 2.5 16.5

Brookfield Renewable Energy Partners, LP. BEP Akhmedova Sell 5/6/2014 5/5/2017 USD 33.50 USD 25.50 Neutral 2.0 2.0 2.0 4.0 3.0 13.0

Emera Inc. EMA McCoubrey Sell 5/14/2012 2/14/2017 46.68 45.00 Neutral 2.5 2.5 2.5 3.0 2.5 13.0

Veritas Sector Rankings

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

July 28, 2017 Healthcare & Pharmaceuticals Dimitry Khmelnitsky [email protected]

Valeant Pharmaceuticals Intl. Inc. VRX Khmelnitksy Sell 7/23/2014 4/18/2017 USD 17.13 USD 9.00 Torpedo 0.0 2.0 0.0 1.0 0.0 3.0

Veritas Sector Rankings

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

July 28, 2017 REITs

Howard Leung [email protected]

Allied Properties REIT AP.un Leung Buy 5/3/2017 6/27/2017 38.41 45.00 Best 4.0 3.0 4.0 5.0 4.0 20.0

Crombie REIT CRR.un Leung Buy 5/3/2017 6/27/2017 13.56 17.00 Better 3.0 4.0 3.0 4.0 4.0 18.0

Granite REIT GRT.un Leung Buy 5/3/2017 6/27/2017 50.02 54.00 Best 4.0 5.0 5.0 3.0 4.0 21.0

Tricon Capital Group Inc. TCN Leung Buy 7/20/2017 7/20/2017 10.73 12.80 Better 3.5 3.0 4.0 4.0 4.0 18.5

Artis REIT AX.un Leung Sell 5/3/2017 6/27/2017 13.14 9.00 Risky 2.0 1.0 2.0 2.0 2.0 9.0

Boardwalk REIT BEI.un Leung Sell 5/3/2017 6/27/2017 47.61 39.00 Neutral 2.0 1.0 4.0 2.0 4.0 13.0

Canadian REIT REF.un Leung Sell 5/3/2017 6/27/2017 45.02 42.00 Better 5.0 3.0 4.0 2.0 5.0 19.0

Veritas Sector Rankings

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

July 28, 2017 Energy

Jeffrey Craig [email protected]

Intrinsic Closing Recommendation Most Recent US $60.00 Value: US $75.00 Quality Cash Balance Business Corporate Name Ticker Analyst Ranking Price Accounting Total Date Ratings Review Case US$65.00 Case Rating Flow Sheet Operations Governance (Jul 27/17) Base Case

ARC Resources Ltd. ARX Craig Buy 8/27/2015 5/5/2017 17.63 21.00 24.50 27.00 Better 3.0 2.5 3.5 3.0 3.0 15.0

Baytex Energy Corp. BTE Craig Buy 2/4/2016 5/9/2017 3.53 8.00 10.50 15.00 Neutral 2.0 2.5 2.5 3.0 2.0 12.0

Bonavista Energy Corp. BNP Craig Buy 3/1/2013 5/11/2017 3.09 8.50 9.00 10.00 Neutral 2.0 3.0 3.0 3.0 3.0 14.0

Canadian Natural Resources Ltd. CNQ Craig Buy 2/4/2016 6/5/2017 38.65 52.50 59.00 71.50 Neutral 3.0 3.0 2.5 3.0 3.0 14.5

Cenovus Energy Inc. CVE Craig Buy 4/3/2017 6/22/2017 10.89 14.00 21.00 33.00 Neutral 2.0 3.5 2.0 2.5 3.0 13.0

Crescent Point Energy Corp. CPG Craig Buy 5/11/2012 5/2/2017 10.35 18.50 23.00 30.00 Better 2.5 3.0 3.5 3.0 3.0 15.0

Enerplus Corp. ERF Craig Buy 5/18/2011 5/5/2017 11.54 14.50 18.50 24.50 Neutral 2.0 2.0 2.5 3.0 3.0 12.5

Husky Energy Inc. HSE Craig Buy 2/4/2016 7/25/2017 14.66 14.00 21.50 32.50 Neutral 2.5 3.0 3.5 2.5 2.0 13.5

Peyto Exploration & Development Corp.PEY Craig Buy 2/1/2017 5/11/2017 23.17 27.50 32.50 34.50 Neutral 2.0 2.5 2.5 3.0 2.0 12.0

Vermilion Energy Inc. VET Craig Buy 8/27/2015 7/27/2017 42.31 54.50 60.50 68.50 Better 3.5 4.0 2.5 3.0 2.5 15.5

Encana Corp. ECA Craig Sell 5/4/2016 7/25/2017 USD 10.29 USD 6.50 USD 9.00 USD 13.25 Neutral 2.5 2.5 3.0 2.0 3.0 13.0

Imperial Oil Ltd. IMO Craig Sell 1/31/2014 2/28/2017 37.22 Under Review Neutral 3.0 2.5 2.5 2.5 2.5 13.0

PrairieSky Royalty Ltd. PSK Craig Sell 5/3/2016 7/26/2017 31.13 20.50 26.00 34.50 Better 2.0 3.0 5.0 2.5 2.5 15.0

Suncor Energy Inc. SU Craig Sell 12/22/2014 5/11/2017 39.77 Under Review Neutral 2.0 3.0 3.0 3.5 3.0 14.5 v Veritas Sector Rankings

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

WTI Oil Price HH Gas Price USD/CAD Exchange Rate Commodity Case 2017 / 2020 2017 / 2020 2017 / 2020 $60 Oil Case 50 / 60 2.60 / 3.35 0.79 / 0.83 $65 Oil - Base Case 55 / 65 3.00 / 3.75 0.81 / 0.85 $75 Oil Case 65 / 75 3.50 / 4.00 0.85 / 0.89

July 28, 2017 THE LIST Veritas ' Model Portfolio

T h e V - List is a concentrated portfolio of 12 to 25 companies recommended by Veritas Investment Research as the best investment o pportunities drawn from our firm’s r e s e a r c h .

Stocks are selected based on their potential for long - term capital appreciation, using bottom - up fundamental analysis and a stri ct review of accounting and disclosure practices to identify companies with defensible competitive advantages and the ability to generate meaningful cash flows.

July-28-17 Portfolio Yield: 2.9%

INTRINSIC QUALITY PRICE (C$) CURRENT COMPANY TICKER DATE ADDED VALUE RATING 27-Jul-2017 YIELD ESTIMATE (out of 25)

Allied Properties REIT AP-U 24-May-17 $38.41 $45.00 4.0% 20.0

Canadian Utilities Ltd. CU 28-Jun-16 $41.46 $46.25 3.4% 17.0

Capital Power Corp. CPX 9-Apr-15 $24.79 $29.50 6.7% 12.5

Cenovus Energy Inc. CVE 7-Mar-16 $10.89 $21.00 1.8% 15.0

CGI Group Inc. GIB/A 22-Nov-16 $66.48 $71.00 0.0% 19.0

Enbridge Inc. ENB 5-Jul-17 $51.65 $66.00 4.7% 17.0

Granite REIT GRT-U 5-May-17 $50.02 $54.00 5.2% 13.0

Husky Energy Inc. HSE 11-Jan-17 $14.66 $21.50 0.0% 13.0

Loblaw Companies Ltd. L 9-Apr-15 $68.75 $85.00 1.6% 16.0

Manulife Financial Corp. MFC 27-May-13 $25.53 $27.00 3.2% 19.0

Maple Leaf Foods Inc. MFI 29-Oct-04 $34.14 $35.50 1.3% 17.5

Metro Inc. MRU 25-Nov-14 $42.30 $51.00 1.5% 19.0

Northland Power Inc. NPI 13-Mar-13 $23.29 $27.00 5.2% 16.5

Quebecor Inc. QBR/B 9-May-14 $44.28 $45.00 0.5% 16.5

Shaw Communications Inc. SJR/B 26-Aug-16 $27.75 $31.50 4.3% 15.0

Telus Corp. T 24-May-17 $45.47 $50.00 4.3% 18.0

The Jean Coutu Group Inc. PJC/A 24-Jun-15 $20.76 $24.00 2.5% 16.0

TransCanada Corp. TRP 16-Dec-15 $63.56 $67.50 3.9% 16.5

Waste Connections Inc. WCN 1-Jun-16 USD $64.42 USD $72.50 0.7% 17.0

Veritas Investment Research Corporation owns the copyright in this report. This report may not be reproduced in whole or in part without Veritas’ express prior written consent. Any such breach of this copyright is contrary to ss. 27(1), 34, 35 and 42 of the Copyright Act, R.S.C. 1985, c. C-42 and will be liable for damages.

Veritas Investment Research, 100 Wellington Street West, TD West Tower, Suite 3110, P.O. Box 80, Toronto, Ontario , M5K 1E7, 416-866-8783, www.veritascorp.com ACCOUNTING WATCHLIST Companies with accounting and disclosure-related risks

MAY 15, 2017 RISK AREAS Non-GAAP Liquidity / Mgmt. Comp. Metrics Date Organic Earnings Cash Flow Leverage / Structure Company Ticker Analyst Cloud Disclosure Tax Added Growth Quality Sustainability Off-B/S & Corp. Financial Concerns Governance Performance

Aimia Inc. TSX-AIM Wong 3-Sept-14     

Amaya Inc. TSX-AYA Khmelnitsky 18-Oct-16     

Badger Daylighting Ltd. TSX-BAD Khmelnitsky 15-May-17     

Callidus Capital Corp. TSX-CBL Scilipoti 16-Apr-15  

TSX-CCO Cameco Corp. Khmelnitsky 30-Apr-14 NYSE-CCJ    

Constellation Software Inc. TSX-CSU Leung 26-Jan-16  

Element Fleet Management TSX-EFN D’Souza 17-Jun-16     

Home Capital Group Inc. TSX-HCG Levenstadt 17-Apr-17  

MacDonald Dettwiler & Assoc. Ltd. TSX-MDA Khmelnitsky 3-Nov-11   

TSX-SLW Silver Wheaton Corp. Khmelnitsky 13-Oct-15 NYSE-SLW   

TSX-VRX Valeant Pharmaceuticals Intl. Inc. Khmelnitsky 5-Jan-12 NYSE-VRX        

Veritas Investment Research Corporation ("Veritas") its directors, officers, employees and their immediate families are prohibited from trading any position in the securities profiled in a report thirty (30) days before and five (5) days after the publication date where the report involves coverage initiation or a change of opinion. Veritas has not offered any consulting, financial advisory, investment banking or underwriting services to the companies mentioned. Veritas does not accept research fees from the companies profiled herein. The information contained in this report has been obtained from sources believed reliable however the accuracy and/or completeness of the information is not guaranteed by Veritas, nor does Veritas assume any responsibility or liability whatsoever. All opinions expressed are subject to change without notification. This report is for information purposes only and does not constitute and should in no way be construed as a solicitation to buy or sell any of the securities mentioned herein. The contents of this research report do not, in any way, purport to include any manner of legal advice or opinion. The intention of this report is to provide a forthright discussion of business, accounting and financial reporting issues, as well as generally accepted accounting principles and the limits of their usefulness to investors. As such, please do not infer from this report that the accounting policies of any company mentioned herein are not allowed within the broad range of generally accepted accounting principles, or that the policies employed by that company were not approved by its auditor(s). This report may not be reproduced in whole or in part without the express prior written consent of Veri- tas. Veritas is a 100% employee owned firm. ©2017 Veritas Investment Research Corporation.

Veritas Investment Research, 100 Wellington Street West, TD West Tower, Suite 3110, P.O. Box 80, Toronto, Ontario , M5K 1E7, 416-866-8783, www.veritascorp.com Updated July 6, 2017 SELL AIMIA INC. Current Price C$1.53 Intrinsic Value C$0.90 TSX-AIM Current Dividend Yield 0%

WORKING BACKWARDS FROM 2020: WHY AIMIA MAY FAIL We consider what Aimia might be worth by working backwards from 2020 assuming ‘business-as-usual’ between now and then (i.e. Aimia’s Aeroplan mile issuance matches mile redemptions). Based on this case, we estimate Aimia’s Americas Coalition is likely to face a net liability overhang of more than $1.2 billion in 2020 from its prior Aeroplan business.

To settle this negative Americas liability as it comes due, we believe Aimia will need to take three key actions: 1) Sell its interest in PLM (Club Premier) for $500 million; 2) Monetize its international Coalitions segment for $250 million; and 3) Devalue its legacy Aeroplan miles by 25% to save $480 million.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 Given that Aimia has to navigate a very difficult restructuring and we cannot rule out the need for creditor protection, we do not Management provides disclosure on mile issuance, re- advise an investment in the company at this time. Our updated demptions, selling prices/costs to value Aeroplan’s current intrinsic value of $0.90 per share reflects a risked 80/20 weighting business and future liabilities, but not as detailed disclosure between our restructuring case of $1.10 per share (at an 80% on the other segments. We are looking for greater clarity weighting) and potential outcomes that erase common equity when the company revamps operating structures in 2016. (20%). We remain sellers of this name.

Adjusted Cash Flows 1/5 FY end December 2015 2016 (C$ Millions, except as noted) Normalized FCF in 2016 was mainly supported by a reduction in operating expense and capital expenditure. On May 11, 2017, Air Canada announced it does not plan to Aeroplan Miles Issuance Growth (2.9%) 1.8% renew the CPSA agreement with Aeroplan when it expires in June 2020. This is likely to lead to significant increase in redemptions between now and June 2020, and reduced Aeroplan Mile Redemption Growth 0.8% 0.8% FCF significantly.

The Balance Sheet 2/5 Burn/Earn Ratio 87% 86% Aimia has a reserve of $435 million (held in cash and investments), which represents only 19% of its Future Redemption Selling Price/Aeroplan Mile (cents) 1.353 1.357 Cost Liabilities ($2,206 million) at the end of Q1– 2017 compared to the historical average of around 30%. Redemption Cost/Aeroplan Mile (cents) 1.048 1.016 Business Operations 2/5 Aeroplan Normalized Margin Spread 23% 25% The enhanced Aeroplan Canada program has yet to drive strong regular miles issuance (excluding bonus miles) to Aimia’s Normalized FCF (Aeroplan offset the higher redemption cost going forward. Aimia has $166 $206 Canada + Other Businesses) focused on extracting cost efficiencies and it expects to realize $70 million annual operating expense savings in 2015 and 2016. It is also simplifying its businesses by divesting non- Aimia’s Normalized FCF per Share $1.02 $1.35 core assets.

Corporate Governance 3/5 Dividends per Common Share $0.75 $0.79

Six out of seven members on Aimia’s Board of Directors are Dividend Payout Ratio (Preferred and Com- 84% 67% independent. mon Dividends)

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KATHLEEN WONG [email protected] 416-866-8783 Updated June 27, 2017 BUY ALLIED PROPERTIES REIT Prior Close $39.90 Intrinsic Value $45.00 TSX-AP.UN Current Yield 3.8%

A HOLY TRINITY OF LOCATION, QUALITY, AND DEVELOPMENT

Allied is an office real estate company specializing in Class I office space, emphasizing the adaptive re-use of light industrial structures (i.e. lofts). With almost 12 million square feet of gross leasable area, the REIT’s properties are concentrated in nine of Canada’s largest major metropolitan areas, with substantial exposure to the Toronto office market. Allied’s focused strategy of increasing its footprint in the Toronto Class I industrial market over the past five years has paid off, with unit prices increasing at over 7% CAGR. In our view, the REIT’s experience in developing Class I office space gives it a unique advantage in Canada, which we expect to contribute top quartile growth over the near term.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our estimate of F17 AFFO is $1.71 per unit. For the following three years, we estimate a 8% growth rate, leading to an estimate of Allied now includes recoverable maintenance capex in its $2.17 of AFFO per unit by 2020. We then apply a terminal multiple AFFO metric. We view its accounting for the metric as gener- of 22.7x to the REIT’s 2020 AFFO earnings. Discounting the REIT’s ally clean. AFFO by its cost of equity of 6.9% brings our intrinsic value to $45 Adjusted Cash Flows 3/5 per unit.

Allied’s F16 adjusted AFFO payout ratio was 94%. This was the first year that Allied suspended its DRIP, and even then the Period Ending REIT was still able to meet all of its cash payout obligations. F15 F16 Q1-F17 C$ Millions (except as noted)

The Balance Sheet 4/5 Unit price $31.57 $35.95 $36.09 The REIT’s debt to gross book value is 37%, far below its maximum limit of 60%. The REIT’s interest coverage is 2.8x, which is Units outstanding 78.3 84.7 84.9 well above its limit of 1.65x.

Business Operations 5/5 Market capitalization $2,473 $3,046 $3,064

Allied’s well-located, high quality properties have allowed it to incrementally raise its rents to tenants. The vast majority of Enterprise value (EV) $4,175 $5,058 $5,001 the REIT’s leases are on a triple-net basis, which shield the trust from sudden hikes in utilities or property taxes. Finally, Reported Debt to Gross Book given rising property values in Allied’s key metropolitan mar- 35.6% 36.6% 36.6% Value kets, we believe Allied has greater ability to pass on any cost inflation it incurs to tenants. Revenue $365 $390 $102 Corporate Governance 4/5

Veritas Adjusted AFFO $131 $130 $34 Annual incentive and long-term performance bonuses for management are based on specific, quantifiable metrics. The board is majority independent, although we note that Veritas Adjusted AFFO Total Pay- 87% 94% 95% one trustee is also a partner at Allied’s principal law firm. out Ratio (includes DRIP)

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HOWARD LEUNG [email protected] 416-866-8783 Updated July 5, 2017 SELL AIR CANADA Current Price: C$17.34 Intrinsic Value: C$16.25 TSX-AC Current Yield: N/A GAINING ALTITUDE ON AEROPLAN

With Aimia’s shares trading at an all-time low, we have been fielding calls asking if it makes sense for Air Canada to step in and buy Aimia to save Aeroplan and its brand value. In our view, rather than making a quick bid, Air Canada is better served waiting for Aimia to clean house by selling assets, restructuring debt and/or devaluing its offering, instead of acquiring Aimia and having to take these steps on its own. While Air Canada setting up its own loyalty plan carries startup and execution risks, absorbing Aimia internalizes Aeroplan’s near- term challenges and may be a more difficult branding exercise. For now, time is on Air Canada’s side: between now and 2020, Air Canada is still the recipient of a net cash benefit from Aimia, and has almost three years to prepare for launching its own loyalty program while watching the events at Aimia unfold. We highlight the risks associated with Air Canada’s ‘build or buy’ decision – in our view, the risks associated with buying Aimia currently outweigh those of Air Canada building its own loyalty program. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 Our $16.25 per share IV is based a discounted FCFE model, which reflects: declining yields due to competitive international pres- Disclosures are generally good, however, we would prefer to sures; relatively stable load factors and fuel prices; potential val- see additional operating data on a regional route basis. AC ue creation from a repatriated loyalty program; a 9.8% cost of presents free cash flow net of sale-leaseback transactions equity; and a 2.0% long-term growth rate. which, in our view, skews free cash flow.

Adjusted Cash Flows 2/5 TTM CAD Millions (except as noted) F15 F16 Q1-F17 Due to a massive fleet renewal program, AC has not generated significant free cash flow over the past few years. Be- yond 2017, wide-body deliveries will taper off; however, the Share price (C$) $10.21 $13.67 $13.80 narrow-body fleet renewal program will begin. Capex levels are likely to remain high for the foreseeable future. The Balance Sheet 3/5 Market capitalization $2,900 $3,700 $3,800 At 2.5x Adjusted Net Debt to TTM EBITDAR, leverage is relatively high as compared to peers. However, after a successful refinancing in 2016, near-term debt maturities are minimal Adjusted enterprise value (EV) $9,200 $10,800 $10,500 and the Company appears to have adequate liquidity. Business Operations 3/5 Revenue $13,900 $14,700 $15,000 AC has made significant progress in reducing costs and rationalizing capacity into its network. However, its international strategy is likely to come under pressure from increasing EBITDAR $2,500 $2,800 $2,650 trans-Atlantic and trans-Pacific competition. In addition, Rouge is hitting its 50-aircraft operating limit which may con- Reported free cash flow (excl. strain significant cost reduction efforts going forward. $210 ($500) ($260) sale-leaseback transactions) Corporate Governance 3/5

Assuming AC’s proposed slate of directors is elected at its Reported EPS $1.06 $3.16 $2.66 upcoming AGM, 10 out of 11 directors will independent (four of which were appointed within the last four years). Howev- er, we would prefer to see more direct airline expertise at the Adjusted EV-to-TTM EBITDAR 3.7x 3.9x 4.0x board level.

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DAN FONG [email protected] 416-866-8783 Updated May 12, 2017 SELL

AMAYA INC. Current Price C$26.51 Intrinsic Value C$19.00 TSX-AYA Current Yield 0%

CONCERNS REMAIN Poker revenue, which still accounts for 69% of total revenues, continued to stagnate, while Casino and Sportsbook showed signs of moderating growth. Our SELL recommendation remains unchanged due to: 1) our concerns related to Poker growth; 2) pressure on future margins; 2) the company’s high net debt burden; and 3) non-IFRS metrics that, in our opinion, do not reflect the economics of the business.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 1/5 Based on our DCF model, we increase our intrinsic value from C$18.70 to C$19.00 solely on the back of the change in CAD/ Amaya uses aggressive non-IFRS metrics that overstate the economics of the business. We estimate that the exclusion of materi- USD exchange rate (we value AYA in USD given that this is the al recurring costs, that are integral to AYA’s strategy, boosted company’s reporting currency and then translate the result Q1-F17 Adjusted EBITDA by at least 12%. We also note Amaya’s into CAD). history of: 1) writing off large blocks of capitalized costs; 2) re- stating prior results on classification errors; 3) issuing revenue Period Ending guarantees that avoid EBITDA; and 4) reclassifying assets as F15 F16 US$ Millions (except as noted) ‘held-for-sale’ that helped meet EBITDA guidance.

Share price C$17.43 C$21.09 Cash Flow Sustainability 2/5 We believe Amaya’s growth initiatives related to Casino and Sportsbook verticals could be constrained as majority of the 133,239 145,682 company’s 2017 cash flow generation will be used to pay the Shares outstanding (thousands) remaining portion of the deferred consideration to the former owners of PokerStars. Further, we expect a decline in AYA’s future profitability due to higher marketing costs and gaming du- ties. Market capitalization $2,326 $3,072

Balance Sheet 0/5

Amaya is highly levered at ~4.0x F17 Adjusted EBITDA. Enterprise value (EV) $5,851 $6,483 Business Operations 2/5 The high debt leaves limited room for investment in Casino and Sports. Meanwhile, declining play volumes and liquidity for Poker Revenue $1,072 $1,156 means that Amaya may have to rely increasingly on price increases and reductions in rake-back to maintain revenues. We also see increased risks to growth in Casino/Spots verticals as certain cross selling levers and opportunities seem to be dimin- Reported Adj EBITDA $459 $524 ishing.

Corporate Governance 0/5 Reported const. currency 15% 12% revenue growth Needs improvement due to weaknesses in financial reporting and inadequate management's performance evaluation metrics. The insider trading charges against the former CEO and the investigation into potential bribery payments do not add to our Est. EV-to-EBITDA (NTM) 10.5x 8.7x comfort level with AYA’s governance.

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DIMIRTY KHMELNITSKY [email protected] 416-866-8783 Updated May 5, 2017 BUY ARC RESOURCES LTD. Current Price C$17.80 Intrinsic Value C$24.50 TSX-ARX Current Yield 3.4%

BALANCE SHEET SUPPORT GROWTH INTO 2018 A 2016 ~$700 million divestment of its light oil assets refreshed the balance sheet and lays the foundation for a Montney-heavy $750 million capex budget. Net debt is currently 0.7x our 2017 funds flow with management stating it is comfortable allowing this ratio to trend back to its historical range of 1.0x to 1.5x, which will likely involve drawing down cash to fund capex. ARC’s decades of Montney drilling inventory and options at its liquids-weighted Pembina property generate a unique value proposition for long-term growth. BUY

QUALITY RATING INTRINSIC VALUE WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 3/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value ARC recorded a $62 million reversal of previous impairments $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 21.00 in 2016 based on the assets fair value less costs of disposal $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 24.50 based on preliminary bids from prospective buyers. This represents a stark contrast to 2015, when the company $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 27.00 recorded an impairment of $469.6 million, primarily driven Our base case values ARC at $24.50 per share, reflecting a return to by reduced assumptions about future commodity prices. US$67 oil and US$3.75 gas through 2020. Adjusted Cash Flows 2.5/5 Company Profile 2017 2016 2015

ARC has laid out a large 2017 capex budget of $750 million Price 19.00 20.29 16.70 that is weighted to the second half of the year. We see Shares (millions incl. exch.) 353.4 353.2 347.1 shortfalls in 2017 and 2018 under our base cases of AECO $2.80 and $3.35 but that is easily supported by ~$672 million Market cap. ($ millions) 6,715 7,166 5,797 of cash on the balance sheet. Revenue ($ millions) 283 975 1,071 The Balance Sheet 3.5/5 CFPS 0.54 1.79 1.99 Price to YTD CFPS 8.8x 11.4x 8.4x At Q1-F17, ARC had ~$1.0 billion in debt and $642 million in ROE (annualized) cash and cash equivalents. Debt to TTM EBITDA was 0.5x 16.1% 5.9% (8.3%) compared to a maximum covenant of 3.25x. Dividends per share -0.20 0.50 1.20 Production (boe/d) 115,129 118,671 114,167 Business Operations 3/5 CFO* per boe 18.23 14.56 16.53 Net debt to EV 5% 5% 14% With the disposition of 7,500 boe/d of production in November 2016 ARC’s 2017 midpoint guidance of 121,500 Net debt to CFO* 0.47x 0.56x 1.37x boe/d, ~2% growth over 2016. To achieve y-o-y production growth in 2017 the capex budget has increased to $750 Cash Flow and Dividends 2017 2016 2015 million, compared with initial guidance of $550 million and Reported CFO* 191.5 630.7 689.0 $450 million in 2016. Capital expenditures (245.0) (455.6) (547.9) Corporate Governance 3/5 Available cash (shortfall) (53.5) 175.1 141.1 Dividends declared (69.9) 175.3 410.5 ARC's chairman Mac Van Wielingen announced he will be % of CFO* -37% 28% 60% stepping down as chair on December 31, 2015, after almost 20 years at ARC. The chairman role will be taken up by % of available cash 131% 100% 291% current board member Hal Kvisle, most recently of Trans- * CFO is cash from operations after working capital, cash interest and asset retirement Canada and Talisman. We do not expect any radical expenditures change of strategy. a Financial statement data are based on IFRS.

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-50% -25% 0 25% 50% Updated June 27, 2017 SELL ARTIS REIT Prior Close $13.31 Intrinsic Value $9.00 TSX-AX.UN Current Yield 8.1%

AGED OFFICE EXPOSURE DRIVES UNSUSTAINABLE PAYOUTS In recent years, Artis has pursued U.S. property acquisitions and development in an effort to diversify its holdings, while rationalizing its Canadian properties and working to improve its balance sheet. In our view, however, the overall positioning of Artis portfolio remains challenging, given relatively high exposure to older office properties that feature topline pressures and with lower occupancy rates. In addition, another consequence of having older buildings is that tenants generally demand more concessions for moving in. We doubt that Artis can change this positioning much in the short term. After our adjustments for actual maintenance capex and leasing costs, we estimate that Artis’ F16 AFFO payout ratio was a whopping 141%.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 Our estimate of F17 AFFO is $0.63 per unit. For the following three years, we estimate a negative 6% growth rate, leading to an estimate We remain concerned with Artis’ disclosure of its AFFO metric. Artis discloses capital expenditure and leasing reserves that are of $0.49 of AFFO per unit by 2020. We then apply a terminal multiple far below the amounts actually incurred. This has the effect of of 19.6x to the REIT’s 2020 AFFO earnings. Discounting the REIT’s AFFO overstating AFFO, in our view. by its cost of equity brings our intrinsic value to $9.00 per unit.

Adjusted Cash Flows 1/5

Artis had a cash payout ratio of 141% in 2016. Now that the REIT has suspended its DRIP, we expect its cash payout ratios to Period Ending F15 F16 Q1-F17 tighten. Of our universe of fifteen REITs, Artis remains the most C$ Millions (except as noted) likely REIT to have its distribution cut, in our view.

Unit price $12.80 $12.70 $13.23 The Balance Sheet 2/5

Artis remains highly leveraged, at 48.8% of gross book value. Its Units outstanding 139 150 151 interest coverage ratio is also quite high, beyond 3x EBITDA. With 25% of maturities due in 2017, we remain concerned that the REIT will have to sell assets to pay back some of its debt. Market capitalization $1,777 $1,905 $1,992

Business Operations 2/5 Enterprise value (EV) $4,545 $4,591 $4,560 In general, we find that the age of properties has a strong negative correlation with occupancy rates, especially in the hyper- Reported Debt to Gross Book competitive Alberta office market. Tenants are shying away 51.4% 49.8% 48.8% from older buildings, which Artis appears to have in far greater Value proportion relative to other competitors. Revenue $365 $390 $140 Corporate Governance 2/5

Goals for executive compensation are not based on quantifia- Veritas Adjusted AFFO $141 $108 $35 ble metrics. One of the board members is a retired partner of Artis’ current law firm. Another board member has a beneficial Veritas Adjusted AFFO Payout ownership in a firm that has business dealings with Artis. 118% 174% 129% Ratio (includes DRIP)

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HOWARD LEUNG [email protected] 416-866-8783 Updated April 27, 2017 BUY ATCO LTD. Current Price C$50.44 Intrinsic Value C$52.00 TSX-ACO.X Current Yield 2.6%

THE DISAPPEARING DISCOUNT ACO.X increased its payout ratio by 82% between F11 and F16, compared to a 35% payout ratio increase at its principal subsidiary, CU. Had ACO.X and CU raised payout ratios at a similar clip, ACO.X’s dividend growth profile would be lower than CU’s over the past five years. While boosting payout ratios is unsustainable, it has underpinned a marked reduction of the holding company discount we historically noted at ACO.X.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3.5/5 We employ a net asset value approach, using a 10% holding company discount, to arrive at our $52.00 per share Better disclosure of financial results in its Energy seg- value estimate. ment and a more detailed look at expenditures enhances the relative transparency of ACO.X’s finan- Period Ending cial results compared to its Canadian peers. Q1-F16 F16 F15 (Amounts in C$)

Adjusted Cash Flows 3/5 Price (ACO.X) $51.71 $44.66 $35.50

Base FFO of approximately $700 to $750 million per year is expected, with growth prospects primarily Shares (millions) 114.7 114.7 115.0 tied to a core rate base growth rate of 5% (excluding Fort McMurray Tx). Market capitalization (millions) $5,931 $5,120 $4,104

The Balance Sheet 4/5 Net debt (millions) $15,818 $16,136 $13,552

Measured use of leverage and healthy discretionary cash flow suggests no equity issuances are need to Enterprise value (millions) $21,601 $21,393 $17,656 fund ACO.X’s $5.3 billion capital spending plan.

Business Operations 3/5 Adjusted EBITDA (TTM, millions) $1,936 $1,858 $2,040

Divesting natural gas extraction assets accelerated Adjusted EPS (TTM) $3.10 $3.13 $2.55 the de-risking process occurring at CU and ACO.X as the proportion of regulated assets grows. EV/EBITDA (TTM) 11.2x 11.5x 8.7x Corporate Governance 3.5/5

ACO.X increased its payout ratio by 82% between P/E (TTM) 16.7x 14.3x 13.9x F11 and F16, which is a likely driver behind a shrinking holding company discount on CU holdings (CU increased its ratio by 35% over the same period.) Net debt-to-EBITDA 8.2x 8.7x 6.6x

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated May 12, 2017 SELL

BADGER DAYLIGHTING Current Price $26.33 Intrinsic Value $20.50 TSX-BAD Current Yield 1.3%

BRINGING DAYLIGHT TO BADGER Between F11 and F14, Badger Daylighting (‘BAD’) established a record of highly profitable growth, but since F14 the company’s topline has stagnated as its petroleum-industry revenues dropped off, following the global decline in oil prices. The recent slowdown has not scaled back management’s ambitions, however, as the company anticipates that its U.S. revenues will double over the next five years, while its Canadian segment grows at 10% to 15% p.a. Nonetheless, we see a number of headwinds facing BAD including: 1) increased competition; 2) low truck utilization and falling RPT; 3) looming requirement to invest in trucks; 4) potential margin erosion; and 5) accounting concerns and low cash conversion rates. We initiate coverage on BAD with a SELL recommendation and an intrinsic value of $20.50. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 Our $20.50 per share intrinsic value is based on a DCF model, which reflects: 1) petroleum growth at 3% CAGR, with non- We believe BAD’s maintenance capex has been understat- petroleum revenues plodding higher at 12% CAGR; 2) gradual ed materially. BAD’s actual truck retirements do not match decline in Adjusted EBITDA margin from 26% in F16 to 22% in F21; 3) management’s own assessment of hydrovacs’ economic a discount rate of 9.0%; and 4) a 2.0% long-term growth rate. life (10 years) or those of industry experts (~11 years). In addition, BAD’s revenue per truck (RPT) would have been 11%- 31% lower in F10-F16, had the company accounted for fran- Period Ending F15 LTM Q1-17 chisee revenue on a net basis. Approx. 40% of Badger’s C$ Millions (except as noted) Adjusted EBITDA converts into normalized/sustainable FCF. Cash Flow Sustainability 2/5 Share price $24.42 $26.33 We expect ~$330 million of total capex over next five years on the back of increased investments in replacement and growth trucks, which will be a major drag on future cash flows Shares outstanding (thousands) 37,101 37,101 Balance Sheet 4/5

BAD is relatively unlevered, with a net debt/NTM EBITDA of 0.36x. Market capitalization $906 $977

Business Operations 0/5

Based on discussions with BAD’s management and industry Enterprise value (EV) $1,000 $1,018 participants, we note that competition for hydrovac services from both small and sizable operators has increased. Industry-wide, there has been an oversupply of trucks in the Revenue $405 $418 market since 2014, with hydrovacs available from at least 20 manufacturers in North America, as well as on an ad hoc basis from rental companies. Meanwhile, many end customers are purchasing their own trucks. Consequently, we Reported Adj EBITDA $108 $105 believe that the advantages conveyed by BAD’s national presence, in-house manufacturing, and large fleet have diminished. Reported revenue growth (4%) 3% Corporate Governance 2/5 Management’s compensation is linked to EBITDA and RPT, whereas we would like to see more focus on free cash flow. Est. EV-to-EBITDA (NTM) 9.1x 8.8x

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DIMIRTY KHMELNITSKY [email protected] 416-866-8783 June 22, 2017 SELL BANK OF MONTREAL Current Price C$92.48/US$69.46 Intrinsic Value C$90.00 TSX-BMO; NYSE-BMO Current Yield 3.9%

WEAK RESULTS IN KEY BUSINESSES CONCERNING BMO kicked off Q2 earnings season with very mixed results. Most concerning in our view was the bank’s lackluster performance in its U.S. P&C Banking segment; a business which has performed well following last year’s acquisition of Transportation Finance and which we believe is key to BMO’s long term earnings growth. Also concerning was a challenging quarter in the Canadian P&C Banking business where elevated expenses led to negative operating leverage for the first time in almost two years.

QUALITY RATING INTRINSIC VALUE Accounting & Disclosure 4/5 Our intrinsic value estimate of $90.00 is calculated by applying a multiple of 11.5x on our F2018 EPS estimate of $8.16 and a multiple The noise emanating from the bank’s credit recoveries of 1.35x on our BV per share estimate of $64.15 at the end of F2017, related to the Marshall & Ilsley acquisition in 2011 has and taking the average of the two. diminished. FY end Oct. 31 Capital 4/5 C$ F14 F15 F16

Common equity tier 1 ratio The CET 1 ratio, which ended the quarter at 11.3%, was up 10.1% 10.7% 10.1% marginally from 11.1% in Q1. (BIII)

Closing Share Price $81.73 $76.04 $85.36 Credit 4/5

BMO’s loan loss provisions, which totaled $259mm in Q2 (a EPS (adjusted) $6.25 $6.82 $7.52 loss ratio of 28 bps) were up relative to both last quarter’s $173mm (a loss ratio of 19 bps) and the $201mm reported in P/E 13.1x 11.1x 11.4x the prior year period (a loss ratio of 23 bps). Driving the increase was the U.S. commercial portfolio, which saw credit BV/share $48.18 $56.31 $59.56 deterioration in several sectors, and Capital Markets, which reported PCL’s of $46mm after recording a $4mm recovery last quarter. Losses in Canadian P&C Banking on the other P/BV 1.7x 1.4x 1.4x hand were not materially higher in Q2. Dividend yield 3.8% 4.3% 4.0% Business Operations 4/5 Market capitalization (millions) 53,047 48,862 55,122 Results were very mixed among BMO’s business lines. P&C Banking was weak YoY on both sides of the border, ROE (adjusted) 14.4% 13.3% 13.1% particularly in the U.S. (down 10%), with growth in Canada a very minimal 1%. In Canada, results were impacted largely by elevated operating expense growth of 5%, which more than Net interest margin (AEA) 1.57% 1.51% 1.59% offset revenue growth of 3% and led to negative operating leverage of 1.6%. And in the U.S., operating leverage in the # shares outstanding (millions) 649 643 646 quarter was positive at 0.8% as a 2% decline in expenses offset a modest revenue decline. Earnings in Capital Markets improved by a solid 11% from last year, but were down 14% sequentially from a very strong Q1, while Wealth earnings BUSINESS COMPOSITION were up materially versus a very weak quarter last year. BMO’s retail/wholesale earnings mix is approximately 75%/25%. Canadian P&C banking accounts for approximately 40% of Corporate Governance 4/5 earnings, excluding the corporate segment, while U.S. P&C banking accounts for approximately 20% of earnings. No items noted.

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-50% -25% 0 25% 50% Updated June 22, 2017 SELL BANK OF NOVA SCOTIA Current Price C$78.99/US$56.73 Intrinsic Value C$73.00 TSX-BNS; NYSE-BNS Current Yield 3.8%

GROWTH IN CANADA SET TO MODERATE BNS posted strong overall results in Q2 that were ahead of our expectations, with particularly robust earnings growth reported in the bank’s International business, which saw material margin expansion. The Capital Markets business also delivered strong results, while credit did not show any meaningful deterioration. The one blight in our view, in what was otherwise a very good quarter, was relatively lackluster growth in the Canadian Banking segment (excl. Wealth), which underperformed all but one of the bank’s Big Five peers in Q2.

QUALITY RATING INTRINSIC VALUE

Our intrinsic value estimate of $73.00 is calculated by applying a Accounting & Disclosure 3.5/5 multiple of 11.8x to our F2018 EPS estimate of $6.69 and a multiple of 1.4x to our BV per share estimate of $47.63 at the end of F2017, BNS recently started providing better disclosure on its and taking the average of the two. International Banking segment, showing results by region (Latin America, Caribbean & Central America, and Asia). P&L data FY end Oct. 31 are provided on a constant currency basis, allowing for analysis F14 F15 F16 C$ of the underlying business without the impact of FX.

Common equity tier 1 ratio (BIII) 10.8% 10.3% 11.0% Capital 4/5

BNS continues to report a strong capital position, ending Q2 Closing share price $69.02 $61.49 $72.08 with a CET 1 capital ratio of 11.3%. Management noted that more aggressive capital deployment is being considered, with EPS (adjusted, TTM) $5.48 $5.72 $5.96 the most likely avenue related to growing in the bank’s targeted markets within its International business. However, it was also noted that any acquisition opportunities will be P/E (TTM) 12.6x 10.8x 12.1x carefully vetted for strategic fit. BV/share $36.96 $40.80 $43.59 Credit 4/5 P/BV 1.9x 1.5x 1.7x Credit was certainly not an issue in the quarter, although loan losses did increase from $202mm last year to $236mm this Dividend yield 3.7% 4.4% 4.1% quarter due to both loan growth and the bank’s shift into higher-spread lending. Market capitalization (millions) 83,969 73,969 87,065

Business Operations 4/5 ROE (adjusted) 15.6% 14.9% 14.5%

Among the segments, Canadian Banking (excl. Wealth) saw Core Margin (AEA) 2.39% 2.39% 2.38% modest growth of 3% YoY after adjusting for the aforementioned real estate-related gains. That underperformed most Canadian peers in Q2. Earnings growth was much # shares outstanding (millions) 1,217 1,203 1,208 stronger for both Global Wealth Management and International Banking, each of which reported robust YoY growth of 19%. Capital Markets earnings increased by a material 60% from a BUSINESS COMPOSITION relatively weak comparable period last year on the back of another strong quarter for trading revenue. Excluding the “Other” segment, BNS’ retail/wholesale earnings mix is approximately 75%/25%. International Banking accounts for ~30% of earnings and has exposures to the Caribbean and Central America, Corporate Governance 4/5 Mexico, Chile, Peru, Colombia, other parts of Latin America, and parts of Asia. Canadian Banking (excl. Wealth) accounts for approximately No items noted. 35% of earnings.

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-50% -25% 0 25% 50% Updated May 9, 2017 BUY BAYTEX ENERGY CORP. Current Price C$4.48 / US$3.27 Intrinsic Value C$10.50 TSX-BTE; NYSE-BTE Current Yield 0%

EAGLE FORD SALE POTENTIALLY ADDS 30% UPSIDE Baytex’ debt load continues to weigh heavily on its valuation, with leverage at 6.2x our projected 2017 funds flow (US$51 WTI). A potential Eagle Ford sale (at $50,000 per flowing barrel) could erase all of Baytex’ $1.8 billion debt and add 30%+ upside. Eagle Ford remains Baytex’ only attractive play at US$50 WTI, and a sale leaves Baytex with only Canadian heavy oil assets. Renegotiated bank covenants and long dated debt (credit facility matures 2019 & next debt maturity is 2021) give management time to find the right sale. BUY

QUALITY RATING INTRINSIC VALUE WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 2/5 Commodity Case 2017 / 2020 2017 / 2020 2017 / 2020 Value In 2016, Baytex recorded an impairment charge of $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 8.00 $432 million, including $230 million in Peace River and $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 10.50 $167 million in U.S. E&E assets. This write-down is the $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 15.00 result of a change in future pricing assumptions and shrinking 2P reserves as the result of a lack of drilling. Our base case values Baytex at $10.50 per share, reflecting a return to US$67 oil and US$3.75 gas through 2020. Adjusted Cash Flows 2.5/5 Company Profile 2017 2016 2015

We expect Baytex to generate funds from opera- Price 4.54 6.56 4.48 tions of ~$1.40 per share in 2017 at US$54 WTI oil and US$3.30 NYMEX gas, rising to ~$1.60 per share in 2018 Shares (millions incl. exch.) 234.0 233.4 210.6 at US$60 oil and US$3.00 gas. Market cap. ($ millions) 1,062 1,531 943

The Balance Sheet 2.5/5 Revenue ($ millions) 203 602 888 CFPS 0.34 1.06 2.61 Baytex will remain onside its relaxed debt covenants next year. The Senior Debt covenant was amended Price to YTD CFPS 3.3x 6.2x 1.7x to 5.0x for 2016 as of December 2015 and stood at ROE (annualized) 2.0% (21.6%) (61.3%) 0.7x for the 12 month ending March 2017. Dividends per share 0.00 0.00 0.73 Business Operations 3/5 Production (boe/d) 69,298 69,509 84,648 Baytex had a lot of issues during the downturn forc- CFO* per boe 12.77 9.75 17.78 ing it to reduce spending on its most productive, Ea- Net debt to EV 63% 51% 66% gle Ford assets. Times are changing and spending is back across the companies light oil plays. In addition Net debt to CFO* 5.6x 6.3x 3.4x management recently communicated its intension Cash Flow and Dividends 2017 2016 2015 to return to drilling at its Canadian heavy oil assets. Reported CFO* 80.7 247.4 549.4 Corporate Governance 2/5 Capital expenditures (92.8) (224.8) (439.5) Available cash (shortfall) (12.0) 22.6 110.0 In December 2016 Baytex announced that Ed La- Dividends declared Fehr, President will succeed CEO James Bowzer in 0.0 0.0 154.0 May 2017. Mr Bowzer was known for an ill-timed deci- % of CFO* 0% 0% 28% sion to acquire Eagle Ford acreage in mid-2014. The % of available cash 0% 0% 140% internal promotion means we don’t expect much to * CFO is cash from operations after working capital, cash interest and asset retirement expenditures. change.

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-50% -25% 0 25% 50% Updated May 18, 2017 SELL BCE INC. Current Price C$60.28 / US$44.28 Intrinsic Value C$60.00 TSX-BCE; NYSE-BCE Current Yield 4.8%

MORE FIBRE NEEDED TO IMPROVE WIRELINE HEALTH

BCE closed the MTS acquisition with updates to EBITDA and FCF guidance that were in line with our expectations. Revised synergy estimates of $100m will be heavily relied upon to support the wireline segment, which is under pressure from Rogers’ ubiquitous Gigabit Internet offering. Post MTS acquisition closing, we estimate BCE trades at 8.3x F18E EBITDA, a slight premium to Rogers at 8.2x and Telus’ 7.8x. Until the Company improves its wireline operations, we don’t see a reason for multiple expansion relative to peers. We see more upside with our Top Buys (QBR.B, CCA, SJR.B, T), and are downgrading BCE to a SELL with an intrinsic value estimate of $60.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3.5/5 We are maintaining our SELL rating and $60 intrinsic value estimate.

Both the accounting policies and the supplementary disclo- YTD Mar 31, 2017 sures are reasonable. F15 F16 F17 C$ Millions Adjusted Cash Flows 4/5 Revenue (TTM) 21,183 21,544 21,500 Following the close of the MTS acquisition, we estimated the FCFE accretion per share to be less than 1%. Therefore, we EPS (TTM) $2.82 $3.17 $3.29 do not expect BCE to announce a dividend increase.

EBITDA (TTM) 8,375 8,620 8,839 The Balance Sheet 4/5 Price (reporting date) $53.19 $58.83 $62.70

F17 net debt to EBITDA of 2.9x is above the company’s 1.75x-2.25x target and excess free cash flow will be dedi- EV/EBITDA (TTM) 8.2x 8.7x 9.3x cated to reducing debt.

P/E (TTM) 18.9x 18.6x 19.1x Business Operations 3/5 FCFE yield (TTM) 6.1% 6.2% 6.0% BCE’s wireless ARPU increased 4.2% YOY along with 36k net adds. Wireline results lagged with EBITDA growth weakly 4.9% 4.6% 4.4% positive at 0.1%. Though Internet and IPTV provided net Dividend yield adds of 14.9k and 22.4k, both saw a drop in YoY growth of –24% and –53%, respectively. Greater fibre expansion will be Market capitalization 44,781 51,123 54,906 needed to breathe new life into the wireline segment.

Corporate Governance 4/5 Enterprise value 68,984 75,057 82,463

Good. Net debt: TTM reported EBITDA 2.9x 2.8x 3.1x

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DESMOND LAU [email protected] 416-866-8783 Updated June 29, 2017 BUY BLACKBERRY LIMITED Current Price C$13.35/ US$10.23 Intrinsic Value US$11.50 TSX-BB; NASDAQ-BBRY

BEHIND GAAP AND NON-GAAP REVENUE DIVERGENCE Following BlackBerry’s decision to stop manufacturing hardware, investor eyes have all been on software revenues, looking for market scale and sustained growth. In this light, Q1-F18 was particularly puzzling given that non-GAAP Enterprise Software revenue declined 4.7% but GAAP Enterprise Software rose by 12.2%. Although neither the financials nor our discussions with management provided definitive answers over GAAP/non-GAAP revenue, we believe understanding the limits of Blackberry’s GAAP and non-GAAP revenue disclosures will be key to tracking the company’s performance going forward. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 We are maintaining our BUY recommendation with a revised $11.50 intrinsic value estimate. GAAP and non-GAAP Revenue growth is clouded by the impact of deferred revenue originating from the Good Acquisition and the associated impact of cus- Year-ended May 31, 2017 F16 F17 F18 tomer conversions from perpetual to recurring ar- US$ Millions rangements.

Adjusted Cash Flows 2/5 Revenue 3,027 1,902 1,144 Following the favourable Qualcomm arbitration decision BlackBerry generated positive FCF of $860m -$0.10 -$1.28 $1.23 however, without the one-time bump, FCF would Diluted EPS have been ($91m).

The Balance Sheet 3/5 Share Price (reporting date) $8.81 $7.00 $10.23

BlackBerry continues to improve its balance sheet health, with the Qualcomm arbitration decision P/BV 1.3x 1.4x 2.0x providing a boost to net cash which now sits at $1.4b. Market Capitalization 4,669 3,675 5,437 Business Operations 2/5

Management now expects software growth of 10%- Net cash 2,066 1,282 1,696 15% for F18 which, based on the most recent quarter’s results appears achievable. Enterprise Value 2,603 2,393 4,035

Corporate Governance 3/5 Shares O/S (M) 530 525 531.5 CEO John Chen appears to be hiring the right peo- ple with the right experience to return BlackBerry to its enterprise roots. Net Income 68 -670 671

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DESMOND LAU [email protected] 416-866-8783 Updated June 27, 2017 SELL BOARDWALK REIT Prior Close $49.32 Intrinsic Value $39.00 TSX-BEI.UN Current Yield 4.6%

ALBERTA HOUSING FAIL S TO PASS ‘GO’ Boardwalk is Canada’s second largest multi-family residential REIT by suite count, with over 33,773 suites owned. The REIT is geographically concentrated in Alberta, which generates approximately two-thirds of its NOI. While we consider Boardwalk to be conservatively financed, we expect continued topline pressures as weak economic conditions in Alberta keep a lid on rent increases and occupancy rates trend lower. In our view, the REIT’s high-rent, high-expense approach may suffer in the current environment which continues to see significant condo and new rental completions coming to market.

QUALITY RATING INTRINSIC VALUE

Our estimate of F17 AFFO is $2.04 per unit. For the following three Accounting & Disclosure 2/5 years, we estimate a negative 1.4% annual growth rate, leading to an estimate of $1.95 of AFFO per unit by 2020. We then apply a terminal multiple of 21.3x to the REIT’s 2020 AFFO earnings. Dis- Boardwalk uses a reserve to account for its maintenance counting the REIT’s AFFO by its cost of equity of 6.9% brings our capex in the calculation of AFFO, which in our view, under- intrinsic value to $39 per unit. states maintenance requirements.

Adjusted Cash Flows 1/5

Period Ending F15 F16 Q1 F17 Adjusting AFFO for actual capex, Boardwalk’s payout ratios C$ Millions (except as noted) are near or over 100%. In Q1-F17, because of extremely poor results, we estimate that Boardwalk’s payout ratio was 253%. $47.45 $48.65 $47.17 The Balance Sheet 4/5 Unit price

51,322 50,739 50,759 Boardwalk’s capital management is generally safe because Units outstanding of its low leverage ratio and its non-acquisitive operating strategy. Market capitalization $2,435 $2,468 $2,394 Business Operations 2/5

Enterprise value (EV) $4,471 $4,805 $4,739 Boardwalk has significant exposure to Alberta which is experiencing high unemployment levels. This has significantly hampered Boardwalk’s operating performance. For example, its Q1-F17 FFO fell over 33% from the prior year quarter Net Debt to Gross Book Value 39% 42% 42% because of worsening Alberta conditions. Management thinks that Alberta has bottomed out, however. Revenue $476 $439 $105 Corporate Governance 4/5

Executive performance goals are a mix between qualitative Veritas Adjusted AFFO $142 $102 $10 and quantitative targets. Nonetheless, because 2016 was a challenging year, executives were not rewarded through Veritas Adjusted AFFO Payout profit sharing. The CEO also takes no salary or bonus. 110% 111% 253% Ratio (includes DRIP)

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HOWARD LEUNG [email protected] 416-866-8783 Updated May 16, 2017 SELL BOMBARDIER INC. Current Price: C$2.14 Intrinsic Value: C$2.00 TSX-BBD.B Current Yield: N/A

WILL TRUMP ENTER THE FLIGHTPATH? Boeing has petitioned the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) to initiate investigations to determine: 1) if CSeries sales to Delta have violated U.S. anti-dumping rules, and 2) if government cash infusions to Bombardier constitute countervailable subsidies under U.S. law. Investors should note that Boeing is using the same ‘Made in America’ trade mechanism that the U.S. lumber coalition successfully used against the Canadian softwood industry. A DOC investigation would add considerable uncertainty to any CSeries sales campaigns in the U.S., and the prospect of tariffs will change the aircraft’s operating economics. As a result, prospective U.S. buyers are likely to defer their purchase decisions or forgo the CSeries altogether. In our view, Boeing’s trade complaint likely exacerbates the CSeries’ already slow sales momentum, and Bombardier’s outlook remains challenging.

QUALITY RATING INTRINSIC VALUE Accounting & Disclosure 2/5 Our $2.00 per share IV is based on our outlook for the Company’s prospects beyond 2020 (non-CSeries segments) and 2022 We would prefer to see additional detail on cash usage (CSeries only). and profitability of key products (i.e., CSeries, Global 7000).

Adjusted Cash Flows 1/5 TTM USD Millions (except as noted) F15 F16 Management expects negative cash flows until 2018 and Q1-F17 $1+ billion of FCF by 2020. However, the CSeries continues to be weighed down by heavy discounting, business jet Share price (C$) $1.34 $2.16 $2.04 orders appear stalled, and restructuring at the transportation segment signals potential end market weakness. We cannot rule out negative cash flows beyond management’s forecast period. Market capitalization $2,300 $3,600 $3,300 The Balance Sheet 2/5

Bombardier’s deal with CDPQ and the Québec government, as well as its recent debt refinancing, have eased Enterprise value (EV) $8,500 $10,750 $11,100 near-term liquidity concerns. However, the Company remains heavily leveraged and faces $5.2 billion in debt maturities between 2021 and 2023. Should Bombardier fail to execute on management’s turnaround plan, liquidity pres- Revenue $18,200 $16,300 $16,000 sures may resurface. Business Operations 1/5 Reported EBITDA $600 $460 $450 Orders for the CSeries continue to stagnate with the firm order book running out in 2021; the existing business jet franchise is experiencing soft demand; the new Global 7000 currently only has two years of backlog (after six years of Reported free cash flow ($1,800) ($1,100) ($950) marketing; and the transportation segment is undergoing a significant restructuring. Reported adjusted EPS $0.08 ($0.08) ($0.06) Corporate Governance 1/5

Alain Bellemare has done an admirable job in assembling a new executive team; however, in our view, Bombardier’s EV-to-EBITDA 14.1x 23.4x 24.7x history of poor governance outweighs the benefits of re- shuffling to date.

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DAN FONG [email protected] 416-866-8783 Updated May 11, 2017 BUY BONAVISTA ENERGY CORP. Current Price C$3.20 Intrinsic Value $9.00 TSX-BNP Current Yield 1.2%

UNDERAPPRECIATED GROWTH & SUSTAINABILITY Bonavista has reshaped its holdings through acquisitions and divestitures while strategically focusing on its best opportunities (65% of 2017 capex is directed at the Deep Basin) and allowing other volumes to fall off. Bonavista is returning to growth with guidance of 9% increase in production in both 2017 & 2018, and is one of the few producers who can fund a growth capex budget within cash flow, at current strip pricing. BNP trades at 2.5x our 2017 FFO estimates, a doubling of the share price would still leave the company at a discount to peers. BUY.

QUALITY RATING INTRINSIC VALUE WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 2/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value In 2015, Bonavista recorded impairments of $812MM related $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 8.50 to its Central, South Central and Southern Alberta CGUs $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 9.00 driven by a decline in forward commodity price assumptions. BNP recorded no impairments for the year ending $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 10.00 2016. Bonavista continues to move interest paid out of op- Our base case values Bonavista at $9.00 per share, reflecting a return erating cash flows into financing cash flows, which is al- to US$67 oil and US$3.75 gas through 2021. lowed under IFRS, but misleading, in our view. Company Profile 2017 Q1 2016 2015

Adjusted Cash Flows 3/5 Price 3.46 3.86 1.82 Shares (millions incl. exch.) 250.3 253.9 218.6 Bonavista plans to ramp up spending in 2017 to return to production growth with expected higher commodity prices. Market cap. ($ millions) 866 980 398 We see cash flow from ops of $1.15-$1.25 per share and Revenue ($ millions) 233 338 622 capex of $1.10-$1.20 per share based on the midpoint of management guidance. CFPS 0.31 1.03 1.86 The Balance Sheet 3/5 Price to YTD CFPS 2.8x 3.8x 1.0x ROE (annualized) 22.0% -6.2% -38.5% A Debt-to-EBITDA covenant limits Senior Debt to 3.5 times Dividends per share 0.04 0.04 0.35 EBITDA, excluding unrealized gains on financial instruments but including realized hedging. At US$51 WTI (our low case) Production (boe/d) 70,281 68,550 79,288 we forecast Bonavista’s ending Debt/EBITDA at 3.1x well CFO* per boe 11.96 10.42 14.04 under the maximum ratio. Net debt to EV 49% 46% 76% Business Operations 3/5 Net debt to CFO* 2.7x 3.2x 3.1x

A Q4 2016 asset swap increases Bonavista’s exposure to liquids rich gas and increases the total gas weighting to a Cash Flow and Dividends 2017 2016 2015 record 72% of total production. Bonavista remains a highly Reported CFO* 76.7 260.8 406.3 productive operator and we expect it to continue to focus on its highest productivity Glauconite and Deep Basin plays. Capital expenditures (92.3) (153.9) (313.9) In our view, low on-stream costs provide more than enough Available cash (shortfall) (15.6) 106.9 92.4 stability to weather the current downturn. Dividends declared 2.5 13.9 76.8

Corporate Governance 3/5 % of CFO* 3% 5% 19% % of available cash N/A 13% 83% With insider ownership of 10%, management's interests remain well aligned with shareholders. *CFO is cash from operations after working capital, cash interest and asset retirement expenditures

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-50% -25% 0 25% 50% Updated May 5, 2017 BROOKFIELD RENEWABLE ENERGY SELL Current Price $30.44 PARTNERS L.P. Intrinsic Value $25.50 Current Yield 6.1% TSX-BEP.UN; NYSE-BEP STAYING ON THE SIDELINES As evidenced by its lofty valuation, Brookfield Renewable Energy Partners, LP (“BEP”) appeals to long-term, income-focused investors, as its ~90%-weighted hydroelectric portfolio inherently carries less business and refinancing risk than peers. Our near-term concerns surrounding increasing merchant exposure, a history of underperforming long-term average generation (“LTA”) and foreign currency headwinds prompt us to maintain a SELL recommendation and $25.50 per unit value estimate.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 We value BEP at US$25.50 per unit.

BEP’s adjusted FFO per unit is a misleading metric for investors attempting to monitor levered FCF, since it excludes development costs, understates the sponsor’s equity claim and replaces actual sustaining capital expenditures with a smoothed amount. FY end Dec. 31 Q1-F17 F16 F15 US$ Millions Adjusted Cash Flows 2/5

If it achieves LTA, BEP’s normalized FFO per unit would have Capacity (MW) 10,621 10,731 7,284 been $1.83 in F16 — enough to cover the new $1.87 distribution per unit. Longer-term, assuming the status quo on FX and power prices, achieving a 5-9% annual distribution Electrical output (TTM GWh) 35,526 34,071 23,332 CAGR will be a challenge. Price per unit $29.84 $29.71 $26.18

The Balance Sheet 2/5 Units outstanding 299.2 299.1 275.6

BEP’s balance is highly levered and its equity is richly val- Market capitalization $8,924 $8,885 $7,215 ued. Accordingly, we believe BEP has a greater amount of equity value at risk should interest rates rise compared to names like NPI and CPX. Net debt $16,276 $16,771 $10,152

Enterprise value $25,200 $25,656 $17,367 Business Operations 4/5 Revenue (TTM) $2,455 $2,452 $1,628 Management will need to execute on its development plans to unlock equity value upside from the current unit price. In our view, the market has yet to fully account for a EBITDA (TTM) $1,420 $1,487 $1,177 sustained low power price environment. FFO per unit (TTM) $1.38 $1.45 $1.69

EV/EBITDA (TTM) 17.8x 18.1x 14.8x Corporate Governance 3/5

No significant issues noted. P/FFO (TTM) 21.63x 20.5x 15.5x

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NASIBA AKHMEDOVA [email protected] 416-866-8783 Updated April 1, 2016 SELL CAE INC. Current Price C$15.02 / US$11.58 Intrinsic Value: Under Review TSX-CAE / NYSE-CAE Current Yield 2.0%

LIMITED VIEW TO THE UPSIDE

Although CAE generates solid free cash and is improving its leverage position, we continue to look for material, sustained improvements to the company’s margin and return on capital employed metrics as drivers of upside to CAE’s share price. Since the Oxford acquisition in early F13, however, these metrics have remained largely stagnant. At this time, we fail to see a catalyst for material upside, and given our intrinsic value estimate of $13.00, we recommend investors sell CAE.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 UNDER REVIEW.

Over time, CAE has reduced the extent of certain key disclosures, hampering the ability of investors to analyze the performance of the underlying Civil and Defence businesses.

Year ended March 31 Adjusted Cash Flows 3/5 F13 F14 F15 C$ Millions (except as noted) CAE generates solid free cash flow. We have questions over the breakdown between growth and maintenance capex in the company’s reported free Share price (C$) $9.93 $14.55 $14.78 cash flow metric.

Shares outstanding (millions) 260.0 263.8 266.9 The Balance Sheet 3/5

CAE has reduced its net debt position over each of Market capitalization $2,582 $3,838 $3,945 the last several quarters and is in compliance with all financial covenants. Enterprise value $3,427 $4,735 $4,402 Business Operations 3/5 EV-to-EBITDA 9.1x 10.4x 9.5x CAE is a market leader or key player in its main lines of business. However, we believe increasing competition and macros concerns will leave CAE’s margins Revenue $2,035 $2,078 $2,246 and returns on capital with little to no room for expansion. Operating Income $234 $289 $333 Corporate Governance 2/5

Over the last three years, metrics for determining Adjusted EPS $0.53 $0.72 $0.76 short-term incentives for executives have changed multiple times. Target thresholds have been reduced and criteria have been altered. Reported ROCE 10.2% 11.4% 10.4%

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SAM LA BELL [email protected] 416-866-8783

29 Updated May 11, 2017

CALLIDUS CAPITAL CORP. Current Price C$15.69 TSX-CBL Market Capitalization (million) $805

GRAVITY Concerns related to the credit quality of Callidus’ loan book and uncertainty regarding the Catalyst loan loss guarantee combine to create uncertainty for investors attempting to value Callidus. A single large borrower impairment could significantly impact earnings and book value.

Risk Areas  Earnings quality — Due to the priority of payments structure related to interest income and the subjectivity related to potential loan impairments, we believe there is an increased risk to economic earnings.

 Disclosure — Limitations in disclosure related to loan valuation and the loan loss guarantee present a risk to investors analyzing potential credit risk.

Updates Since Last Report  No updates. Updated April 18, 2017

CAMECO CORP. Current Price C$14.81/US$11.14 TSX-CCO; NYSE-CCJ Market Capitalization (million) C$5,770/US$4,330

TAX MAN KNOCKING HARDER The Canada Revenue Agency (CRA) is pursuing Cameco for its use of an offshore tax haven, exposing the company to approximately $2 billion in back taxes, transfer pricing and interest and installment penalties through the 2016 tax year. In addition, the US Internal Revenue Service (IRS) has reassessed CCO for approx. US$130 million for 2009-2012 tax years. Our analysis of the Canadian tax code, court documents, and legal precedents suggests that the CRA’s case has a high likelihood of prevailing in court. Should the CRA prevail, Cameco’s tax rate could rise to the full Canadian statutory tax rate of 26% in the future. The CRA is disputing both the structure and the transfer price established by Cameco. Consequently, the CRA needs to win on only one claim to prevail, while Cameco needs to win on both to defend itself successfully.

R I S K A R E A S

 Tax — Based on our analysis, there seems to be little business substance to CCO’s off-shore marketing structure given that all the key functions and risks are borne by the Canadian entity, while most profits accumulate off-shore. In addition, while Cameco’s transfer pricing methodology requires a very high degree of comparability to market transactions, there seems to be significant differences between CCO’s intercompany arrangement and market transactions. We also note that the CRA’s position seems consistent with past legal precedents. Furthermore, the recent reassessment by the US Internal Revenue Service has further bolstered the case against CCO.

 Earnings Quality — Despite the extremely material exposure, CCO has recorded a cumulative charge of only $58M as of the end of 2016: “where an argument could be made that, based on our methodology, our transfer price may have fallen outside of an appropriate range of pricing in uranium contracts for the period from 2003 through 2016”.

 Cash Flow Sustainability — CCO expects that the tax court trial will stretch until H2-2017, with a decision expected six to eighteen months thereafter. Thus, we may not get a decision until 2018. Meanwhile, CCO will be required to make installment payments to the CRA, equaling 50% of the reassessed back taxes and penalties. Thus far the company has remitted/secured through letters of credit $684 million worth of back taxes and interest and transfer pricing penalties. In 2017-2018, CCO expects to make additional cash payments/provide letters of credit for approx. $100 million All else equal, CCO’s cash tax rate will rise materially post 2017 regardless of the court case outcome, given the reset of the existing intercompany contracts between the Canadian parent and Cameco’s Swiss subsidiary.

U PDATES SINCE LAST REPORT

 None. The issue is expected to be resolved sometime in 2018.

DIMITRY KHMELNITSKY [email protected] 416-866-8783 Updated June 6, 2017 SELL CANADA GOOSE HOLDINGS INC. Current Price C$30.36 Intrinsic Value C$22.00 TSX, NYSE-GOOS Current Yield: N/A

NEXT SEVERAL YEARS OF GROWTH PRICED IN On May 24, we conducted a price check of light weight down jackets on both Canada Goose and Moncler’s websites in Canada, U.S, and Europe. We noticed Canada Goose used a different pricing strategy for light weight jackets compared to winter down jackets in Europe, and the strategy had contributed to strong spring sales in Q4-F2017. As we have indicated in our initiating coverage report dated March 27, 2017, we are concerned about Canada Goose’s pricing strategy for winter down jackets in Europe and we believe it will be difficult for Canada Goose to compete with Moncler outside of North America.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 1/5 We estimate Canada Goose is worth C$22.00 using a DCF model assuming 4% terminal growth rate and a 8.5% discount rate. If we assume GOOS can Canada Goose’ previous private company status and cur- more than doubled its sales by 2022 to $1,195 million from $404 million in rent emerging growth company status gives Goose certain exemptions such as no requirement of auditor attestation 2016, earn a 24.15% EBITDA margin and trade at Moncler’s 13x EBITDA over internal controls and reduced executive compensa- multiple, we estimate Canada Goose would with an implied present value tions disclosure. Goose has identified material weaknesses in of ~$22.00 per share. internal controls over financial reporting which they intend to remediate. Compared to Moncler, Canada Goose (C$ Millions, except as noted) F2017 F2018E F2019E should provide retail metrics such as same store sales growth and selling square footage.

Adjusted Cash Flows 3/5 E-Commerce Sites 4 9 12

We expect Canada Goose to generate free cash flow at a Retail Stores CAGR of 29% in the next five years. This should support debt 2 5 8 reduction and internally financing growth capex. Wholesale Mix 72% 66% 60% The Balance Sheet 4/5 Following the IPO, Canada Goose has a Net Debt to EBITDA Retail Mix 29% 34% 40% of 1.5x. FCF generation should allow to deleverage from 1.5x in 2016 (F2017) to 0.3x by 2019 (F2020). Sales $404 $474 $566 Business Operations 3/5 GPM 53.00% 54.79% 56.78% Goose expanded into the retail channel and increased its retail sales mix from 3.7% in 2014 to 23.3% in 2016, and its EBITDA $75.2 $91.4 $115.0 GPM improved from 40.92% in 2014 to 51.68% in 2016. Going forward, we believe it will be more difficult for Goose to repli- cate the success of Moncler given the slower growth in the EBITDA Margin 18.63% 19.30% 20.33$ market and Goose unique pricing that put its merchandise in direct competition with Moncler in U.S. and Europe. Average Stock Price $20.95 $30.36 $30.33

Corporate Governance 2/5 Market Cap $2,264 $3,339 $3,339

The CEO and Bain Capital have three seats on the Board. Enterprise Value $2,407 $3,471 $3,471 Out of the five directors, there are only two independent directors. Canada Goose’s BOD is stacked with its owners. EV/EBITDA 32x 38x 30x Bain Capital owns 68% voting power and DTR LLC (an indi- rect entity controlled by the CEO) owns 29% of voting power, while the public has ~2% of voting power. S/O (mlns.) 109.3 110 110

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KATHLEEN WONG [email protected] 416-866-8783 Updated June 22, 2017 BUY CANADIAN IMPERIAL BANK OF COMMERCE Current Price C$105.44/US$79.23 Intrinsic Value C$121.00 TSX-CM; NYSE-CM Current Yield 4.8%

A LACKLUSTER Q2 RESULT While CM comfortably beat our earnings estimate in Q2, we view the results as lower quality than what the bank has reported in recent quarters. Much of CM’s growth this quarter was driven by a sizable decline in loan losses, which we believe can quickly revert to more normal levels, while earnings in Retail & Business Banking were up a relatively modest 4% despite outsized double-digit growth in both residential mortgages and business lending. Earnings growth in Capital Markets was aided by lower credit losses as CM underperformed peers on revenue growth.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our intrinsic value estimate for CM is $121.00, which we calculate by applying a multiple of 11.5x to our F2018 EPS estimate of $11.01 Management’s disclosure on the distribution of LTV’s within its and a multiple of 1.7x to our BV per share estimate of $67.93 at uninsured Canadian residential mortgage book helped to the end of F2017, and taking the average of the two. address concerns surrounding CM’s rapid growth in that portfolio. While we are still concerned about a potential FY end Oct. 31 downturn in the Canadian housing market, CM’s current LTV F14 F15 F16 C$ distribution clearly shows a substantial buffer. Capital 4/5 Common equity tier 1 ratio (BIII) 10.3% 10.8% 11.3%

CM’s CET 1 capital ratio strengthened further to 12.2% ahead of Closing share price $102.89 $100.28 $100.50 the closing of the PrivateBancorp transaction, which is expected to occur in June (during Q3-F17). Management EPS (adjusted, TTM) $7.87 $8.89 $10.22 continues to guide to a CET 1 ratio of at least 10.0% following the close of the acquisition, although that appears a bit light in our view (we expect the CET 1 ratio to be closer to the 10.5% P/E (TTM) 11.5x 11.3x 9.8x range). BV/share $44.30 $51.25 $56.59 Credit 4/5 P/BV 2.3x 2.0x 1.8x Loan loss provisions totaled $179mm in the quarter, equating to a loss ratio of 0.22%. That compared favorably to both last Dividend yield 3.8% 4.3% 4.8% quarter’s loss ratio of 26 bps and the 44 bps reported in the prior year, which was driven by losses in the commercial book related to the oil and gas sector (this quarter had a $6mm Market capitalization (millions) $40,850 $39,840 $39,906 recovery in the O&G portfolio). There was little noise in other credit-related indicators. ROE (adjusted) 20.9% 19.9% 19.0%

Business Operations 4/5 Net interest margin (AEA) 2.05% 2.00% 1.88% CM’s businesses reported YoY growth across the board, although results varied. Retail & Business Banking was up a # shares outstanding (millions) 397 397 397 decent 4.0%, although that figure underperformed two of the three other banks that have reported Q2 results. Wealth Management on the other hand reported much stronger BUSINESS COMPOSITION earnings growth of 36%, while Capital Markets saw a 12% jump, largely on the back of much better credit performance. Currently, CM’s adjusted retail/wholesale earnings mix is approximately 75%/25%, excluding the Corporate segment. CM Corporate Governance 4/5 expects the earnings contribution from the U.S. to be north of 10% following the acquisition of PrivateBancorp. No items noted.

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-50% -25% 0 25% 50% Updated June 5, 2017 BUY

CANADIAN NATURAL RESOURCES LTD. Current Price C$38.94 / US$28.85 Intrinsic Value C$59.00 TSX-CNQ; NYSE-CNQ Current Yield 2.9%

CNRL’S BATTLESHIP BU ILT FOR US$50+ WTI

CNRL surpasses the 1 million barrel per day mark with a 60% acquisition of the ‘AOSP’ (255,000 bbl/d SCO project capacity) for ~$9.5 billion. The deal finds a home for its rising free cash flow per share as the result of Horizon phase 3 coming online in Q4-2018 and we see synergies from shared resources with Horizon make the deal highly accretive. While investors are worried about heavy oil at low prices, CNRL’s efficient operations can generate material free cash flow (after dividends) if WTI remains range bound at US$50 to US$55. BUY.

QUALITY RATING INTRINSIC VALUE WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 3/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value CNRL currently has over $7.79 B of project costs at Horizon $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 52.50 and Kirby that are not subject to depletion or depreciation. $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 59.00 So far in 2016, pre-tax interest of $128 MM or $0.11 per share has been capitalized to property plant and equipment $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 71.50 versus $120 MM or $0.11 per share in 2014. Our base case values Canadian Natural at $59.00 per share, reflecting a return to US$67 oil and US$3.75 gas through 2020. Adjusted Cash Flows 3/5 Company Profile 2017 Q1 2016 2015

Even at US$55 WTI in 2017, our base, we expect CNRL’s cash Price 43.54 40.50 30.22 flow of ~$7.9 billion and free cash flow of ~$3.5 billion or ~$3.15 per share. In 2018 FCF climbs to $5.8 billion ($5.20 per Shares (millions incl. exch.) 1,112.9 1,111.0 1,094.7 share) under our base case of US$60 WTI. Market cap. ($ millions) 48,457 44,994 33,081 Revenue ($ millions) 3,642 10,523 12,363 The Balance Sheet 2.5/5 CFPS 1.50 3.11 5.14 Recent acquisition of AOSP was financed with a ~$4 billion Price to YTD CFPS 7.2x 13.0x 5.9x equity raise, $3 billion term loan and $6 billion bridge financ- ROE (annualized) 3.7% (0.8%) (2.3%) ing. With CNRL’s massive free cash flow generation this bridge financing will be paid down quickly, so investors Dividends per share 1.10 1.10 0.92 need not worry about the current debt load if WTI stays Production (000's boe/d) 907 860 790 above US$45. CFO* per boe 20.19 11.00 19.54 Business Operations 3/5 Net debt to EV 25% 27% 34% Net debt to CFO* CNRL’s acquisition of AOSP and ramp up its Phase 3 of Hori- 2.4x 4.9x 3.0x zon, the company will move from being an ~800 thousand barrel of oil equivalent per day (boe/d) producer with an Cash Flow and Dividends 2017 2016 2015 21% oil sands weighting and 68% liquids weighting overall, to a 1.15+ million boe/d producer with a ~35% oil sands Reported CFO* 1,671.0 3,452.0 5,632.0 weighting (72% liquids weighting overall). Capital expenditures (768.0) (4,333.0) (4,704.0)

Corporate Governance 3/5 Available cash (shortfall) 903.0 (881.0) 928.0 Dividends declared 306.0 1,035.0 1,006.0 CNRL got out in front of the public fallout from the Primrose % of CFO* 18% 30% 18% leaks, keeping management's credibility intact. The current downturn presents an even bigger challenge that CNRL’s % of available cash 34% N/A 108% team has done a good job of navigating. *CFO is cash from operations after working capital and asset retirement expenditures

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-50% -25% 0 25% 50% Updated June 27, 2017 SELL CANADIAN REIT (‘CREIT’) Prior Close $47.14 Intrinsic Value $42.00 TSX-REF.UN Current Yield 4.0%

LEASE EXPIRIES AND OFFICE EXPOSURES ADD TO PRESSURE

CREIT is one of Canada’s largest and oldest diversified REITs, with industrial, residential and retail properties spread across Canada. In general, CREIT’s strategies have resulted in relatively high occupancy rates in its Retail, Industrial, and Office segments, however we note that 39% of CREIT’s leasable area is either vacant or expiring over the next three years. We currently view CREIT’s 5.1% F16 AFFO yield as unattractive, given a relatively slow growth profile, recent increases in leverage and the REIT’s ~38% same-asset NOI exposure to Alberta, where we expect rollovers to produce topline pressure.

QUALITY RATING INTRINSIC VALUE

Our estimate of F17 AFFO is $2.54 per unit. For the following three Accounting & Disclosure 5/5 years, we estimate a negative 0.7% annual growth rate, leading to an estimate of $2.48 of AFFO per unit by 2020. We then apply a terminal multiple of 17.7x to the REIT’s 2020 AFFO earnings. Dis- No issues noted. CREIT’s AFFO calculation is among the counting the REIT’s AFFO by its cost of equity of 7.7% brings our cleanest in the sector. intrinsic value to $42 per unit.

Adjusted Cash Flows 3/5

AFFO payouts are always well below 100%. We see some Period Ending F15 F16 Q1 F17 headwinds from Alberta affecting CREIT’s future results; that C$ Millions (except as noted) said, we do not see the current payout as at risk. We nonetheless see negative AFFO growth going forward.

The Balance Sheet 4/5 Unit price $42.06 $46.30 $48.48

CREIT’s leverage tends to be below 40% debt to gross book Units outstanding 73 73 73 value. We don’t see issues in this regard for CREIT.

Business Operations 2/5 Market capitalization $3,063 $3,387 $3,551

CREIT’s operating lease terms are shorter than most competi- Enterprise value (EV) $5,152 $5,566 $5,538 tors in all its subsectors. While shorter lease terms can be ad- vantageous in a tight rental market as leases resign at higher rates, the turnover can deadly in a bear market as tenants Reported Debt to Gross Book 37.7% 38.6% 38.6% use vacancies as leverage to extract incentives or favorable Value rental terms.

Revenue $394 $403 $117 Corporate Governance 5/5

Veritas Adjusted AFFO $176 $185 $53 Performance measures are based on quantifiable metrics and specific qualitative goals. The board is mostly independent. Veritas Adjusted AFFO Payout 74% 72% 63% Ratio (includes DRIP)

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HOWARD LEUNG [email protected] 416-866-8783 Updated May 15, 2017 BUY CANADIAN TIRE CORP. Current Price C$159.35 Intrinsic Value C$170.00 TSX-CTC.a Current Yield 1.4%

POOR WEATHER CAN’T D ENT Q1 RESULTS Despite the abnormal weather patterns that led to soft same store sales growth at Canadian Tire and FGL Sport, Q1-2017 consolidated EBITDA (excluding other income) increased $40 million or 16.3% to $284 million, beating consensus of $264 million. The strong results were due to management’s continued focus on optimizing assortments, improving sales mix and product cost. Management indicated on the conference call that Canadian Tire exited the quarter with clean inventory.

We expect CT REIT to refinance the intercompany debt over time with third parties and this should allow Canadian Tire to use this cash for dividend increases, share buybacks and acquisitions. Canadian Tire will also benefit from the vend-in of retained real estate into CT REIT over time.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We value Canadian Tire using a sum-of-parts approach and increase our intrinsic value to $170.00 (up from $165.00), which con- Canadian Tire presents its financial statements with three reporting sists of: segments - Retail, Financial Services and CT REIT. Although EBITDA for $105.00 for the Retail segment (including CTR, Mark’s, FGL each division within the Retail segment is not available, select key  metrics of each division are disclosed. Sports and petroleum);  $28.00 for the 80% interest in Financial Services segment; and Adjusted Cash Flows 3/5  $37.00 for the 85.1% interest in CT REIT. Between 1999 and 2010, Canadian Tire focused on renewing its store concepts and building a stronger supply chain infrastructure. FY end December 2016 2017E 2018E As a result, Canadian Tire spent 88% of its operating cash flow on (C$ Millions, except as noted) capital expenditures. The efforts have paid off as Canadian Tire generated total free cash flow exceeding $2 billion from 2011 to 2014, more than quadrupling the free cash flow it generated in the Retail 11,453 11,945 12,255 previous 10 years. Canadian Tire achieved most of its five-year financial aspirations by 2014, and we expect the company to achieve its aspirations set out for 2015 to 2017. Consolidated Revenue 12,681 13,205 13,548

The Balance Sheet 3/5 Retail EBITDA 959 972 993

IFRS requires the consolidation of off-balance sheet securitized receivables, leading to an increase in net debt-to-EBITDA from 2.5x to Retail EBITDA Margin 8.24% 8.14% 8.10% 4.0x+. However, if we examine leverage at Retail and Financial Services segments separately, debt levels appear manageable. Financial Services EBITDA 374 395 416 Business Operations 3/5 Consolidated EBITDA 1,562 1,648 1,706 The acquisition of FGL Sports increased Canadian Tire’s retail sales by 20%, making it the biggest sporting goods retailer in Canada, with a 35% market share. The company has a successful integration Consolidated EBITDA Margin 12.32% 12.48% 12.59% track record with FGL Sports and Mark’s. Share Price $135.6 $159.35 $159.35 Corporate Governance 2/5

Canadian Tire is structured to give the Billes founding family and the Market Capitalization 9,593 10,697 10,149 Dealers control through dual-class share structure. Public float is made up of Class A Non-Voting Shares. While common shares make EV 14,340 15,660 15,086 up just 4.7% of total shares outstanding, they represent 100% of the voting rights. The common shares are mainly held by the Billes family (~61% voting interest), C.T.C. Dealer Holdings Limited (~20% voting EV/EBITDA 9.2x 9.5x 8.8x interest) and deferred profit-sharing plan (~12% voting interest). 11 out of 16 (69%) Board of Directors are independent, with three elect- FD Shares Outstanding (mlns.) 70.7 67.1 63.7 ed by Class A shareholders.

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KATHLEEN WONG [email protected] 416-866-8783 Updated April 27, 2017 BUY CANADIAN UTILITIES LTD. Current Price C$38.85 Intrinsic Value C$46.25 TSX-CU Current Yield 3.7%

RATE BASE GROWTH DELIVERS IN-LINE QUARTER CU remains our top pick on account of its discount valuation and impressive organic rate base growth rate of 5% through F20. While lower achieved distribution ROEs in Alberta is a legitimate concern under second-phase PBR, a higher generic ROE, continued rate base growth, the efficiency carryover mechanism and a lower efficiency factor largely offset risk.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3.5/5 We apply a discount, 1.4x multiple to CU’s F17E rate base to arrive at a $46.25 per share equity value estimate. Better disclosure of financial results in its Energy segment and a more detailed look at expenditures enhances the relative transparency of CU’s financial results compared to its Canadian peers. Period Ending Q1-F16 F16 F15 (Amounts in C$)

Adjusted Cash Flows 3/5 Share price $38.96 $36.19 $32.00 Base FFO of approximately $700 to $750 million per year is expected, with growth prospects primarily tied Shares (millions) to the 5% core annual growth rate expected in its 269.4 268.1 266.9 regulated businesses (excluding Fort McMurray Tx.

Market capitalization (millions) $10,496 $9,700 $8,537

The Balance Sheet 4/5 Net debt (millions) $11,030 $11,695 $9,688 Measured use of leverage and healthy discretionary cash flow suggests no equity issuances are need to fund CU’s $5 billion capital spending plan. Enterprise value (millions) $21,525 $21,396 $18,225

Business Operations 3/5 Adjusted EBITDA (TTM, millions) $1,820 $1,716 $1,947 Divesting natural gas extraction assets has accelerated the de-risking process occurring at CU and ACO.X Adjusted EPS (TTM) $2.26 $2.20 $1.81 as the proportion of regulated assets grows.

EV / EBITDA (TTM) 11.8x 12.5x 9.4x Corporate Governance 3.5/5

The merits of a relatively low payout ratio are evi- P/E (TTM) 17.2x 16.5x 17.7x denced during challenging business conditions for a utility with a higher business risk profile. Net debt-to-EBITDA (TTM) 6.1x 6.8x 5.0x

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated June 23, 2017 SELL

Current Price C$27.00 CANADIAN WESTERN BANK Intrinsic Value C$25.00 TSX-CWB Current Yield 3.4%

A MIXED Q2 RESULT While credit losses appear to have peaked for CWB, rapidly decelerating loan growth remains an issue for the bank with weakness evident across various parts of the loan portfolio. With the sequential margin boost likely to fully reverse in Q3 (according to management), and the bank reporting yet another quarter of negative operating leverage in Q2 (the 9th in the last 11 quarters), we expect minimal EPS growth for CWB through F2018 and a subdued ROE of roughly 10%. In light of the recent sell-off in CWB’s share price we see limited downside for the stock from its current level, although an upside scenario, in our view, would require more robust loan growth, better expense control, and clarity on where NIMs will settle. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our intrinsic value of $25.00 is calculated by applying a multiple of 10.0x to our F2018 EPS estimate of $2.49 and a multiple of 1.0x to our Management expects results in F2017 to fall below the bank’s BV per share estimate of $25.00 at the end of F2017, and taking the medium-term targets due to continued pressure on net interest average of the two. margins, elevated loan losses, and rising operating expenses. FY end Oct. 31 F14 F15 F16 C$ Capital 4/5 Common Equity Tier 1 capital CWB’s capital position remains strong with the CET 1 capital 8.0% 8.5% 9.2% ratio ratio ending the quarter at 9.6%. We note that the bank’s transition for to an AIRB methodology is still a long way off Closing Share Price $37.75 $25.13 $25.45 (approximately 3 years). However, upon conversion we expect CWB’s CET 1 ratio to be at the high end among the publicly- traded Canadian banks. EPS (adjusted, TTM) $2.59 $2.63 $2.26

Credit 3/5 P/E (TTM) 14.6x 9.6x 11.3x Loan loss provisions totaled $13.2 million in the quarter, down 12% sequentially and well below last year’s peak level. CWB’s BV/share $19.52 $22.18 $23.58 loss ratio was 25 bps in Q2, towards the low end of management’s guided range of 25 bps to 35 bps for F2017. We expect the bank’s loss ratio to gradually decline from 26 bps in P/BV 1.9x 1.1x 1.1x F2017 to 22 bps in F2018, assuming continued stability in the energy market. Dividend yield 2.1% 3.5% 3.6%

Business Operations 3/5 Market capitalization (millions) 3,034 2,024 2,242 The bank’s net interest margin improved 8 bps sequentially to 2.55% in the quarter. That was certainly a surprise in our view ROE (adjusted) 14.2% 12.7% 9.9% given the recent disruption in the broker deposit channel, which accounts for 34% of CWB’s total deposit base. Management Provision for credit losses (bps) 0.15% 0.17% 0.38% attributed the margin increase partly to a more favorable funding mix (i.e. a higher proportion of lower-cost branch-raised deposits), while margins also benefited from the bank holding Net interest margin (ATA) 2.59% 2.56% 2.43% less liquidity as almost half of the lower-yielding securities # shares outstanding portfolio of $2.1 billion was sold during the quarter. The impact 80,369 80,526 88,103 of that sale added roughly 2 bps to CWB’s NIM in Q2 according (thousands) to management (we agree with the 2 bps based on our own calculations using the bank’s disclosed yield in the securities portfolio for F2016). BUSINESS COMPOSITION Roughly 90% of total revenue is net interest income, while more than Corporate Governance 4/5 80% of the bank’s loan portfolio is business lending. Geographic exposure is concentrated in Western Canada with Alberta and BC No items noted. accounting for ~70% of CWB’s total loans.

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-50% -25% 0 25% 50% Updated May 2, 2017 BUY CAPITAL POWER CORP. Current Price C$24.88 Intrinsic Value C$29.50 TSX-CPX Current Yield 6.3%

BRACED FOR UNCERTAIN TY Recent acquisitions, cost management, and risk management (i.e. hedging exposure to Alberta wholesale power prices) galvanizes CPX’s plan to deliver 7% dividend hikes in F17 and F18. In our view, the market is taking an overly pessimistic view of Alberta electricity market reform, as capacity-based, all-in prices support material value upside.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 Taking the Decatur acquisition into account, our value estimate of CPX increases to $29.50 per share (from $28.50 previously).

CPX’s disclosures are essentially on par with TA, although forecasting the impact of its portfolio optimization group is challenging. Period Ending Q1-F16 F16 F15 (Amounts in C$)

Adjusted Cash Flows 2/5 Share price $26.06 $23.23 $17.77

Using our base case projection of power prices in Alberta, CPX’s EBITDA will decline by $100 million post-PPA expiries in Shares outstanding (millions) 96.2 96.2 96.2 F20. However, given the robust FCF yield currently implied at its share price, the market has already fully-accounted Market capitalization (millions) $2,507 $2,235 $1,709 for the decline The Balance Sheet 2/5 Net debt (millions) $2,245 $2,242 $2,320

CPX’s leverage and debt service ratios remain elevated. Enterprise value (millions) $4,752 $4,477 $4,029 However, compared to TA, CPX’s financial risk profile is low, with an FFO-to-Debt ratio near 20%. Adjusted EBITDA (millions) $543 $520 $482

Business Operations 3/5 Adjusted FCF per share (TTM) $3.09 $3.11 $3.37

Like TA, CPX is facing significant headwinds due to low EV/EBITDA (TTM) 8.8x 8.6x 8.4x power prices and increasing environmental charges. How- ever, CPX is better hedged against market and legislative risk. P/ACFFO (TTM) 8.4x 7.5x 5.3x

Corporate Governance 2.5/5 Average AB power price per MWh $22 $18 $33

Payout ratio (TTM) 50% 50% 41% CPX is taking a measured approach to new gas development in Alberta, awaiting greater clarity on market reform. We think a wait-and-see approach is appropriate, given Net debt-to-EBITDA 4.1x 4.3x 4.8x the capital cost associated with G4 and G5.

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated June 22, 2017 BUY CENOVUS ENERGY INC. Current Price C$9.14/ US$6.87 Intrinsic Value C$21.00 TSX-CVE; NYSE-CVE Current Yield 2.2%

PLAYING THE LONG GAME WITH FCCL CEO departure, elevated debt levels, required asset divestments and share sales by ConocoPhillips are more than enough to explain recent pressure on Cenovus’ share price, however, we think investors have become overly fearful. Cenovus’ structurally low sustaining capital costs (~$7.20 per barrel in 2018 declining to $5 per barrel by 2021) contributes to generating significant free cash flows next year. This is not a company at risk of going under. In 2018 (at US$55 WTI) Cenovus clears $1.44 per share in free cash after sustaining capital, even at a required yield of 8% on this cash, Cenovus would be worth $18.00 per share – potentially a double from today’s share price.

QUALITY RATING INTRINSIC VALUE

WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 2/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value Foster Creek's non-fuel operating costs dropped 24% year $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 14.00 over year in 2015, to $8.51. Some of this decline was due to $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 21.00 capitalizing expenditures for some of the project's infill drilling program, which were previously expensed. This is based $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 33.00 on the judgement that these activities enhanced future Our base case values Cenovus at $21.00 per share, reflecting a return to production capability, thereby qualifying for capitalization. US$67 WTI oil and US$3.75 NYMEX gas through 2021.

Adjusted Cash Flows 3.5/5 Company profile 2017 Q1 2016 2015

We expect Cenovus to generate cash flow of $2.30 to $2.40 Price 15.05 17.78 17.50 per share in 2018 at US$55 WTI. Cash flow can cover a divi- Shares (millions incl. exch.) 833.3 833.3 833.3 dend of $0.20 per share and capex of $1.60-$1.80 per share. Cenovus can use the cash surplus of $0.40 per share Market cap. ($ millions) 12,541 14,816 14,583 to reduce its leveraged balance sheet. Revenue ($ millions) 3,865 12,282 13,064

CFPS 0.39 1.03 1.77 The Balance Sheet 2/5 Price to YTD CFPS 9.6x 17.2x 9.9x FCCL purchase was financed with a transaction Cenovus ROE (annualized) 7.2% (4.4%) 5.2% issued a $3 billion bought deal, issued 218 million shares to Conoco and $7 billion in debt that will be paid down with Dividends per share 0.05 0.20 0.97 ~$4.5 billion in asset sales currently being marketed. Net debt to 2017 funds flow of 3.1x (US$51 WTI) is elevated but Production (000's boe/d) 295 272 280 manageable given the company’s free cash flow. CFO* per boe 12.17 8.69 14.40

Business Operations 2.5/5 Net debt to EV 18% 15% 14%

Given that Cenovus was the operator we don’t expect Net debt to CFO* 2.1x 3.0x 1.6x much to change at FCCL post transaction. Management recently disclosed that it plans to reactivate Christina Lake Cash Flow and Distributions 2017 Q1 2016 2015 phase G in 2017 and an additional phase at Foster Creek in Reported CFO* 328.0 861.0 1,474.0 2018. Capital expenditures (313.0) (1,034.0) (1,714.0) Corporate Governance 3/5 Available cash (shortfall) 15.0 (173.0) (240.0) It remains to be seen whether Cenovus' decision to defer Dividends declared 41.0 166.0 805.0 work and cut all non-essential staff and contractors in 2015 % of CFO* 13% 19% 55% will have a lasting effect on the company's corporate culture. % of available cash 273% N/A N/A

* CFO is cash from operations after working capital and asset retirement expenditures

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-50% -25% 0 25% 50% Updated May 4, 2017 BUY CGI GROUP INC. Prior Close C$65.55 Intrinsic Value C$71.00 TSX-GIB.A, NYSE-GIB Current Yield 0.0%

CGI WALKS THE WALK WITH ITS DIGITAL REVENUES

Management aims on becoming the one-stop shop for their clients in offering a full-service of systems integration and consulting (‘SI&C’), outsourcing, and Intellectual Property (‘IP’) solutions. We see progress on all fronts, especially digital IP revenues, which management continues to pursue from organic and inorganic sources. CGI is not only talking the talk when it comes to digital revenues, but also walking the walk in executing its IP strategy. In light of these promising results that highlight CGI’s growth, we maintain our BUY recommendation and C$71.00 price target.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 CGI has a $21 million backlog, which after deducting operating expenses, required capex, and net debt, is only worth ~$600 million or We have no major concerns with CGI’s accounting; however, ~$2 per share. As a result, rather than looking ‘backwards’ at back- we believe the company’s Adjusted EBIT metric (used for credit log, we recommend looking forward at CGI’s future bookings. Our agreement purposes) can be skewed by changing capitaliza- conservative case assumes CGI grows its bookings and topline reve- tion and depreciation/amortization policies. Recently, CGI’s nues at inflation (2.5% p.a.) while continuing to convert ~12% of its Adj. EBIT margin expansion is driven primarily by a correspond- revenues to free cash flow. Under these assumptions, we estimate ing decrease in amortization expense. CGI is worth ~C$71 per share, including ~$2 per share in backlog, net of debt. Our intrinsic value does not add any value from CGI’s shift Cash Flow Sustainability 4/5 to digital revenues.

CGI generates sustainable cash flows from its pipeline of con- TTM Period Ending F15 F16 Q2-F17 tracts. Working capital draws have been larger than usual (as a C $ Millions (except as noted) % of revenues); however, we expect this to normalize as Logica effects are rolled off. As CGI broadens its proprietary software and solutions business, we expect this “capital-light” business to reduce working capital needs. Share price $48.35 $62.49 $65.55

Balance Sheet 4/5 Shares outstanding; includes 307.3 304.8 296.78 Class B (millions) CGI is relatively unlevered and does not have significant debt maturity payments which require more cash flows than it currently generates. Market capitalization $14,858 $18,866 $19,454

Business Operations 5/5 Enterprise value (EV) $16,681 $20,870 $20,974 CGI has a stable network of enterprise clients which deliver predictable returns. We also believe that digitization of corpora- tions and government institutions is a major trend which CGI Revenue $10,287 $10,683 $10,650 can continue to capture in the near future, especially with its ambitious IP30 growth plan. The company’s proximity-focused operations allow it to avoid the wrath of governments taking Constant Currency Revenue -4.0% 0.2% 3.1% action against globalization. Growth Rate

Corporate Governance 3/5 Adj. EBITDA $1,892 $1,959 $1,958

CGI trades on a dual class structure, and the majority of the company’s votes are in Class B shares which are largely held by Free Cash Flow Margin Excl. 12.0% 11.6% 11.5% the co-founder. Working Cap Changes

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HOWARD LEUNG [email protected] 416-866-8783 Updated July 28, 2016 BUY CHOICE PROPERTIES REIT Current Price C$14.32 Intrinsic Value C$14.70 TSX-CHP.un Current Yield 4.7%

IMPROVING ANCILLARY OCCUPANCY Choice REIT derives 91% of annual base rent from Loblaw, subjecting it to higher economic dependence risk than most retail commercial REITs. However, in our opinion, the diversification risk is mitigated by the underlying financial strength of Loblaw as a retailer in food in the consumer staples sector. Moreover, the weighted average term to maturity on Loblaw leases is 12.3 years, at the longer end of the range of eight to 12 years for peers.

AFFO growth potential is supported by: i) contractual rent escalations of 0.3% a year in 2014-2018, followed by 1.5% a year from 2019 onwards, ii) new and renewed ancillary leases at higher rent rates, and iii) AFFO accretion from the vend-in of Loblaw’s remaining owned real estate as well as the REIT’s own development program. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We value Choice REIT at 16.5x 2017E AFFO multiple to derive a $14.70intrinsic value, which implies a 5.6% cap rate. The level of disclosure in the financial reports is in line with the reporting of the other publicly traded REITs in Canada.

Adjusted Cash Flows 3/5 FY end December 2015 2016E 2017E Although there is debt refinancing risk in light of a rising interest (C$ Millions, except as noted) rate environment, we expect the negative impact of debt refinancing will be mitigated by: i) contractual rent escalations of Square Footage (millions) 41.6 42.9 44.0 0.3% per year between 2014 and 2018 followed by 1.5% per year from 2019 onwards; and ii) AFFO accretion from the vend- in of the majority of Loblaw’s remaining owned retail space Property Revenue 743 779 815 over the next 10 years. Net Operating Income (NOI) 551 578 604 The Balance Sheet 3/5

Choice REIT has a strong balance sheet with debt (including NOI Margin 74.1% 74.1% 74.1% Class C LP units) to total assets was 44.5% at the end of Q4-2015, lower than the maximum limit of 65% under the Declaration of Trust. The debt service coverage ratio was 3.6x, much higher EBITDA 529 558 580 than the minimum requirement of 1.5x. 100% of the Choice REIT’s portfolio is unencumbered. Both DBRS and S&P have as- AFFO per Unit $0.78 $0.82 $0.89 signed a BBB (investment grade) credit rating to the Choice REIT. Distribution per Unit $0.65 $0.67 $0.67 Business Operations 3/5

The Choice REIT has relatively lower leasing risk given Loblaw’s Payout Ratio 84% 83% 75% weighted average remaining lease term of 12.3 years (accounts for approximately 89% of GLA), which is longer than its peers at eight to 12 years. Overall occupancy rate was 98.6% Unit Price $11.29 $14.32 $14.32 at the end of 2015, improved from 98.1% one year earlier. Price/AFFO Multiple 14.5x 17.5x 16.1x Corporate Governance 3/5

Loblaw holds an 83.0% effective interest in the REIT, George Distribution Yield 5.8% 4.7% 4.7% Weston Limited holds 5.6% and the public owns 11.4%. Seven out of nine members (78%) on the company’s Board of Trustees are independent. WA Units Outstanding (millions) 403 408 409

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KATHLEEN WONG [email protected] 416-866-8783 Updated July 11, 2017 BUY COGECO COMMUNICATIONS Current Price C$83.05 Intrinsic Value C$85.00 TSX-CCA Current Yield 2.1%

MAKING A CAISSE FOR MORE U.S. CABLE

The market has not been kind to Cogeco’s shares following acquisition announcements, with a 17% decline after the Cabovisao deal, a 15% drop post Atlantic Broadband (ABB) purchase, and a 5% slide on the day the company acquired Peer 1 Networks. Cogeco’s acquisition of MetroCast marks a major departure, as it was the first time in more than 10 years that the company announced a significant acquisition (US$1.4B) and the stock subsequently rose 2.9%. We think that the positive reaction is warranted, as it builds upon sustainable growth and a proven existing blueprint in the US.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 We are maintaining our BUY and updating our intrinsic value estimate to $85.00 per share.

The Company continues to capitalize reconnect costs. Oth- erwise, management is conservative in its accounting. YTD February 28, 2017 F15 F16 F17 C$ Millions Adjusted Cash Flows 4/5

Revenue (TTM) 1,978 2,129 2,191 The $1.72 annual dividend equates to about 22% of F17 free cash flows and provides plenty of room for future growth.

EBITDA (TTM) 891 973 990 The Balance Sheet 3/5

Share price (reporting date) $71.01 $64.92 $74.10 Management has stated its intention to maintain leverage within historical bounds (~4.0x) with TTM leverage at 2.9x, CCA is comfortably within this range. EV/EBITDA (TTM) 7.2x 6.2x 6.4x Business Operations 3/5

FCFE yield 7.2% 8.3% 10.5% Bell’s plan to expand IPTV from a 45% overlap to 70% in Co- geco’s territory over the next few year is a key risk. TiVo appears to be helping with subscriber losses, but we have yet to see a return of pricing power. Data centres should be Dividend Yield 2.0% 2.4% 2.3% completely divested in our opinion.

Corporate Governance 2/5 Market cap 2,891 2,795 2,716

Cogeco’s executive compensation policy has two major Enterprise value 6,386 6,002 6,380 shortcomings: 1) does not directly discourage dilutive acquisitions and 2) management definition of Economic Val- ue creation is more than double that of actual shareholder value creation. Net debt: TTM EBITDA 3.2x 2.9x 2.7x

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DESMOND LAU [email protected] 416-866-8783 Updated April 18, 2017 SELL

CONSTELLATION SOFTWARE INC. Prior Close C$631.00 Intrinsic Value C$520.00 TSX-CSU Current Yield 0.8%

FADING STAR POWER When we examine Constellation Software’s (“Constellation or “CSU”) operations, we find a base business at risk of contracting and an acquisition strategy that suggests a push towards lower quality deals that generate reduced EBITDA. To date, these problems have been largely masked by new deals and limited disclosures on post-acquisition performance. We recommend selling shares.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 1/5 Giving management the benefit of the doubt, we model in a 2% organic growth rate, which yields a base business value of C$420 per Constellation has steadily reduced its acquisition-related disclo- share. As a result, at the company’s current price of ~C$630 per share, sures since its IPO, making it much harder to assess the perfor- investors are paying ~C$210 per share for future acquisitions. We cal- mance of purchased businesses. We also question the inclusion culate instead the present value of the company’s acquisition runway of minority interest in the company’s reported Adjusted EBITA at C$100 per share, given that deal volumes, eventual profitability, and metric, which we estimate inflated this non-GAAP metric by 6% the spread Constellation can earn over what it pays for targets are all for 2015 and 5% in Q3 2016 YTD. showing signs of strain. This gives Constellation a combined value of C$520 per share. Cash Flow Sustainability 4.5/5

CSU’s cash flow sustainability appears strong, given the com- Period Ending F14 F15 F16 pany’s history of internally financing most of its acquisitions and US $ Millions (except as noted) maintaining its dividend. The company’s operating cash flow has generally tracked its adjusted earnings.

Balance Sheet 4/5 Share price C$345.44 C$576.88 C$610.12

Constellation is relatively unlevered, with a net debt/TTM EBITDA of 0.11x. However, we have some concerns over their presentation of minority interest as a liability. Shares outstanding (millions) 21.2 21.2 21.2 Business Operations 2/5

We see challenges ahead as Constellation’s multiple contracts Market capitalization C$7,320 C$12,225 C$12,935 relative to targets and competition increases for larger deals. Normalized organic growth rates were also meagre in the past few quarters, although there was a rebound in the latest quarter. Some operating group CEOs have agreed that CSU’s long- Enterprise value (EV) $6,530 $9,023 $8,660 term growth on existing business should be similar to the GDP growth rate of the underlying economies it serves, meaning slow growth. We continue to be concerned with macroeco- nomic headwinds in the developed world, where Constellation Revenue $1,669 $1,838 $2,125 largely operates. CSU also relies heavily on developed world government spending, which we are worried about a slowdown in. Reported Adjusted EBITA $348 $446 $530 Corporate Governance 3.5/5

The president is no longer taking any salary or any incentive Reported Organic Growth compensation and a large part of his wealth is now tied to his 4% 3% 2% (Constant Currency Basis) position in Constellation shares. We note, however, that the percentage of independent directors fell from 83% in 2012 to 63% in 2015, as two of the company’s top executives were added to the board. That being said, the ISS supported Con- EV-to-Forward EBITDA 13.4x 16.7x 15.7x stellation’s current slate of directors.

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HOWARD LEUNG [email protected] 416-866-8783 Updated May 2, 2017 BUY CRESCENT POINT ENERGY CORP. Current Price C$13.13 / US$9.60 Intrinsic Value C$23.00 TSX-CPG; NYSE-CPG Current Yield 2.7%

BALANCING GROWTH AND CASH FLOWS AT US$50 WTI CPG remains capable of fully funding a growth budget at US$50 WTI, with dividend obligations requiring a higher price to be covered from cash flows. We see the company’s $1.45 billion capex budget as set to drive 3% year-over-year volume growth, with capex and dividends fully funded at ~US$54 per barrel WTI. In 2018, the story remains largely the same – stable payout ratios at US$50+, with options to fund more aggressive growth if oil returns to US$60 WTI.

QUALITY RATING INTRINSIC VALUE WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 2.5/5 Commodity Case 2017 / 2020 2017 / 2020 2017 / 2020 Value In its year-end 2016 financial statements CPG took an im- $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 18.50 pairment of $533.1 on its Shaunavon, Williston Basin and $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 23.00 Torquay properties in Saskatchewan. This write down was, $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 30.00 largely the result of the decrease in forecast benchmark commodity prices as 2017-2019 forecasted average Ed- Our base case values Crescent Point at $23.00 per share, reflecting a monton light oil benchmark declined by 8% return to US$67 WTI oil and US$3.75 NYMEX gas through 2020.

Adjusted Cash Flows 3/5 Company Profile 2015 2016 2017 Q1 Price 16.12 18.25 14.37 Our 2017 base case of US$55 WTI will generate netbacks of ~$31 boe and cash flows of $1.7 billion which will cover Shares (millions incl. exch.) 504.9 541.7 544.6 capex of $1.45 billion and the monthly dividend of $196 Market cap. ($ millions) 8,140 9,887 7,826 million. Revenue ($ millions) 2,364 2,185 693 The Balance Sheet 3.5/5 CFPS 3.88 2.81 0.76 Price to YTD CFPS 4.2x 6.5x 4.7x As of Q1 2017 Senior debt to EBITDA stood at 2.4x and senior debt to capital was 0.31, both of which were well under ROE (annualized) (9.1%) (9.4%) 4.7% CPG’s maximum ratio under its covenants of 3.5x and 0.55 Dividends per share 1.94 0.48 -0.09 respectively. We see 2017 Senior debt to EBITDA of 2.3x under our US$55 WTI base case Production (boe/d) 163,631 167,764 173,329 CFO* per boe 32.77 24.89 26.31 Business Operations 3/5 Net debt to EV 35% 28% 34% Net debt to CFO* 2.2x 2.5x 2.5x CPG has steadily accumulated some of the lowest cost, highest return drilling acreage in North America. These high Cash Flow and Dividends 2015 2016 2017 Q1 quality assets have allowed Crescent Point to improve its capital discipline during the current oil-price shakeout. Reported CFO* 1,956.9 1,524.3 416.2 Capital expenditures (1,605.2) (1,173.4) (542.7) Available cash (shortfall) 351.7 350.9 (126.5)

Corporate Governance 3/5 Dividends declared 1,020.4 260.3 (49.4) Management's recent efforts have focused on shoring up % of CFO* 52% 17% -12% volumes and averaging down decline rates, using acquisi- % of available cash 290% 74% 39% tions, drilling inventories, unitization and waterflooding to create a more stable company. * CFO is cash from operations after working capital, cash interest and asset retirement expenditures

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-50% -25% 0 25% 50% Updated June 27, 2017 BUY CROMBIE REIT Prior Close $14.36 Intrinsic Value $17.00 TSX-CRR.UN Current Yield 6.2%

CHARTING A ‘SAFEWAY’ TO HIGHER RETURNS

Since 2011, Crombie’s relatively strong AFFO growth per square foot has been overshadowed by unit dilution and Sobeys/Safeway’s operational challenges. We view Crombie’s income from these key tenants as largely protected, however, because of triple-net leases (the tenant pays all operating costs, capex and taxes) and minimum lease payments that amount to a weighted average lease term of over 15 years. We expect a turnaround over the next three years as Crombie intensifies the use of its existing properties, drives growth and is more selective in issuing equity.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 Our estimate of F17 AFFO is $1.00 per unit. For the following three years, we estimate a 7% annual growth rate, leading to an estimate of $1.21 of AFFO per unit by 2020. We then apply a terminal Crombie makes one adjustment to AFFO which, in our view, multiple of 13.4x to the REIT’s 2020 AFFO earnings. Discounting the overstates the metric (amortization of effective swap agree- REIT’s AFFO by its cost of equity of 8.1% brings our intrinsic value ments). Crombie also uses a reserve for maintenance to $17 per unit. capex and leasing, although we note that the reserve does trend to what is spent over the long-run.

Adjusted Cash Flows 4/5 Period Ending F15 F16 Q1 F17 C$ Millions (except as noted) Veritas adjusted AFFO payouts have been consistently below 100%, and lately have been closer to the low 90% range. Although we would like to see the ratio lower still, this level of payout is sustainable, in our view. Unit price $12.80 $13.58 $13.93

The Balance Sheet 3/5 Units outstanding 132 148 149 Crombie’s balance sheet is relatively levered, but management has prudently kept debt at around half of gross book value. Market capitalization $1,683 $2,015 $2,076 Business Operations 4/5 Enterprise value (EV) $3,866 $4,425 $4,475 Going forward, Crombie plans to focus more on buying and developing non-Empire properties, which may offer less rental stability than Sobeys/Safeway anchored malls, but Reported Debt to Gross Book 52.5% 50.3% 50.1% potentially better revenue yields. In addition, Crombie has Value ambitious plans to redevelop some properties to include apartments above existing urban stores. We see the strategy delivering on management’s target of 2% annual NOI Revenue $370 $400 $101 growth, driven largely by topline improvements.

Corporate Governance 4/5 Veritas Adjusted AFFO $119 $150 $36

Although it has Empire employees, the board is majority Veritas Adjusted AFFO Payout independent. Management’s incentive compensation is 98% 84% 92% driven by specific quantitative and qualitative objectives. Ratio (includes DRIP)

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HOWARD LEUNG [email protected] 416-866-8783 Updated August 5, 2016 BUY CT REIT Current Price C$15.47 Intrinsic Value C$15.80 TSX-CRT.un Current Yield 4.4%

GROWTH IN AFFO FUELED BY ACCRETIVE ACQUISITIONS CT REIT derives 96.7% of annualized base minimum rent from Canadian Tire Corp. (“CTC”), subjecting it to higher economic dependence risk than most retail commercial REITs. However, in our opinion, the risk of lack of diversification is mitigated by the underlying financial strength of CTC as a retailer. An added benefit of the partnership with CTC is the lower leasing risk, as the leases with CTC have weighted average term of 13.6 years, among the longest in the industry. If long-term interest rates increase going forward, the negative impact of debt refinancing in 2016 should be mitigated by contractual weighted average rent escalations of 1.5% per year that began in 2015 and AFFO accretion from vend-in of CTC’s remaining 3.7 million sq. ft. of available real estate, representing a 17% potential growth from the GLA base of 21.512 million sq. ft. as at December 31, 2015. Therefore, we expect continued AFFO and distribution growth going forward, as driven by accretive acquisitions and development projects QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We value CT REIT at 17.0x 2017E AFFO multiple, which implies a 5.5% cap rate. We increase the intrinsic value to $15.80 (up from Disclosure in the financial reports appears to be in line with $15.00) to account for the newly announced investment activi- other publicly traded REITs in Canada. ties.

Adjusted Cash Flows 3/5 FY end December 2015 2016E 2017E (C$ Millions, except as noted) With 13% of indebtedness maturing in 2016 and 2017, CT REIT faces low debt refinancing risk. We expect the negative impact of debt refinancing in case of a rising interest Square Footage (millions) 21.5 22.1 22.1 rate environment will be mitigated by: i) contractual rent escalations of 1.5% per year that kicked in on January 1, Property Revenue 378 400 408 2015; and ii) AFFO accretion from continued vend-in of Canadian Tire’s retained real estate (estimated to be about 3.7 million sq. ft.). Net Operating Income (NOI) 291 308 314 The Balance Sheet 3/5 NOI Margin 77.0% 77.1% 77.1% The debt-to-asset ratio of CT REIT is 48.2% at the end of Q4- 2015, which is higher than its peers at 41% to 46%. The interest coverage ratio of CT REIT is at 3.23x, which is higher than EBITDA 282 298 304 its peers at an average 2.4x. 100% of CT REIT’s portfolio is unencumbered. Both DBRS and S&P have assigned a BBB AFFO per Unit $0.81 $0.88 $0.93 (investment grade) credit rating to CT REIT.

Business Operations 4/5 Distribution per Unit $0.66 $0.68 $0.74

CT REIT enjoys a 99.9% occupancy rate and has relatively less leasing risk given Canadian Tire’s weighted average Payout Ratio 82% 77% 80% remaining lease term is 13.6 years, which is longer than its peers at eight to 12 years. Moreover, only 2.7% of CT REIT’s Unit Price $12.78 $14.23 $14.23 leased space by base rent revenue is scheduled to mature between 2016 and 2020, significantly less than peers. Price/AFFO Multiple 15.8x 16.1x 15.3x Corporate Governance 3/5

Canadian Tire holds an 83.8% effective interest in the REIT Distribution Yield 5.2% 4.8% 5.2% while the public owns 16.2%. Four out of seven members (57%) on the company’s Board of Trustees are independ- Units Outstanding (millions) 187.6 191.8 193.1 ent.

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KATHLEEN WONG [email protected] 416-866-8783 Updated June 8, 2017 BUY DOLLARAMA INC. Current Price C$127.16 Intrinsic Value C$131.60 TSX-DOL Current Yield 0.4%

STRONG QUARTER DRIVEN BY GROWTH IN NEW STORES AND BASKETS

Dollarama’s strong Q1-F18 results were driven by 13 new net stores (compared to eight last year) and average basket size growing 6.1%. Traffic declined by 1.4% due to tough comps from last year and with Walmart Canada also reporting sequential negative traffic comp of 0.7%. TTM FCF grew by 13.9% to $414 million largely due to the capex related to the construction of the new Montreal warehouse which was incurred in the same quarter last year.

Our analysis of MINISO, which is a Chinese value-priced variety retailer that recently announced aggressive plans to open 30 to 50 stores in the next 12 months and 500 stores long term, suggests its distinctly different from Dollarama in many ways. We believe MINISO is targeting a distinctly different target market and will more likely take share from the likes of MUJI rather than Dollarama.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 Our DCF valuation model is based on the following: 1) Sales-per-store CAGR of 3.4% through F2026 (SSSG of 4-5%), Dollarama’s disclosures are on par with those of other Canadi- 2) S&A and rent expense increase by 1.0% and 1.5% p.a., respectively, 3) GPMs to remain at 43.7%, near their long-term average an retailers. Dollarama only disclosed % of sales from products 4) Add 605 stores, we project EBITDA will reach $1.66 billion in F26, above $1.25 price and not the units, make it difficult to estimate 5) Cost of equity of 7.9% and terminal FCF growth of 3.0% implying an the impact of varying price points and inflation on SSSG. intrinsic value of $130 per share today.

Adjusted Cash Flows 4/5 FY end January F2017 F2018E F2019E (C$ Millions, except as noted) We expect Dollarama to continue generating strong free cash flow of $400 million and above starting in F2018. Sales per avg. Store Growth 4.4% 3.4% 3.4% The Balance Sheet 4/5 New Stores Openings 70 70 70 Dollarama generated $352 million in FCF or $2.92 per share in F17 and we expect FCF rising to $400 million ($3.43 per share) Avg. Store Count 1,063 1,130 1,200 and $499 million ($4.24 per share) in FY18 and FY19, respectively. The company currently has a net debt/EBITDA of 1.9x Revenue 2,963 3,258 3578

Business Operations 3/5 Gross Profit Margin 1,329 1,422 1,562

Dollarama has more than doubled its store network over the EBITDA 703 749 832 past nine years, while rival dollar stores have seen their market share shrink. Dollarama is Canada’s largest dollar chain and unparalleled at providing its consumers with disposable-type EBITDA Margin 23.7% 22.9% 23.3% value merchandise. DOL’s multiple price point strategy has allowed the company to broaden offerings, and its disciplined Rent Margin 5.7% 5.6% 5.5% sourcing strategy has helped gross margins remain stable in times of cost inflation and negative FX movement. SG&A Margin 15.5% 15.1% 14.8%

Corporate Governance 3/5 EV 14,159 16,534 16,534

Dollarama has nine directors, including six independent directors. Insiders own about 5% with ~4% owned by Larry Rossy, the EV/EBITDA 20.1x 22.1x 19.9x Chairman. Shares Outstanding (millions) 115.1 113.6 113.6

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Intrinsic Value Scale -50% -25% 0 25% 50% Updated June 14, 2017 SELL ECN CAPITAL CORP. Current Price C$3.97 Intrinsic Value C$3.70 TSX-ECN Current Yield 1.0%

RENOVATING ECN’S BOO K On June 8th, ECN Capital announced an agreement to acquire Service Finance Holdings (‘SFC’) for $410 million in cash along with a deferred purchase price earn-out plan for SFC’s founders. Based on our analysis, ECN’s redeployment of capital into SFC generates a premium to book value. This increase is partly offset by a lower valuation for ECN’s other business lines based on our updated 2018 EPS expectations. We are maintaining our SELL recommendation and increasing our intrinsic valuation to $3.70 per share. SELL

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We value ECN’s invested equity based on management’s expected ROE for SFC along with ECN’s remaining undeployed For Q1-F17, ECN Capital reported a pro-forma tangible capital and equity invested in existing assets. After applying our book value of $4.65 per share. This book value includes eq- qualitative discount for share-based comp. and excluded ex- uity freed up from the sale of U.S. C&V assets. Lease ac- penses, we arrive at an intrinsic value of $3.70 per share. counting risk is also lowered by a higher mix of operating leases from Rail assets. FY end Dec. 31 Q3-F16 Q4-16 Q1-17 Adjusted Cash Flows 2/5 C$ Millions

Adjusted Operating Income (AOI) yields on assets in continuing operations decreased to 2.0% in Q1-F17 from 2.7% in Price 3.05 3.54 3.79 Q4-F16. We expect AOI yields to stabilize as the company seeks targets for capital redeployment. Shares outstanding, millions 390.6 390.6 394.8 The Balance Sheet 3.5/5

ECN’s undeployed capital stands at $200 million after the Market capitalization 1,191 1,383 1,496 purchase of SFC for $410 million in cash. ECN can free more capital for redeployment into higher yielding assets by selling its remaining business verticals. The timing or likelihood of Average Earning Assets 5,723 5,779 4,170 a sale remains speculative.

Business Operations 2.5/5 Tangible Book Value Per Share 4.36 4.42 4.65

We expect ECN’s remaining verticals in Rail, Aviation and Canadian C&V to generate mid-single digit ROEs. While Revenue incl. other fees 98 103 75 management has guided to double-digit ROEs in 2018 for SFC, execution is largely dependent on achieving signifi- 31 33 26 cant origination volume growth and margin expansion. Adjusted Operating Income (AOI)

Corporate Governance 1.5/5 EPS (adjusted) 0.07 0.06 0.05

Share-based compensation was ~13.7% of ECN Capital’s Adjusted Operating Income from continuing operations in Forward P/E multiple (adjusted) 9.2x 12.0x 25.3x Q1-F17. While management plans to reduce compensation going-forward, we continue to wait for share-based comp. to fall below 5% of ECN Capital’s Adjusted Operating In- Price to Tangible Book multiple 0.7x 0.8x 0.8x come.

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NIGEL D’SOUZA [email protected] 416-866-8783 Updated June 6, 2017 SELL ELEMENT FLEET MANAGEMENT Current Price C$9.84 Intrinsic Value C$9.25 TSX-EFN Current Yield 3.2%

LOST IN TRANSITION On May 10th, Element Fleet reported adjusted EPS of $0.24 per share which was largely in line with consensus expectations. However, we note that earning assets continue to decline and caution that EFN faces several headwinds including funding pressures, lumpy transaction-fee revenues and soft industry unit sales. We maintain our SELL recommendation and have reduced our intrinsic value to $9.25 per share based on our lowered forecast for average earning assets in 2017.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 1/5 Based on our expectations of weak Average Earning Asset growth and a multiyear buildout of meaningful third-party FMS We note that to properly assess the impact of finance lease revenue, we forecast a low double-digit ROE in 2017 and deter- accounting, investors need far greater disclosure on sever- mine an intrinsic value of $9.25 per share for Element Fleet Man- al metrics. Additionally, stock-based comp., integration agement. costs and losses from EFN’s JV investment are all excluded from adjusted operating income. Also, EFN does not disclose fee revenue generated from fleet management ser- FY end Dec. 31 Q3-16 Q4-16 Q1-17 vices. C$ Millions Adjusted Cash Flows 2/5 Price 11.25 13.06 12.35 Element Fleet’s Adjusted Operating Income (‘AOI’) yield increased from 3.41% in Q4-F16 to 3.65% in Q1-F17. The inclusion of JV losses in Q1-F17 would reduce EFN’s AOI yield Diluted shares outstanding, millions 390.6 392.7 392.4 to 3.35% for the quarter. The Balance Sheet 3/5 Market capitalization 4,394 5,129 4,846 Total earning assets declined to $13.7 billion in Q1-F17 from $14.0 billion in Q4-F16. A softening U.S. commercial fleet Average Earning Assets 14,131 14,056 13,479 market is a headwind for asset growth; commercial unit sales are down 5.3% YTD. Tangible Book Value Per Share 3.21 3.27 3.31 Business Operations 2/5

Softening U.S. commercial fleet sales makes us cautious on Revenue incl. other fees 319 324 323 asset growth. Higher FMS revenue from a successful transition to a ’capital-light’ services model is limited in the near- term as a competitive platform requires a multiyear Adjusted Operating Income (AOI) 127 120 123 buildout. In our view, a decline in EPS is the most likely outcome for 2017. Adjusted EPS (diluted) 0.25 0.23 0.23 Corporate Governance 1/5

Share-based compensation remains high, ~7% of Q1-F17 Forward P/E multiple (adjusted) 11.4x 13.8x 12.7x AOI, and should factor into investors’ valuations. A recent spotlight on Element Fleet’s JV with 3rd parties raised several questions on potential risk exposure and losses. Price to Tangible Book multiple 3.5x 4.0x 3.7x

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NIGEL D’SOUZA [email protected] 416-866-8783 Updated February 14, 2017 SELL EMERA INC. Current Price C$45.64 Intrinsic Value C$45.00 TSX-EMA Current Yield 4.5%

EMERA ENERGY WEIGHS ON OUTLOOK EMA now trades near our $45.00 per share value estimate, as higher interest rates, stagnating foreign exchange translation gains, lower trading profits, and deteriorating power prices weigh on its equity value. We believe investors can do better elsewhere, and thereby maintain a SELL recommendation. Specifically, we believe Canadian regulated peers Canadian Utilities Ltd. and Hydro One Ltd. are better value plays.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2.5/5 We value Emera at $45.00 per share.

EMA’s level of disclosure is on par with its Canadian peers. FY end Dec. 31 F14 F15 F16 (Amounts in C$ Millions) Adjusted Cash Flows 2.5/5

A stronger U.S. dollar and Muskrat Falls-associated Price $38.64 $43.23 $45.39 transmission investments support robust FCF growth to F19. However, the sustainability of EMA’s FCF growth could be undermined by lower capacity Shares (millions) 144 147 210 pricing in F20 and beyond.

Market capitalization $5,556 $6,364 $9,533 The Balance Sheet 2.5/5

Net debt $5.172 $4,444 $18,100 EMA will increase leverage significantly if the TECO acquisition is approved, but its largely regulated business mix facilities access to liquidity should other op- Enterprise value $10,728 $10,808 $27,633 portunities arise.

Business Operations 3/5 Adjusted EBITDA (TTM) $947 $1,031 $1,744

Limited organic growth in its base regulated utilities is Adjusted EPS (TTM) $2.23 $2.26 $2.77 offset by favourable conditions at EMA’s U.S. power assets and robust transmission growth projects. EV / EBITDA (TTM) 11.3x 11.5x 15.8x Corporate Governance 2.5/5

P/E (TTM) 19.2x 19.1x 16.4x Based on our review of the Maritime Link hearings and the most-recent FAM audit, we believe relations with the UARB have improved. Net debt-to-EBITDA (TTM) 5.5x 4.3x 10.4x

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated July 5, 2017 BUY EMPIRE COMPANY LTD. Current Price C$22.06 Intrinsic Value C$23.50 TSX-EMP.a Current Yield 2%

PROJECT SUNRISE LOOKS TO TAME SG&A

Sobeys announced a three-year transformation initiative called “Project Sunrise” on May 4th. The project includes several initiatives with the goal of realizing $500 million in annualized savings by the end of F2020. In this report, we evaluate Project Sunrise and assess whether the $500 million of expected savings are reasonable, with a focus on the specific sources of savings. We also discuss a potential discount strategy for Sobeys outside of Ontario.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We have derived a new $23.50 intrinsic value (up from $21.00) for Empire using a F2020 net asset value model Disclosures are lacking, as is with the typical Canadian retailer. and discounting the value to F2018 (year ending April 30, Empire only has two reporting segments: food retailing versus investments and other operations (i.e. real estate), making it 2018); and a discounted cash flow model based on 10% difficult to assess results of the more significant food retailing discount rate and 1.5% terminal growth rate. Empire re- segment, especially Canada Safeway’s performance. mains a BUY. Adjusted Cash Flows 3/5 FY end April F2017E F2018E F2019E We expect Sobeys to achieve $500 million savings by the end of (C$ Millions, except as noted) F2020: $300 million savings from centralized procurement and new pricing strategy; and $200 million from headcount reduc- Revenue tion to eliminate duplication. 24,581 25,353 26,147 The Balance Sheet 2/5 Gross Profit 5,935 6,215 6,553 The issuance of debt to finance the Canada Safeway acquisi- Gross Profit Margin tion and the decline in EBITDA during the past two years in- 24.15% 24.51% 25.06% creased Empire’s lease-adjusted net debt-to-EBITDAR ratio from Food Retailing EBITDA 2.0x to 3.0x in F2017. We expect Sobeys to realize savings from 829 1,000 1,276 Project Sunrise which should reduce its lease-adjusted debt-to- Food Retailing EBITDA Margin EBITDAR ratio to 2.0x by F2019. 3.37% 3.94% 4.88% Business Operations 3/5 Other EBITDA 72 72 72 Sobeys has been plagued by a lack of discount format pres- Total EBITDA ence in regions most affected by the oil industry slowdown and 901 1,072 1,348 ineffective promotional strategies. Our grocery proprietary sur- Total EBITDA Margin veys in Ontario during the past year showed that Sobeys has 3.67% 4.23% 5.15% reduced its regular prices and reliance on promotions. Together with centralized procurement, we expect it will improve its gross Share Price profit margin going forward. $22.06 $22.06 $22.06 Market Capitalization Corporate Governance 3/5 6,026 6,026 6,026 EV Nine out of 14 Board of Directors members are independent 7,455 7,161 6,676 directors (64%). Out of the 271.7m common shares in total, 173.5m are non-voting Class A shares and the remaining 98.1m EV/EBITDA 8.3x 6.7x 5.0x are Class B voting common shares. The Sobeys family owns 33.4% of the shares outstanding while holding 100% of the vot- Shares Outstanding (millions) ing rights. 271 271 271

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KATHLEEN WONG [email protected] 416-866-8783 Updated June 12, 2017 BUY ENBRIDGE INC. Current Price $52.12 Intrinsic Value $66.00 TSX-ENB Current Yield 4.7%

DEFENDING ITS TURF Although the near-term focus is on closing the Spectra acquisition, as execution will materially de-risk and expand growth prospects (with the promise of a 5% dividend top-up), financial prospects for Enbridge Inc.’s legacy Liquids business will be tied to upcoming export pipeline development. While we remain concerned about ENB’s legacy, liquids-weighted growth platform, its appealing 7% free cash flow yield and Spectra-driven risk mitigation make it an appealing option. We maintain BUY recommendation.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2.5/5 We maintain $66 per share value estimate.

ENB’s ACFFO definition understates the equity value of non- controlling interests by only deducting cash distributions. A For the Period Ended better metric would deduct the NCI equity stake in overall F16 F15 F14 ACFFO. (Amounts in C$)

Adjusted Cash Flows 4/5 Share price $56.50 $46.00 $59.74

On a pro-forma basis, ENB now anticipates double-digit ACFFO growth through F24, with the extended outlook Shares 943.2 867.8 852.0 based on increasing confidence in investment opportunities at Spectra.

Market capitalization $53,290 $39,919 $50,898

The Balance Sheet 3/5 Net debt $54,806 $51,306 $45,408 As its secured growth projects enter service, ENB expects its debt-to-EBITDA to decline to 4.3x by F19, which is well below its 5.0x target, providing ample debt capacity to go along- Enterprise value $108,096 $91,225 $96,306 side $14 to $18 billing of cumulative FCF over the next five years. Adjusted EBITDA (TTM) $6,902 $6,180 $4,986 Business Operations 3.5/5

Available FFO per share (TTM) $5.90 $3.72 $3.02 We continue to believe legacy ENB will struggle to meet its ACFFO outlook to F19 due to the deferral of Sandpiper and the delay of L3R. Nonetheless, ENB’s can still achieve 8%+ average annual ACFFO growth; an impressive attribute, EV/EBITDA (TTM) 15.7x 14.8x 19.3x underpinning our positive investment thesis.

Corporate Governance 4/5 P/ ACFFO 14.4x 12.4x 19.8x

ENB’s diversification strategy seems sound against a back- drop of oil pipeline development headaches. Net debt-to-EBITDA 7.9x 8.3x 9.1x

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated July 25, 2017 SELL ENCANA CORP. Current Price C$12.47 / US$9.95 Intrinsic Value US$9.00 TSX-ECA; NYSE-ECA Current Yield 0.6%

MIND THE SHORTFALLS Encana continues to steer investors towards impressive production growth in it is ‘core four’ assets, led by its Permian properties, as they update guidance for these assets to 25-30% growth in volumes in 2017, Q4 to Q4, up from 20% growth previously. We note that Encana’s these core plays have barely grown 1% from Q2-F16 to Q2-F17, pro-forma for the sale of Gordandale. Growth, however, is not enough to bridge the shortfalls, as under the scenario of $50 WTI, we see Encana running cash shortfalls of $460 million in 2018. SELL.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2.5/5 WTI Oil Price HH Gas Price USD/CAD Intrinsic Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value Under U.S. GAAP, reserves are tested for impairment based on trailing-twelve-month pricing. So for this year, WTI pricing $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 6.50 reset to US$50.28 by end of year triggering impairments of $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 9.00 US$6.5B. With trailing prices set to fall further in 2016 we expect another US$1.5-$2.5B in impairments to Encana's $4.0B $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 13.25 in proved property assets by year end. Encana's US$5.5B in Our base case values Encana at US$9.00 per share, reflecting a return to unproved properties are likely to fare better given more US$67 WTI oil and US$3.75 NYMEX gas through 2021. lenient rules for impairment. Company Profile Q2 2017 2016 2015 Adjusted Cash Flows 2.5/5 (amounts in $US) (6 mos.)

Encana will burn ~$0.9 billion through 2018 as cash flow USD Price 9.80 12.43 5.09 from operations of $1.3 billion in 2017 and ~$1.5 billion in Shares (millions incl. exch.) 973.0 973.0 849.8 2018 will be outpaced by the capex required to complete Market cap. ($ millions) 9,535 12,094 4,325 the Permian assets and current dividends. Revenue ($ millions) 1,297 2,096 4,422 The Balance Sheet 3/5 CFPS 0.33 0.44 1.98 Encana finished Q2-F17 with US$4.2B of debt US$0.4B of Price to YTD CFPS 14.7x 28.4x 2.6x cash, and US$3.0B of undrawn credit on facilities open through 2020. A recent $1.2 billion bought deal (Sept 2016) ROE (annualized) 23.4% -10.7% -65.2% will replenish company coffers but will be put right back to Dividends per share 0.03 0.04 0.26 work with aggressive spending plans in 2017, 2018. Production (000’s mcfe/d) 1,901 2,179 2,435 Business Operations 2/5 CFO* per boe 5.65 3.21 11.35 Encana has accepted volume declines in all plays outside Net debt to EV 29% 22% 54% of its core four in Duvernay, Eagle Ford, Montney and Permi- an Basin. With its late 2016 share offering, however, it will Net debt to CFO* 5.9x 8.1x 3.0x still be able to grow production in 2017, even if drilling re- Q2 2017 Cash Flow and Dividends 2016 2015 turns are challenging below US$55 WTI. (6 mos.) Corporate Governance 3/5 Reported CFO* 324.0 426.0 1,681.0 Capital expenditures (814.0) (779.0) (2,232.0) Encana's CEO compensation structure is multi-layered but well aligned with shareholder interests. While on the sur- Available cash (shortfall) (490.0) (353.0) (551.0) face, Mr. Suttles' total compensation was ~ $30MM in 2013 Dividends declared 30.0 38.0 225.0 2014 and 2015 combined, close to three quarters was in share-linked awards with delayed vesting. This comp car- % of CFO* 9% 9% 13% ries a much lower value if share prices remain at current % of available cash N/A N/A N/A levels. * CFO is cash from operations after working capital and asset retirement expenditures. Torpedo Risky Neutral Better Best Quality Scale

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-50% -25% 0 25% 50% Updated May 5, 2017 BUY ENERPLUS CORP. Current Price C$11.52 / US$8.77 Intrinsic Value C$18.00 TSX-ERF; NYSE-ERF Current Yield 1.0%

GROWTH WITHIN CASH FLOWS Long run volume guidance of 10% growth per year through 2019 remains enticing, with liquids growing by 20% per year. Enerplus can comfortably manage any cash deficits given its $800 million bank credit facility, which is essentially undrawn. With 11% growth expected for 2018, we see small shortfalls as an acceptable cost. In our view, Enerplus’ sustainability is a key competitive advantage in both the downturn and once prices recover. Enerplus also benefits from hedged AECO basis differentials, which averaged US$0.56 per thousand cubic feet in Q1-F17, s considerably better than the AECO-NYMEX spread of US$1.10 per mcf for the same period . BUY QUALITY RATING INTRINSIC VALUE

WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 2/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value With more than 50% of its balance-sheet assets in the U.S. $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 14.50 and greater than 50% U.S. ownership, Enerplus switched its $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 18.50 reporting to U.S. GAAP in 2014 to maintain its U.S. listing. U.S. $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 24.50 full-cost tests Enerplus' book value at trailing, rather than forecast pricing, which explains $256MM in YTD impairments Our base case values Enerplus at $18.00 per share, reflecting a return to as of Q3-F16. A loophole in the debt-to-cap covenant al- US$67 WTI oil and US$3.75 NYMEX gas through 2021. lows Enerplus to add back a $1.1B adjustment taken on conversion to U.S. GAAP. Company Profile 2017 2016 2015

Adjusted Cash Flows 2/5 Price 10.71 12.74 4.75 Shares (millions incl. exch.) 242.1 240.5 206.5 At US$51 WTI in 2017 Enerplus can generate netbacks of ~$14.50/boe ($9.80/boe for 2016) thanks to improved liquids Market cap. ($ millions) 2,593 3,064 981 weighting and decreased op costs. This will translate to Revenue ($ millions) 285 693 1,027 cash flow of $1.50/share in 2017 and rising to $2.20/share in 2018 under US$55 WTI. CFPS 0.53 1.30 2.25 Price to YTD CFPS 20.3x 9.8x 2.1x The Balance Sheet 2.5/5 ROE (annualized) 5.1% (29.5%) (97.6%) At the end of 2017 Q1, Enerplus had net debt of $740MM Dividends per share 0.12 0.12 0.64 with nothing drawn on its credit facility. Enerplus has a comfortable leverage position as we see Net Debt to EBITDA of Production (boe/d) 84,937 93,125 106,524 1.5X in 2017 under our low case of US$51 WTI. CFO* per boe 16.51 9.19 11.97 Net debt to EV 22% 20% 55% Business Operations 3/5 Net debt to CFO* 5.8x 2.5x 2.6x

Enerplus has communicated plans to focus spend - 73% - on Cash Flow and Dividends 2017 2016 2015 its highly productive Bakken assets, including facilities investments for future growth. Look for Canadian waterflood as- Reported CFO* 127.9 312.3 465.3 sets to continue to receive little capex as they are effec- Capital expenditures (120.5) (210.2) (507.4) tively in run-off. Available cash (shortfall) 7.4 102.1 (42.1) Corporate Governance 3/5 Dividends declared 7.2 35.4 132.0 With improving capital efficiencies, particularly on its U.S. % of CFO* 6% 11% 28% plays, Enerplus appears to be well on its way to reducing costs and generating higher drilling returns, which is the % of available cash 97% 35% N/A product of management's improved focus. * CFO is cash from operations after working capital, cash interest and asset retirement expenditures

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-50% -25% 0 25% 50% Updated May 4, 2017 BUY FORTIS INC. Current Price $44.52 Intrinsic Value $45.00 TSX-FTS Current Yield 3.6%

APPROACHING FAIR VAL UE FTS trades near our value estimate and we don’t think highlighted development opportunities are large enough to move the needle on meaningful equity value accretion. That said, FTS still offers a relatively low risk income-option with attainable annual dividend growth of 6% and trades slightly below our value estimate. As such, we maintain a BUY recommendation.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We value FTS at $45.00 per share based on a sum-of-parts, net asset value approach.

Fortis provides a summary of key regulatory develop- ments, which enhances investor awareness of ex- FY end Dec. 31 pected trends in allowed returns and rate base Q1-F17 F16 F15 growth. If it would state mid-year rate base in mil- (Amounts in C$ Millions) lions, as opposed to billions, the disclosure would be even more useful to investors. Price $44.07 $41.46 $37.41 Adjusted Cash Flows 3.5/5 Shares (millions) 416 402 276 A relatively certain organic rate base growth trajectory and low near-term regulatory risk safeguards FTS’ Market capitalization $18,333 $16,646 $10,340 FCF profile and dividend growth guidance.

The Balance Sheet 2.5/5 Net debt (incl. preferred $27,499 $26,105 $13,371 shares)

In the current climate, diversified, mostly-regulated businesses have access to considerable amounts of Enterprise value (EV) $45,832 $42,751 $20,680 low-cost capital. However, the ITC transaction geared FTS materially, suggesting acquisitions will be muted for some time. EBITDA (TTM) $2,131 $1,841 $1,807 Business Operations 4/5 Adjusted EPS (TTM) $2.35 $2.33 $1.96

Following the sale of real estate and power assets, FTS is now essentially a pure-play regulated utility, EV/EBITDA (TTM) 21.5x 23.2x 11.4x suggesting its risk profile is lower than that of its closest Canadian peers, CU and EMA. Price-to-earnings ratio (TTM) 18.8x 17.8x 19.1x Corporate Governance 2.5/5

Net debt-to-EBITDA (TTM) 12.9x 14.2x 7.4x No significant issues noted.

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated May 11, 2017 BUY GEORGE WESTON LTD. Current Price C$124.30 Intrinsic Value C$135.00 TSX-WN Current Yield 1.5%

VALUATION RISES WITH LOBLAW

George Weston generated 93% of its EBITDA from Loblaw and the remaining 7% from Weston Foods, so a large majority of George Weston’s value comes from its ownership interest in Loblaw. We value George Weston using a NAV model, which consists of its 46.86% interest in Loblaw, 5.6% interest in Choice Properties REIT and the bakery segment (Weston Foods). A $1.00 change in Loblaw’s intrinsic value would change George Weston’s NAV by about $1. Excluding the current value of Loblaw shares within George Weston`s stock price, we estimate that Weston Foods trades at only 6.5x 2018E EBITDA, which represents a significant discount compared to other bakery companies at 8.5x to 14x. In 2015.

QUALITY RATING INTRINSIC VALUE Accounting & Disclosure 2/5 We estimate a $150.00 undiscounted NAV for George Weston, which consists of $125.00 for the 46% interest in Loblaw, $3.00 for the 5.6% New accounting standards forced the disclosure of cost of interest in Choice Properties REIT, and $22.00 for Weston Foods. We inventory, thus allowing us to calculate gross profit margins. We apply a 10% holding company discount to derive a $135.00 NAV esti- would like to see more detailed sales and EBITDA breakdown at mate for George Weston. the different segments within Weston Foods.

Adjusted Cash Flows 3/5 FY end December 2015 2016 2017E Between 2006 and 2011, Loblaw has been beefing up its invest- (C$ Millions, except as noted) ment in stores and infrastructure. Under-spending in the past resulted in peak IT spending in 2012, which represented 1.8% of sales. Going forward, we expect IT spending to gradually de- Weston Foods Revenue 2,144 2,268 2,313 cline in the next few years as Loblaw is at the end of its SAP implementation period. For 2016, Weston Foods announced plans for $300 million capital expenditures to invest in significant additional capacity in high-growth product categories and Consolidated Revenue 46,894 47,998 49,507 replace older equipment, both of which would decrease FCF in 2016 but should support higher growth and efficiencies in the next few years. Weston Foods EBITDA 285 296 302 The Balance Sheet 5/5

We believe that George Weston’s management will continue Consolidated Adjusted EBITDA 3,478 3,931 4,240 to assess strategic options for the deployment of its $1.6 billion cash. We find it comforting that management is looking at strategic and valuation criteria in its vetting efforts, and seeking to acquire synergistic businesses at reasonable prices. Weston Foods EBITDA margin 13.29% 13.05% 13.05%

Business Operations 3/5 Consolidated EBITDA margin 7.42% 8.19% 8.56% George Weston generates 93% of EBITDA from Loblaw and the remaining 7% from the higher-margin Weston Foods, which consists of a fresh & frozen bakery business in Canada, a frozen baking operation in the U.S. and a biscuit, cookie, cone and Share Price $104.83 $110.50 $124.30 wafer business in the U.S.

Corporate Governance 3/5 Market Capitalization 13,409 14,134 15,948 Wittington Investments Ltd. owns 63% of George Weston Lim- ited, which in turn owns 46% of Loblaw Companies Ltd. George Weston’s Board of Directors consists of seven independent di- Shares Outstanding (millions) 127.9 127.9 128.3 rectors out of 11 members.

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KATHLEEN WONG [email protected] 416-866-8783 Updated June 27, 2017 BUY GRANITE REIT Prior Close C$51.97/US$39.64 Intrinsic Value C$54.00 TSX-GRT.UN, NYSE-GRP.UN Current Yield 5.0%

DE-RISKED MAGNA EXPOSURE LEAVES GRANITE UNDERVALUED Granite REIT specializes in the industrial subsector, benefitting from a key tenant relationship with Magna. In 2016, Granite completed lease renewals and extensions for 28 properties, 15 of which were tenanted by Magna, including seven SPPs. Having addressed its key tenant risk, we currently view Granite as overly discounted. Granite has a favorable operating structure (triple-net leases) that resulted in one of the highest property operating margins in our universe, at 96.6%. Also, the REIT has conservative leverage, a low payout ratio, and a disciplined growth strategy. We expect these trends to continue. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our estimate of F17 AFFO is $3.31 per unit. For the following three years, we estimate a 3.5% annual growth rate, leading to an estimate of $3.70 of AFFO per unit by 2020. We then apply a ter- No accounting issues noted. The REIT has not reported AFFO minal multiple of 15.5x to the REIT’s 2020 AFFO earnings. Discount- in the past as there was no set standard for the metric. But ing the REIT’s AFFO by its cost of equity of 8.0% brings our intrinsic now that REALPAC has put out a standardized guideline for value to $54 per unit. AFFO, the trust will begin reporting the metric in its Q1 2017 results.

Adjusted Cash Flows 5/5

Period Ending F15 F16 Q1 F17 By our estimates, Granite’s AFFO payout would have been C$ Millions (except as noted) 76%, which is on the low-end and is very conservative in our view.

The Balance Sheet 5/5 Unit price C$37.96 C$44.83 C$46.52

Granite is known for being very conservative with its capital (some would say it is too conservative). Its leverage ratio, Units outstanding (‘000s) 47,017 47,123 47,144 which is debt divided by fair value of properties, is 25%.

Business Operations 3/5 Market capitalization $1,785 $2,113 $2,193

Granite has a concentrated single-tenant relationship with Magna, one of the world’s largest auto parts suppliers. 78% Enterprise value (EV) $2,374 $2,770 $2,650 of Granite’s annualized lease payments come from Magna. However, Granite is starting to move away from relying on Reported Debt to FV of Proper- Magna as its sole source of tenancy. 23% 25% 24% ties We also note that Granite does not have exposure to Magna in Mexico anymore, mitigating potential fallout from NAFTA renegotiations. Revenue $216 $223 $55

Corporate Governance 4/5 Veritas Adjusted AFFO $148 $151 $39 Performance goals are based on quantifiable metrics. With the exception of the CEO, the board is independent. Three Veritas Adj. AFFO Payout Ratio activists have recently won board seats and we expect 73% 76% 79% them to drive Granite’s acquisition strategy. (includes DRIP if applicable)

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HOWARD LEUNG [email protected] 416-866-8783 Updated July 27, 2017 SELL HOME CAPITAL GROUP INC. Current Price C$14.51 Intrinsic Value C$12.50 TSX-HCG

DIMINISHING EARNINGS POWER After surviving a run on its funding, just barely, there is no question that HCG’s earnings power has been permanently impaired. The extent of that impairment remains unclear. However, looking beyond recent events and taking into account current and potential changes to the residential mortgage market (both regulatory and Ontario-specific), we conclude that HCG will not regain anything close to its previous form.

QUALITY RATING INTRINSIC VALUE Accounting & Disclosure 2/5 We value HCG at $12.50 by applying a multiple of 0.6x to the company’s estimated book value per share of $21.29 at the end of Recent news around related-party transactions was Q2-2017. concerning given that the company did not disclose that information previously. Capital 3.5/5 FY end Oct. 31 C$ 2014 2015 2016 HCG has a strong capital position with the CET 1 ratio Common equity tier 1 ratio currently sitting at 16.34%; that is well above regulatory 18.30% 18.31% 16.55% minimums. (BIII)

Credit 4/5 Closing Share Price $47.99 $26.92 $31.34

Credit losses are currently running at very low levels with EPS (TTM, adjusted) $4.11 $4.10 $3.95 HCG’s loss ratio a 24 bps in the most recent quarter. While we expect that to gravitate higher in the quarters ahead, P/E (TTM) 11.7x 6.6x 7.9x loan losses will not become a major issues unless unemployment levels increase materially in Ontario, which represents HCG’s key geographic footprint. BV/share $20.67 $23.17 $25.12

Business Operations 2/5 P/BV 2.3x 1.2x 1.2x

HCG is very likely to report margin erosion in the coming quarters given the material increase in its funding costs as its Dividend yield 1.5% 3.3% 3.1% GIC rates remain comfortably above industry peers. Running a sensitivity analysis on HCG’s earnings power under different Market capitalization (millions) 3,364 1,884 2,018 assumptions for net interest margin and loan growth in the company’s core single-family residential mortgage book ROE (adjusted) 22.1% 18.8% 16.4% gives us a very wide range of possibilities. Under what we believe is a realistic scenario where margins are down 20 bps going forward with a core mortgage portfolio of $12 billion at Net interest margin (AEA) 2.25% 2.35% 2.37% the end of 2017 (vs. $12.6 billion as of Q1 2017), we estimate that HCG’s EPS in 2019 would be approximately $2.16. A # shares outstanding (millions) 70.1 67.0 64.4 more extreme scenario with 60 bps of margin compression and a much smaller core mortgage portfolio of $10 billion (at the end of 2017) would suggest an EPS run-rate of closer to $1.18. BUSINESS COMPOSITION Corporate Governance 2/5 Home Capital Group is among Canada’s largest alternative lenders focused predominately on the residential mortgage market Issues around income falsification that surfaced in 2015 are within Ontario, which accounts for almost 90% of the company’s cause for concern and suggest that underwriting standards core Traditional portfolio. may not be as conservative as previously believed.

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-50% -25% 0 25% 50% Updated June 12, 2017 SELL HUDSON’S BAY COMPANY Current Price C$8.61 Intrinsic Value C$7.00 TSX-HBC Current Yield 0.6%

DISAPPOINTING Q1-2017; DIVIDENDS SLASHED; 2,000 JOBS AXED; HEAD OF HBC EUROPE AND REAL ESTATE REPLACED HBC reported disappointing Q1-2017 with negative FCF of C$752 million. TTM EBITDAR margin declined to 8.85%, the lowest level since its IPO in November 2012 despite the acquisition of the higher-margin Saks and Kaufhof businesses. Management slashed annual dividend by 75% to $0.05 per share to preserve cash. We attribute the disappointing HBC performance during the past few years to management’s focus on acquisitions and expansion rather than improving the existing operations

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 We value HBC by assigning market value to its owned real estate (~C$23 per share) and deducting market rent from the retail opera- HBC changed the accounting disclosure in Q1-2014 by grouping tions. We value HBC’s retail business 4.0x EBITDAR multiple, which is SSSG of the Bay and L&T together, but combined sales from L&T and Saks when reporting revenue. The lack of detailed and consistent at a discount to the peers’ average of 5.2x. We capitalize HBC’s disclosure creates challenges for analyzing performance of the total rent expense at 6x to derive the adjusted net debt. After de- various banners within the retail segment. ducting capitalized rent from the value of the retail business, we arrive at a negative value of ~C$16 per share for the retail operation. Therefore, our intrinsic value of HBC remains at C$7.00. Adjusted Cash Flows 2/5

HBC’s free cash flow was negative $345 million, similar to the level as in 2015. We expect negative $400m FCF in 2017 due to capex from 2015A 2016A 2017E FY end January the pursuit of digital innovations, renovation of Saks Fifth Avenue (Jan. (Jan. (Jan. (C$ Millions, except as noted) store, planned opening of Saks Fifth and OFF 5TH stores and expan- 30/16) 31/17) 31/18) sion into Netherlands. Sales Canada 2,957 3,283 3,358 The Balance Sheet 2/5 Sales U.S. 6,336 6,349 6,909 We believe that HBC is fast approaching the 4.5x Debt to EBITDA limit specified by the covenant disclosed in its U.S. Term Loan Credit Sales Europe 1,869 4,823 5,118 Agreement, dated September 30, 2015. S&P Global Ratings down- graded HBC’s credit rating from B+ to B on May 8, 2017. There is a Total Sales 11,162 14,455 15,385 significant risk of breaching its covenants should retail conditions worsen EBITDAR 1,200 1,353 1,488

Business Operations 1/5 EBITDAR Margins 10.75% 9.36% 9.61%

Canadian department stores have been losing market share to U.S. Third Party Rent Expense 343 490 524 and foreign specialty retailers. Poor performance at HBC’s legacy business has been masked by stronger results from Saks (acquired in Rent Paid to Joint Ventures 190 448 449 2013), but Saks’ performance is also lagging peers, and recent slowdown in tourist spending is hurting Saks’ full-line sales. Kaufhof has Capital Expenditures (before 610 1,085 1,075 seen tepid growth despite owning the dominant market share landlord incentives) among German multi-brand retailers. In relation to the Kaufhof deal, management indicated opportunities for increased e-Commerce Market Price $23.84 $15.76 $8.61 presence, expansion of Saks and The Bay into Europe and $30m- $50m acquisition synergies (around 1% of target company’s sales). Shares Outstanding (mlns.) 182 182.3 182.3

Enterprise Value 6,431 5,973 5,591 Corporate Governance 3/5 EV/EBITDA 8.8x 7.9x 7.7x The Board of Directors is comprised of 11 directors, six of whom are independent (55%). Net Debt/EBITDA

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KATHLEEN WONG [email protected] 416-866-8783 Updated July 25, 2017 BUY HUSKY ENERGY INC. Current Price C$14.12 Intrinsic Value C$21.50 TSX-HSE Current Yield 0%

FREE CASH LEAVES HUSKY AHEAD OF THE PACK After sustaining capital requirements of ~$2.3 billion in 2018 (our estimate), we expect the company to generate $1+ billion in free cash flow at US$50 WTI, representing a free cash flow yield of 7.4% at today’s share price. Even factoring in an additional $900 million in growth capital, we still see Husky eking out a cash surplus of $150 million next year at US$50 WTI. While the proverbial ‘popular kids’ Suncor and Imperial continue to draw more attention, we prefer Husky’s discounted value and ability to navigate stagnant oil prices. BUY.

QUALITY RATING INTRINSIC VALUE WTI Oil Price HH Gas Price USD/CAD Intrinsic Accounting & Disclosure 2.5/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value Husky's Indonesian operations have run into IFRS 11 report- $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 14.00 ing restrictions requiring equity accounting. The partners $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 21.50 have rights to the net assets of a business arrangement (a 'joint venture'), which requires equity accounting, rather $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 32.50 than direct rights and obligations on the assets themselves Our base case values Husky at $21.50 per share, reflecting a return to (a 'joint operation'), which would allow proportionate con- US$67 WTI oil and US$3.75 NYMEX gas through 2021. solidation. Q2 2017 Company profile 2016 2015 Adjusted Cash Flows 3/5 (6 Mos.) Price 15.01 16.29 14.05 At US$51 WTI (our low case) 2017 operating cash flow per share of $3.10-$3.20 per share and free cash flow per share Shares (millions incl. exch.) 1,005.5 1,004.9 1,005.5 of ~$0.20. These cash flows and free cash flows increase in Market cap. ($ millions) 15,092 16,370 14,127 2018 to ~$3.75 and ~$0.50 with US$55 WTI (our low case). Revenue ($ millions) 9,036 12,919 16,369 CFPS 1.43 1.96 3.74 The Balance Sheet 3.5/5 Price to YTD CFPS 5.3x 8.3x 3.8x Husky ended Q2-F17 with $5.9B of debt and $2.5 billion in ROE (annualized) -0.3% 5.4% -20.7% cash for a net debt position of $3.4 billion and $4.0B of un- used credit on its borrowing facilities. Husky’s current net Dividends per share 0.00 0.00 1.17 debt is 1.1xt its funds flow at US$51 WTI in 2017, which is best Production (000's boe/d) 327 321 346 among its integrated peers. CFO* per boe 48.10 16.81 29.80 Business Operations 2.5/5 Net debt to EV 19% 20% 32% Net debt to CFO* 1.2x 2.1x 1.8x Husky is diversifying away from its traditional Atlantic and Western Canadian base with the startup of Liwan and Sun- Q2 2017 Cash Flow and Distributions 2016 2015 rise. Mid and Downstream EBITDA remains an outsized con- (6 Mos.) tributor to overall operating income. Reported CFO* 1,434.0 1,971.0 3,760.0 Corporate Governance 2/5 Capital expenditures (964.0) (1,705.0) (3,005.0) Available cash (shortfall) 470.0 266.0 755.0 Husky is a creature of Li Ka-Shing who controls, directly and Dividends declared 0.0 0.0 1,181.0 indirectly, a 70.74% interest. His control and influence were never more evident than with the April 25, 2016 $1.7 billion % of CFO* 0% 0% 31% sale of midstream assets to two entities controlled by Li Ka- % of available cash 0% 0% 156% Shing. *CFO is cash from operations after working capital and asset retirement expenditures.

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-50% -25% 0 25% 50% Updated May 9, 2017 BUY HYDRO ONE LTD. Current Price $24.03 Intrinsic Value $26.50 TSX-H Current Yield 3.7%

FOUR REASONS TO BUY HYDRO ONE’S OFFERING We believe the $23.25 per share offer price is an attractive entry point for H investors. Our view is that there is potential for material capital upside because of higher achieved ROE and robust liquidity. H’s under-levered balance sheet can be geared to reduce equity funding of prospective capital spending or to strategically diversify operations into another, higher growth jurisdiction via acquisition. We maintain BUY recommendation.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3.5/5 We value H at $26.50 per share.

Hydro One’s financial reporting is on par with its peers, but its regulatory statements are easier for in- FY end Dec. 31 vestors to navigate since it only files with one agency Q1-F17 F16 F15 (the OEB). (Amounts in C$ Millions)

Price $24.21 $23.58 $22.29 Adjusted Cash Flows 2.5/5 Shares (millions) 595 595 595 Higher expected returns under PBR combined with higher organic rate base growth support 5% average Market capitalization $14,405 $14,030 $13,263 AFFO growth through F21.

The Balance Sheet 4/5 Net debt (incl. preferred $14,440 $14,454 $11,546 shares)

H has best in class leverage and debt-service metrics, which will eventually allow it to follow the foot- Enterprise value (EV) $28,845 $28,484 $24,808 steps of EMA and FTS with large-scale, layer-financed acquisitions—an avenue which could prove value accretive at H’s current valuation. EBITDA (TTM) $2,020 $2,056 $1,812 Business Operations 2.5/5 Adjusted EPS (TTM) $1.14 $1.21 $1.16

Although H’s regulatory environment is favourable compared to its peers, investors might have to wait EV/EBITDA (TTM) 14.3x 13.9x 11.2x until 2018 to see the potential organic benefits of cost-cutting. Price-to-earnings ratio (TTM) 21.2x 19.5x 19.2x Corporate Governance 2.5/5

Net debt-to-EBITDA (TTM) 7.2x 7.0x 6.4x No significant issues noted.

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated July 27, 2017 SELL IMAX CORP. Prior Close US$21.85 Intrinsic Value US$19.00 NYSE-IMAX Current Yield 0.0%

NO FLOOR TO IMAX’ FA LLING PER-SCREEN AVERAGES

We continue to believe that IMAX’s story of operating leverage no longer reflects reality and the company also faces new risks in China, both from outside competitors and from within. Furthermore, moviegoers are becoming more picky—even in China. The result is IMAX posting one of its weakest Per-Screen Averages (PSAs) ever, leading to a continued downward spiral in revenue and operating profits. IMAX can tout its growing network of theatres and restructuring plans, but if per- screen economics decline in response, the company’s growth turns negative. We remain sellers of shares.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 Our intrinsic value estimate of US$19.00 reflects continued deterioration of per-screen economics in 2017 due to China saturation We have no major concerns with IMAX’s U.S. GAAP ac- and lagging JV screen performance. Based on IMAX’s recent counting; however, we believe the company’s Adjusted rollout schedule, we now expect the company to deliver ~90 EBITDA metric (used for credit agreement purposes) over- new JRSAs per year over the next five years, with slightly lower states the economics of its business because it excludes EBITDA margins in China than under our prior estimates. There- stock-based compensation, and production and DMR costs. fore, we sequentially lower IMAX’ PSAs from US$950,000 in 2017 to US$850,000 by 2022, resulting in a per-share price of US$19.00. All Adjusted Cash Flows 1/5 valuation scenarios are DCF-based and utilize a 9% WACC.

Due to IMAX’s royalty-based business model, cash flow largely tracks performance of its theatres, and is therefore Period Ending Q2-F17 F15 F16 subject to box office volatility. Its high-performing theatres US $ Millions (except as noted) TTM generate a strong royalty stream, with minimal ongoing costs. However, recent box office challenges have started to take a toll on IMAX’s cash flows. Share price $35.54 $31.40 $22.00 The Balance Sheet 3/5

IMAX is in a net cash position. However, IMAX has significant Shares outstanding (millions) 69.7 66.2 64.9 off-balance sheet commitments in funding equipment for its joint ventures, which they have not quantified but we estimate at over US$200 million. Market capitalization $2,476 $2,078 $1,428 Business Operations 1/5 Enterprise value (EV) $2,242 $1,901 $1,296 IMAX is a valuable brand for a niche market. But we believe its economic moat is shrinking due to rapidly increasing competition. To make it even worse, IMAX’ cinematic mar- Revenue $374 $377 $350 ket is structurally getting weaker. Also, a number of other threats are also on the horizon. Studios are negotiating with cinema chains to allow consumers to stream movies three weeks after their theatrical release, which could impact Reported EBITDA $141 $122 $109 IMAX through lower attendance.

Corporate Governance 2/5 EV-to-EBITDA 15.9x 15.6x 11.9x

No major risks identified. However, shareholders have, on an advisory basis, rejected the company’s say-on-pay plan for Box Office Per Screen Average $1.15 $1.00 $0.85 million million million the second year in a row. (‘PSA’)

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HOWARD LEUNG [email protected] 416-866-8783 Updated February 28, 2017 SELL IMPERIAL OIL LTD. Current Price C$41.49 / US$31.28 Intrinsic Value C$38.00 TSX-IMO; NYSE-IMO Current Yield 1.3%

KEARL’S UNPLANNED DO WNTIME SHOWS CHALLENGES Kearl’s bitumen production declined by 17% in Q4 F16 to 120,000 barrels per day over the prior year quarter. Management offered that both planned and ‘unplanned’ maintenance activities played a role and investors should continue to be cautious due to the unplanned portion. With no segmented disclosure investors have little to go on to judge the profitability of one of IMO’s most significant projects. The sale of retail assets represented a temporary cash flow boost and the remaining operations cash generating potential is more than reflected in the share price. SELL.

QUALITY RATING INTRINSIC VALUE

WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 3/5 Commodity Case 2017 / 2020 2017 / 2020 2017 / 2020 Value

The Canadian Securities Administrators allow cross listed $60 Oil Case 50 / 60 2.60 / 3.35 0.79 / 0.83 32.00 Canadian issuers to report under U.S. GAAP without $65 Oil - Base Case 55 / 65 3.00 / 3.75 0.81 / 0.85 38.00 reconciliation to IFRS. Imperial has elected this option using successful efforts (SE) accounting. U.S. SE impairments $75 Oil Case 65 / 75 3.50 / 4.00 0.85 / 0.89 54.50 begin by comparing undiscounted cash flows to book Our base case values Imperial Oil at $38.00 per share, reflecting US$65 oil value which, for long life assets like oil sands, is a cakewalk. and US$3.75 gas in 2020. Adjusted Cash Flows 2.5/5 Company Profile 2014 2015 2016 At US$55 WTI, we would expect Imperial to generate a free Price 50.05 45.08 46.71 cash flow surplus of $1.3-$1.5B in 2017 for an implied FCF yield of 3% to 4% . With only high-cost growth options, we Shares (millions incl. exch.) 847.6 847.6 847.6 do not see this yield as enough, on its own, to warrant an Market cap. ($ millions) 42,422 38,210 39,591 investment. Revenue ($ millions) 36,966 26,888 25,049 The Balance Sheet 2.5/5 CFPS 5.20 2.56 2.38 Much of the debt needed to finance Kearl Lake is drawn Price to YTD CFPS 9.6x 17.6x 19.6x on an existing ExxonMobil credit facility. The Exxon facility had $4.47 B of its $7.75 B capacity drawn at the end of Q4 ROE (annualized) 18.0% 4.9% 9.1% 2016. Imperial's variable interest rate on this facility in 2016 Dividends per share 0.52 0.54 0.59 averaged just 1.0%. It is worth noting that the loan can be called with 370 days notice. Production (000's boe/d) 310 371 386 CFO* per boe 38.93 16.02 14.30 Business Operations 2.5/5 Net debt to EV 14% 18% 11%

With extremely limited segmented reporting, it is impossible Net debt to CFO* 1.5x 3.8x 2.4x to track the performance of Imperial's Kearl project other than through volumes and blend sale prices. Kearl's is likely Cash Flow and Dividends 2013 2014 2016 disappointing, however. Imperial's upstream production and manufacturing expenses were $26 per barrel prior to Reported CFO* 3,292.0 4,405.0 2,015.0 Kearl's startup in 2012. They have averaged over $28 per Capital expenditures (8,020.0) (5,654.0) (1,073.0) barrel in 2016. Available cash (shortfall) (4,728.0) (1,249.0) 942.0 Corporate Governance 2.5/5 Dividends declared 415.0 441.0 492.0 % of CFO* 13% 10% 24% ExxonMobil's dominant position in Imperial Oil (close to 70% ownership) raises the possibility of an opportunistic buyout % of available cash N/A N/A 52% such as the one used by Royal Dutch Shell to take out its Canadian sub in 2006. For this reason, we suggest a 10% * CFO is cash from operations after working capital and asset retirement expenditure minority shareholder discount. Torpedo Risky Neutral Better Best Quality Scale

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SAM LA BELL [email protected] 416-866-8783 Updated May 15, 2017 SELL LINAMAR CORPORATION Current Price $63.30 Intrinsic Value: $61.00 TSX-LNR Current Yield 0.8%

SKYJACK, EUROPE AND ASIA LIFT Q1 RESULTS Linamar reported a strong quarter with year-over-year: revenue, EBIT and earnings growth, of 9.1%, 11.7% and 14.8%, respectively. Although the company’s North American automotive revenues were a weak spot – declining 5.3% from the same quarter a year ago – European and Asian auto operations, as well as a remarkably strong Skyjack quarter, more than offset the shortfall. We remain concerned by auto cycle risks and the potential threat of U.S. protectionism. Until these risks materialize, however, Linamar continues its record of executing on its business plan, as evidenced by: 1) an increasing pace of automotive program launch activity; and 2) a growing backlog in both its Powertrain and Skyjack segments.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 Our intrinsic value of $61 per share is based on a discounted cash flow analysis that considers: a scenario of declining NA vehicle Disclosures are reasonable; however, we would prefer to production; elevated capital spending requirements over the see additional detail with respect to geographic profitabil- long-term to reflect reinvestment risks tied to the likely migration ity on a divisional-by-division basis. of auto production back to the United States; and slightly stronger than forecast near-term outlook for Skyjack. Adjusted Cash Flows 3/5

We expect capital spending to increase as LNR invests in TTM new program launches and U.S. protectionist policies po- $ Millions F15 F16 tential trigger reorganization costs. However, the Compa- Q1-F17 ny’s growing backlog, management’s consistent focus on efficiency and LNR’s positioning relative to industry trends Share price (End of period) $74.73 $57.69 $60.49 should still translate into meaningful cash flow generation.

Shares outstanding (millions) 65.2 65.2 65.2 The Balance Sheet 3/5

Although funding of the Montupet acquisition with debt will Revenue– Powertrain/Driveline $4,300 $5,100 $5,200 lead to elevated levels of debt, we believe LNR’s ability to generate cash flow will allow it to comfortably service its obligations while reducing leverage over time. Reported EBIT- Powertrain/Driveline $440 $550 $550

Business Operations 4/5 Revenue– Industrial $850 $865 $950 LNR’s acquisition of Montupet is highly strategic and provides: regional scale, a portfolio of high value-added products and increased penetration into Europe. Combined Reported EBIT– Industrial $155 $145 $165 with the Company’s JV with light metal specialist Georg Fischer, LNR is well positioned to benefit from OEM trends in $4,900 $3,700 $3,900 powertrain development and vehicle mass reduction. Market capitalization

Corporate Governance 2/5 Net debt $210 $1,030 $1,060

Half of the board is not independent and related to LNR’s founding family. Two of the three independent directors Enterprise value (EV) $5,110 $4,730 $4,960 have served for over 13 years. The board is comprised of an even number of directors, which could result in the inability to resolve matters requiring a majority vote. EV-to-TTM EBITDA 5.9x 4.6x 4.7x

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DAN FONG [email protected] 416-866-8783 Updated May 5, 2017 BUY LOBLAW COMPANIES LTD. Current Price C$77.56 Intrinsic Value C$85.00 TSX-L Current Yield 1.4%

LOBLAW DELIVERS ON PRICING STRATEGY AND EXPENSE CONTROL Loblaw’s Q1-2017 adjusted EBITDA increased 4.3% to $864 million, better than consensus of $843 million. Loblaw targeted price investment in Q1-2017 continued to drive strong traffic which offset the negative impact of food price deflation. This was the third consecutive quarter that Loblaw demonstrated success with this strategy. April 2017 should be the last month we experienced food price deflation and the Canadian grocers should have easier comparison from May 2017 onwards and we expect Loblaw to generate positive SSSG in the next few quarter. Loblaw has become more promotional during our grocery price surveys in January and April 2017. Going forward, we expect Loblaw continues to experience a slight GPM decline but the retail GPM should remain stable in the 26% range. Loblaw demonstrated strong expense control during the past several quarters and this had helped to more than offset the GPM decline. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 We have incorporated the better-than-expected Q1 results in our model and derived a new NAV of $85.00 (up from $80.00). Our $85.00 Loblaw began reporting the sales and profitability of its retail intrinsic value of Loblaw consists of $72.00 from Retail, $2.00 from Fi- segment and financial services segment beginning in Q1-2011. nancial Services and $11.00 from the 82.7% interest in Choice Proper- We are looking for more detailed disclosure on the perfor- ties REIT. Loblaw remains a BUY mance of Shoppers Drug Mart versus legacy food retail. FY end December 2016 2017E 2018E Adjusted Cash Flows 3/5 (C$ Millions, except as noted) Free cash flow should improve as IT spending gradually declines to less than 1% of sales by 2016. Loblaw will also benefit from the Consolidated Revenue 46,385 47,861 49,486 higher-margin Shoppers Drug Mart business and related operational synergies. Consolidated EBITDA (Adj.) 3,852 3,938 4,030 The Balance Sheet 3/5 Consolidated EBITDA Margin 8.30% 8.23% 8.14% The acquisition of Shoppers increased lease adjusted net-debt- to-EBITDAR ratio from 1.3x to 3.1x, which is still within the lever- Loblaw Food Retail Adj EBITDA 2,125 2,181 2,250 age ratio range of DBRS’ BBB credit rating. The company has since paid down $1.9m, and has employed free cash flow towards dividend increases and share buybacks. Loblaw Food Retail EBITDA Margin 6.41% 6.39% 6.36%

Business Operations 3/5 Shoppers Drug Mart EBITDA 1,506 1,530 1,542 Grocery is a mature industry and the acquisition of Shoppers Drug Mart will help Loblaw to benefit from the aging de- Shoppers Drug Mart EBITDA Margin 12.33% 12.08% 11.83% mographics and the strong growth of generic drugs. Loblaw should realize benefits from SAP system implementation in areas of improved store inventory management during 2016. Share Price $71.05 77.56 77.56

Corporate Governance 3/5 Market Capitalization 29,067 31,730 31,730

Loblaw’s Board of Directors consists of a majority of independ- EV $39,162 $41,053 $39,813 ent directors, with 10 out of 13 considered independent (77%). Unlike the majority of Canadian retailers, Loblaw does not have a typical dual class voting structure. The issuance of shares to EV/EBITDA 9.9x 10.4x 9.9x finance the acquisition of Shoppers reduced George Weston’s interest in Loblaw from 62.8% to 46.0% in late 2013. Shares Outstanding (millions) 401 399 399

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KATHLEEN WONG [email protected] 416-866-8783 Updated April 18, 2017 MACDONALD DETTWILER & ASSOCIATES LTD.

Current Price C$69.86 Market Capitalization (million) $2,540 TSX-MDA MIND THE GAAPS

In our opinion, MDA’s reported Operating EBITDA and Operating earnings metrics materially overstate the underlying economic value creation of the company because management excludes essential and recurring costs. We are also concerned with the large gap between MDA’s free cash flow and Operating Earnings. Although we note the improvement in earnings to free cash flow conversion rate in 2016, due to securitization of long term orbital receivables, we would like to see more evidence of a sustained improvement in free cash flow. We will further update our analysis when MDA is expected to file business acquisition report related to the recently announced acquisition of DigitalGlobe, Inc.

Risk Areas

 Earnings quality — The gap between Operating Earnings and free cash flow has narrowed in F16 due to the securitization of approximately $160 million in long term Orbital Receivables. Thus, earnings to cash conversion rate has increased from 12% in 2015 to 79% in 2016. We note, however, that Operating Earnings has exceeded MDA’s free cash flow by ~80% over the eight years ending 2016 (we cannot assess cash conversion over a longer period because MD&A has sold a key segment in 2011). Based on our analysis, the wide disconnect is primarily driven by investments in working capital, the exclusion of cash-settled stock-based compensation costs and the capitalization of material internal development costs. In addition, we estimate that approximately 6% of 2016 revenue is comprised of receivables that are subject to restructuring (i.e. it seems that certain end customers are having trouble financing their satellite orders on a timely basis.)

 Non-GAAP metrics — The exclusion of material and recurring cash stock-based compensation costs and the excess of internal costs’ capitalization over amortization, inflate reported Operating EBITDA and Operating earnings.

 Management Compensation — Management is compensated, in part, based on Operating earnings per share, which in our opinion overstate MDA’s true economic performance. We would like to see more focus on cash flow generation.

 Updates since last report — No updates.

DIMITRY KHMELNITSKY [email protected] 416-866-8783 Updated May 23, 2017 BUY MACY’S INC. Current Price US$23.01 Intrinsic Value US$29.00 NYSE-M Current Yield 6.6%

Q1 WEATHER HITS MACY’S BUT FREE CASH EXC EEDS Although Macy’s Q1-2017 key metrics were worse than Nordstrom and Kohl’s, Macy’s generated FCF of US$57 million, which was up from a negative US$220 million in the same quarter last year. To put this into perspective, Nordstrom and Kohl’s Q1-2017 FCF had declined from last year to a negative US$64 million and negative US$170 million, respectively. Note that the first quarter is typically the weakest quarter for all apparel retailers and Q1-2017 was exacerbated by the unseasonably warm weather in February 2017. We expect Macy’s to generate ~US$1.1 billion FCF in 2017. The FCF can be used to pay down US$309 million in debt and US$469 million in dividends, with the remaining ~ US$330 million available for further debt reduction.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We now value Macy’s based on its fundamentals without taking into account the real estate value. We have incorporated Ma- Macy’s disclosure is in line with the disclose at other depart- cy’s worse than expected Q1-2017 results in our model and up- ment stores in the U.S. It also disclosed the calculation of its dated our forecast assumptions. We have derived a US$29.00 credit ratios. intrinsic value for Macy’s by valuing the retail operation at 5.8x 2017E EBITDAR and deducting adjusted net debt. Our discounted cash flow model of Macy’s also generated a US$29.00 intrinsic Adjusted Cash Flows 3/5 value based on a 10.5% discount rate and 0% terminal growth rate. Despite the tough retail environment, Macy’s generated 2015 2016 2017 US$889 million free cash flow in 2016 (year ended Jan 28, FY end January (Jan. (Jan. (Jan. 2017) and it was about the same as in the previous year. (C$ Millions, except as noted) 30/16) 28/17) 31/18)

Same Store Sales Growth (2.5%) (2.9%) (3.0%) The Balance Sheet 2/5 Sales psf $187 n/a n/a We use Moody’s method of capitalizing Macy’s rental expense at 8.1x to calculate Macy’s Adjusted Debt to Net Sales $27,079 $25,778 $24,739 EBITDAR, which reached 3.4x in 2016. Due to deteriorating EBITDAR performance in 2015 and 2016, the adjusted total Gross Profit Margin 39.08% 39.40% 38.80% debt to EBITDAR ratio has gradually increased from 2.5x in Adj. EBITDAR (excluding gain 2014 to 3.4x in 2016. on sale and stock based $3,486 $3,021 $3,009 comp) EBITDAR Margin 12.87% 11.72% 12.16% Business Operations 3/5 EBITDA $3,165 $2,686 $2,670 Due to poor holiday sales, 2016 Adjusted EBITDA (excluding gain on sale of real estate and stock based compensation EBITDA Margin 11.69% 10.42% 10.79% expense) declined 15% to US$2,686 million. Adjusted EBITDA margins declined by 127bps to 10.42% in 2016. Average Stock Price $57.34 $37.35 $23.01

Market Cap $19,094 $11,608 $7,161

Corporate Governance 5/5 Enterprise Value $25,622 $17,182 $12,093

The Board of Directors is comprised of 12 directors, all of whom are EV/EBITDA 7.9x 6.1x 4.5x independent. Macy’s also has a very diverse group of Directors. Weighted Average Shares 333 311 311 outstanding (mlns.)

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KATHLEEN WONG [email protected] 416-866-8783 Updated May 15, 2017 SELL MAGNA INTERNATIONAL INC. Current Price US$45.83 Intrinsic Value: US$44.00 TSX-MG / NYSE-MGA Current Yield 2.4%

NORTH AMERICAN STRENGTH IS A DOUBLED EDGED SWORD Magna posted a strong first quarter with revenues of $9.4 billion (+5% YOY) and adjusted EPS of $1.53 (+25% YOY). Although Magna reduced its 2017 North American (NA) revenue guidance by ~1%, the company’s outlook for European revenues increased by almost 6% – as a result, 2017 revenues are expected to be ~1.5% higher than originally forecast. Magna’s Q1 performance was largely attributable to the company’s NA operations, which benefited from increased GM production volumes as the OEM builds vehicle inventories in preparation for a 10-week shutdown in Q3. We note, however, that GM’s sales have shown signs of weakness in April, which could build into a larger problem as inventories rise. Given our medium-term outlook for lower NA production volumes and the potential risks posed by U.S. protectionism, we continue to suggest investors approach NA auto stocks with a wide margin of safety.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 2/5 Our intrinsic value estimate of $44 per share considers a scenario of declining NA vehicle production from the current record levels Magna does not disclose detailed information on capital- and stable reinvestment rates over the short-term. In our terminal ized R&D or costs associated with tooling and engineering year, we assume higher capital spending to reflect risks tied to contracts. The Company also provides little detail on its U.S. protectionist policies that are likely to trigger reorganization equity-accounted investments, which are material contrib- costs as OEMs eventually shift production back to the United utors to earnings. States. Our reinvestment rate assumptions imply: a long-term growth rate of ~2%, a long-term FCF yield of ~6%, and a terminal Adjusted Cash Flows 2/5 multiple of 5.25x EV to EBITDA.

Magna has historically generated strong cash flows, allowing the Company to comfortably fund capex, acquisitions, Period Ending TTM F15 F16 and returns of capital to shareholders. However, with US$ Millions (except as noted) Q1-F17 growth in NA vehicle sales set to slow down and U.S. protectionist policies potentially triggering reorganization costs, Magna’s FCF may come under pressure. NA production (millions) 17.5 17.8 17.8

The Balance Sheet 4/5 European production (millions) 21.0 21.4 21.5

Despite taking on debt to fund the Getrag acquisition, Price per share (split-adjusted) $40.56 $43.40 $43.16 Magna maintains a strong balance sheet with a conservative leverage ratio of 0.7x debt to LTM EBITDA. Dividend per share $0.88 $1.00 $1.12 (annualized, split-adjusted) Business Operations 3/5

Magna’s operations are heavily impacted by the cyclical Market capitalization $16,300 $16,600 $16,400 nature of NA auto sales. Although Magna has been successful in growing NA margins and CPV, the Company is Enterprise value (EV) $16,200 $19,200 $19,000 very much tied to the success of domestic automakers. In addition, the increasing significance of Magna’s complete vehicle assembly business is margin dilutive. Revenue $32,100 $36,500 $36,900

Corporate Governance 4/5 EBITDA $3,200 $3,800 $4,000

Short- and long-term incentive plan goals are clearly disclosed and are aligned with the interests of outside inves- EV / TTM EBITDA 5.1x 5.0x 4.8x tors. The majority of Directors are independent and began serving on the Board in the post-Stronach era. Net Debt / TTM EBITDA NM 0.6x 0.7x

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DAN FONG [email protected] 416-866-8783 Updated May 12, 2017 BUY

Current Price C$23.92 / US$17.46 MANULIFE FINANCIAL CORP. Intrinsic Value C$27.00 TSX-MFC NYSE-MFC Current Yield 3.4%

STEADY AS SHE GOES MFC reported core EPS of $0.53 in Q1, which met the Street’s expectations. Core ROE improved meaningfully from 9.3% last year to 11.1%, while MFC’s quarterly dividend was left unchanged at $0.205/share. The company’s business in Asia continues to flourish largely on the back of improved distribution, while the U.S. business rebounded due to record gross flows within wealth and favorable policyholder experience. Our thesis on MFC has not changed coming out of the quarter; we continue to expect gradual improvement in both core earnings and ROE, as the benefits of strong sales and higher interest rates make their way into results. Both our BUY recommendation and intrinsic value estimate of $27.00 remain unchanged.

QUALITY RATING INTRINSIC VALUE Accounting & Disclosure 3.5/5 Our intrinsic value of $27.00 incorporates a multiple of 1.3x on our MFC met its ROE target of 13% in Q1 2017 with a 13.7% result. F2017 BV/share estimate of $21.06. Accounting charges did weigh on earnings as a flattening FY end Dec. 31 yield curve led to modest gains in Japan on the valuation of our F14 F15 F16 policy liabilities. C$

Share price (at end of period) 22.18 20.74 23.91 Capital 4/5 Book value / share 16.42 19.51 19.37 The company’s capital position remained strong with MLI’s MCCSR ratio ending the quarter at 233%, unchanged from the prior year. P:BV 1.4x 1.1x 1.19x

MCCSR (of Canadian subsidiary) 248% 223% 230% The Balance Sheet 4/5 Core ROE 9.8% 9.2% 12.9% MFC’s direct exposure to oil & gas as part of its Alternative Long-Duration Assets portfolio is $2.1 billion (0.7% of total 2.8% 3.6% 3.1% invested assets) in Q1. Other O&G exposure include $14.4 billion Dividend yield (8%) of fixed income exposure per MFC’s disclosure in Q1-F17. Reported core EPS (TTM) 1.48 1.68 1.96 Business Operations 3.5/5 Core P:E 15.0x 12.3x 10.6x Earnings growth relative to the prior year period was particularly strong in the U.S. and Asia at 37% and 14%, respectively. The U.S. business benefitted from many factors such as favorable Market capitalization ($B) 41.3 40.9 47.2 policyholder experience, including changes to claim assumptions in the long-term care business, and higher fee 1,864 1,971 1,975 income in wealth and asset management (WAM). Asia’s # of shares O/S ($M) growth of 14% (on a constant currency basis) was driven by robust new business volumes as well as further progress on AUM ($B) 691 857 894 expanding MFC’s distribution capabilities in the region. BUSINESS COMPOSITION

Corporate Governance 4/5 Excluding Corporate and Other, 38% of MFC’s Q1 F2017 core earnings was generated in Asia, 29% in Canada, and 47% in U.S. No issues noted.

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-50% -25% 0 25% 50% Updated May 4, 2017 BUY MAPLE LEAF FOODS INC. Current Price C$34.27 Intrinsic Value C$35.50 TSX-MFI Current Yield 1.3%

MAPLE LEAF ANGLES FOR GROWTH Maple Leaf Foods produced the fifth consecutive quarter of double digit EBITDA margins (10.8% in Q1-F17), there is now plenty of evidence that the company can run its modernized plant network at an attractive scale. While management’s latest five- year target of 14% to 16% Adj. EBITDA margins is likely to face many challenges, Maple Leaf may yet surprise investors with gains from product development and branding efforts, escaping its current positioning in relatively mature protein markets. We remain buyers of this name.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 Our updated valuation of $35.50 a share incorporates 11.6% EBITDA margins in 2018, with $3.5 billion in sales and a 10.3 times The bulk of Maple Leaf’s ‘provisions’ account has now be- Enterprise Value to EBITDA multiple. come current ($14.0 MM of $26.1 MM at the end of Q3). Provisions primarily relate to severance and site closing costs tied to Maple Leaf’s plant restructuring.

FY end Dec. 31 LTM, F15 F16 C$ Millions Q1-F17 Adjusted Cash Flows 3.5/5

We expect Maple Leaf to generate about $234 MM of free Price 23.76 27.65 29.11 cash flows in 2017, after $110 MM of sustaining capital with a similar level (+/- $10 MM) likely in 2018 and $259 MM of free cash in 2018. Shares outstanding, millions 135.0 136.3 132.7 The Balance Sheet 5/5 Market capitalization 3,207.6 3,670 3,862 At the end of Q1, Maple Leaf had ~$2.83 per share in net positive working capital on its books, after debt, provisions Debt (cash) net of working capital (456.1) (558.5) (375.3) and other liabilities. This included $1.08 per share in cash. and selected long-term liabilities

Business Operations 3.5/5 Enterprise value 2,751.5 3,210.2 3,486.7

In our view, primary margins (sales less inventory costs) Revenue* 3,292.9 3,331.8 3,346.1 should normalize near 24% of sales in 2017, with SG&A and non-inventory costs reduced to ~$448 million net of D&A, just over 13% of sales. EBITDA (adjusted) 219.8 343.4 349.9

0.58 0.93 0.99 Corporate Governance 3.5/5 EPS (adjusted)

The modernization of Maple Leaf’s supply chain leaves P/E multiple (TTM adjusted) 41.0x 29.7x 29.4x management with no more excuses. Continued operational execution is a crucial test of Mr. McCain’s leadership and so far results have been good. EV / Adj. EBITDA (TTM) 12.5x 9.3x 10.0x

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-50% -25% 0 25% 50% Updated May 2, 2017 SELL MARTINREA INTERNATIONAL INC. Current Price C$10.98 Intrinsic Value: C$8.75 TSX-MRE Current Yield 1.1%

MARGINS EXPAND BUT FREE CASH LAGGING Martinrea continues to post steady margin growth with adjusted EBITDA margins 9.1% for the trailing-twelve-months ending Q1-F17 – an 80 basis point improvement from Q1-F16. Although we expect margins to continue improving, we remain concerned that the company’s operational improvements to date have not shown signs of translating into meaningful free cash flow generation – since the beginning of its margin expansion trend in Q3-F14, Martinrea has generated cumulative free cash flow of just $64 million, as compared to revenues of $11 billion. Looking ahead, based on contract roll-offs and GM’s updated Equinox terms, we expect Martinrea’s margin expansion to accelerate. However, the company’s historically high reinvestment rate may continue to constrain cash flow growth, with auto cycle risks and the potential threat of U.S. protectionism also weighing on cash flow and valuation.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 Our intrinsic value of $8.75 per share considers a scenario of: 1) accelerated margin improvement; 2) declining NA vehicle pro- MRE’s depreciation method differs from peers in that it uses duction; and, 3) elevated capital spending requirements over ‘life-of-program’ depreciation as opposed to ‘units-of- the long-term to reflect reinvestment risks tied to the likely migra- production’. As a result, higher amounts are amortized dur- tion of auto production back to the United States. ing production ramp-up, and lower amounts when production reaches maturity. TTM C$ millions F15 F16 Adjusted Cash Flows 1/5 Q1-F17

Since the start of 2013, Martinrea has generated cumulative $10.51 $8.59 $10.32 free cash flow of negative $2.7 million, which we attribute to Share price a high reinvestment rate. U.S. protectionist policies that potentially trigger reorganization costs are likely to hamper the Company’s ability to generate meaningful cash flow. Shares outstanding (millions) 86 86 86 The Balance Sheet 2/5

Based on our estimates, Martinrea is likely to reduce its lever- Revenue $3,900 $4,000 $3,900 age to 1.7x net debt to TTM EBITDA by the end of 2017, close to its target of 1.5x. However, we estimate that debt as a percentage of enterprise value will remain elevated at 46%, Adjusted EBIT (as reported) $180 $200 $200 which is significantly higher than its Canadian peers. Business Operations 2/5 Adjusted EBITDA (as reported) $320 $350 $355 Operational improvements and the run-off of less profitable contracts should allow for continued margin expansion. However, given the Company’s acquisition strategy and Market capitalization $910 $740 $890 historically weak free cash flow profile, we remain concerned about the possibility of future M&A activity, which could negatively impact cash flow and leverage. Net debt $690 $660 $635 Corporate Governance 2/5

A majority of directors are independent and have been Enterprise value (EV) $1,600 $1,400 $1,525 elected within the past three years. The chairman is a founder, full-time employee and integral part of management, which may impact independence. The board is comprised of an even number, which could result in the EV-to-TTM adjusted EBITDA 5.0x 4.0x 4.3x inability to resolve matters requiring a majority board vote.

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DAN FONG [email protected] 416-866-8783 Updated April 26, 2017 BUY METRO INC. Current Price C$45.18 Intrinsic Value C$51.00 TSX-MRU Current Yield 1.4%

MERCHANDISING AND PROMOTIONAL STRATEGIES PAYING OFF

Q2-F2017 SSSG of +0.3% was impressive despite a tough comparison of +5% in the same quarter last year and a deflationary environment. Metro’s Q2 results were in line with the observations from our January 2017 grocery price survey in Ontario. Metro has a track record of using an effective promotional strategy to drive positive SSSG. Despite the aggressive promotions, Metro had the right merchandise mix that drove gross profit margin improvement in Q2-F2017.

In this report, we show the detail results of our Apr 2017 grocery price survey in Ontario. We believe Metro’s effective discounting strategy should bode well in a deflationary environment.

QUALITY RATING INTRINSIC VALUE Accounting & Disclosure 3/5 We have incorporated the better-than-expected Q2-F2017 results in our model and increased our intrinsic value to $51.00 (up from Metro no longer provides any metrics for the core grocery $48.00). Excluding the value of the Couche-Tard shareholding, retailing segment versus the higher-margin Premiere Mois- this implies that we value Metro’s grocery operations at about son and Marche Adonis businesses. Similar to peers, there is 11x F2018E EBITDA. The much higher EBITDA margins at Metro also a lack of disclosure on results by banner and/or region. justifies the premium valuation over its peers. Adjusted Cash Flows 4/5 FY end September F2016 F2017E F2018E Metro’s return on equity was more than 14.5% over the last (C$ Millions, except as noted) 20 years. Management has been using more than 50% of its annual free cash flow to buy back stock in the last few years. Metro’s latest dividend increase (in January 2017) Fully-Diluted EPS $2.39 $2.50 $2.65 was the 23td consecutive year of dividend growth. Revenue 12,788 13,168 13,552 The Balance Sheet 4/5

EBITDA (excluding equity-accounted Lease-adjusted net debt/EBITDAR as of Q2-F2017 sat at 2.3x, 931 975 1,007 earnings from Couche-Tard) showing consistent improvement since F2005 (3.5x) when Metro acquired A&P Canada. Further, Metro holds about EBITDA Margin 7.28% 7.50% 7.48% $2 billion worth of Alimentation Couche-Tard shares that may be liquidated if needed. Share Price $41.80 $45.18 $45.18 Business Operations 4/5 Price/Earnings 16.6x 17.3x 16.4x After the acquisition of A&P Canada in 2005, Metro consolidated its five banners in Ontario into the Metro brand and simplified its operating structure. Following the success of Price/Book 3.3x 3.5x 3.2x the revamped merchandising program at Food Basics stores since 2013, Metro rolled out a similar program for its Market Capitalization 9,774 10,009 9,783 Super C banner. A consistent focus on improving fresh offerings and effective promotional programs have helped Met- EV 10.994 10,180 10,786 ro improve store traffic and tonnage.

Corporate Governance 4/5 EV/EBITDA 10.8x 10.5x 9.9x

Metro’s Board of Directors consists of a majority of inde- Shares Outstanding (millions) 239.3 225.5 219.0 pendent directors, with 12 out of 13 independent.

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KATHLEEN WONG [email protected] 416-866-8783 Updated June 23, 2017 SELL

Current Price C$53.76 NATIONAL BANK OF CANADA Intrinsic Value C$53.00 TSX-NA Current Yield 4.3%

STILL LAGGING ON EXPENSE CONTROL NA’s better than expected EPS in Q2 was driven by strong top line growth, which we expect will moderate, and unsustainably low credit losses. While cost control certainly featured within the bank’s P&C Banking business, NA’s growth in operating expenses at the consolidated level was the highest among the large banks in Q2 for the second consecutive quarter and so we continue to see a higher relative level of execution risk on efficiency initiatives.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our intrinsic value estimate for NA is $53.00, which we calculate by applying a multiple of 11.0x on our F2018 EPS estimate of $5.40 and a Management recently introduced a fourth reporting segment multiple of 1.5x on our BV per share estimate of $30.72 at the end of known as ‘U.S. Specialty Finance and International’, which F2017, and taking the average of the two. includes the results of Credigy, ABA Bank in Cambodia, as well as activities in other emerging markets. This new disclosure FY end Oct. 31 provides more transparency into performance. F14 F15 F16 C$ Capital 3.5/5 Common equity tier 1 ratio (BIII) 9.2% 9.9% 10.1% The bank’s CET 1 capital ratio jumped by 20 bps sequentially to 10.8% at the end of Q2 and was up meaningfully from last Closing share price $52.68 $43.31 $47.88 year’s 9.8%. Management announced an NCIB for up to 6 million shares (slightly less than 2% of outstanding shares) but noted that buybacks would only be an option above a CET 1 EPS (adjusted, TTM) $4.48 $4.70 $4.34 capital ratio of 10.75%. P/E (TTM) 11.8x 9.2x 11.0x Credit 4/5

Credit was a tailwind for NA in Q2 with the all-bank loan loss BV/share $25.76 $28.26 $28.52 ratio declining to a very low 18 bps. Not surprisingly, in our view, the bank reversed $40mm of the $250mm sectoral provision P/BV 2.0x 1.5x 1.7x that was incurred last year on the oil & gas portfolio, although there was an offsetting $40mm increase in the collective allowance (for non-impaired loans) due to growth in the loan Dividend yield 3.6% 4.8% 4.6% book. Market capitalization (millions) 17,347 14,606 16,186 Business Operations 4/5 ROE (adjusted) 18.6% 17.6% 15.5% Adjusted earnings were up sharply across each of NA’s three business segments with P&C Banking posting strong sequential growth. Wealth Management and Financial Markets were up Net interest margin (AEA) 2.29% 2.24% 2.23% materially relative to the prior year, although both saw earnings decline modestly from last quarter. The U.S. Specialty Finance & # shares outstanding 329,297 337,236 338,053 International segment, NA’s smallest segment which was (thousands) introduced last quarter, reported a sizable earnings jump of almost 80% YoY. BUSINESS COMPOSITION Corporate Governance 4/5 NA’s retail/wholesale earnings mix is approximately 60%/40% on an No items noted. adjusted basis, excluding the Other segment. Canadian P&C banking contributes 43% of earnings. Essentially all of its exposure is in Canada with significant concentration in the province of Quebec.

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-50% -25% 0 25% 50% Updated June 7, 2017 BUY NORTHLAND POWER INC. Current Price $23.51 Intrinsic Value $27.00 TSX-NPI Current Yield 4.6%

RE-CONTRACTING RISK RISES In Q1-F17, Northland Power Inc. (“NPI”) delivered strong results, with adjusted EBITDA increasing by 91% over the same period last year, primarily driven by Gemini pre-completion revenues and overall stronger performance of the fleet, including results from Grand Bend and Iroquois Falls. Overall, we continue to believe NPI is an appealing investment, and maintain a BUY recommendation with a value estimate of $27 per share (which includes a $1.00 per share takeout premium).

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We value NPI at $27.00 per share.

Compared to BEP.UN, NPI’s FCF disclosure is conservative, since it accounts for debt repayments on active wind farms. FY end Dec. 31 Q1-F17 F16 F15 C$ Millions Adjusted Cash Flows 3.5/5

Share price $24.56 $23.30 $18.66 Although, lower cash flow from Kingston and robust development plans do not leave much room for a dividend increase in F17, our analysis shows that once the European Shares o/s (millions) 184.4 186.6 169.6 wind farms commence operations, NPI should have suffi- cient free cash flow to increase the dividend by 8%, to $1.17 Market capitalization $4,529 $4,347 $3,166 per share.

The Balance Sheet 3/5 Long-term investments $50.4 $50.3 $0.0

The decline in cash flow from Kingston will negatively im- Net debt and preferred shares $6,099 $6,017 $5,923 pact Northland’s corporate level credit metrics. However, since Northland employs project level financing under- Enterprise value $10,628 $10,364 $9,088 pinned by long-term sales agreements/subsidies, it should have ample access to debt capital. Revenue (TTM) $1,284.9 $1,099.0 $728.1 Business Operations 4/5 Free cash flow (TTM) $239.0 $242.3 $182.2

Gemini windfarm achieved full completion ahead of schedule and under its total budget. In addition, Nordsee Avg. units o/s (TTM, millions) 173.1 172.9 183.7 One continues to progress as planned, with 14 turbines in- stalled to date. Cash flow per share (TTM) $1.3 $1.3 $1.1

Corporate Governance 4/5 Price-to-free cash flow (TTM) 18.9x 17.9x 17.4x

No issues noted. Payout ratio (TTM) 83% 83% 101%

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NASIBA AKHMEDOVA [email protected] 416-866-8783 Updated May 11, 2017 PEYTO EXPLORATION & DEVELOPMENT CORP. BUY Current Price C$26.12 Intrinsic Value C$32.50 TSX-PEY Current Yield 5.0% GROWTH THROUGH F19 DRIVES SHAREHOLDER VALUE Peyto is positioned to achieve production growth of 12% CAGR for 2017-2019 and fund capex from internally generated FFO at C$3.00 per Gigajoule. Peyto will run a cash shortfall of ~$370 million over the next three years as the result of its annual $200+ million dividend and can fund this with its $685 million in undrawn bank credit facilities. Peyto’s ability to have consistently lower costs is due to its foresight into drilling but deferring completion of wells when service costs are high. BUY QUALITY RATING INTRINSIC VALUE

WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 2/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 27.50 Non-IFRS funds flow leaves out the cash costs associated $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 32.50 with performance compensation, inflating the metric. Payments totaled $19.2 million in 2014, $23.4 million in 2015 $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 34.50 and $25.8 in 2016. Our valuation for Peyto under our base price deck is $32.50 per share, which assumes a return to US$67 WTI oil and US$3.75 NYMEX gas in 2021. Adjusted Cash Flows 2.5/5 Company Profile 2017 Q1 2016 2015 At US$51 WTI and $2.90 AECO in 2017 – our low case - we expect Peyto to generate cash flow of $3.80 to $4.00 per Price 27.35 33.21 24.87 share and balanced funds flow and capex. This is not Shares (millions incl. exch.) 164.8 164.6 159.0 enough to cover its $215MM+ dividend payment. We are Market cap. ($ millions) confident management has the liquidity required to sustain 4,507 5,467 3,953 the shortfall and continue robust growth plans. Revenue ($ millions) 177 678 718 CFPS 0.74 3.09 3.34 The Balance Sheet 2.5/5 Price to YTD CFPS 9.3x 10.7x 7.5x ROE (annualized) 10.1% 7.1% 8.7% As at March 31, 2017 net debt remains unchanged at $1.1B while available capacity on its credit facility is increased to Dividends per share 1.32 1.32 1.32 $6852MM, this facility remains open until December 2019. Production (boe/d) 101,093 96,975 85,674 Projected 2017 net debt to funds flow of 1.8x. CFO* per boe 13.13 14.37 16.96 Net debt to EV 20% 16% 21% Business Operations 3/5 Net debt to CFO* 2.3x 2.1x 2.0x

We see Peyto's assets producing significant volume growth Cash Flow and Dividends 2017 Q1 2016 2015 through 2018, on the order of a low-to-mid double digit percentage CAGR, which leads the Canadian E&P sector. Reported CFO* 121.1 508.6 530.2 Capital expenditures (153.9) (469.4) (593.8) Available cash (shortfall) (32.7) 39.3 (63.6) Corporate Governance 2/5 Dividends declared 54.4 214.3 208.1 % of CFO* 45% 42% 39% We are not fans of Peyto's reserve-based bonus, which pays % of available cash N/A >500% N/A management 4% of any increase in proved producing reserve value. * CFO is cash from operations after working capital, cash interest expense and asset retirement expenditures

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-50% -25% 0 25% 50% Updated July 26, 2017 SELL PRAIRIESKY ROYALTY LTD. Current Price C$30.68 Intrinsic Value C$26.00 TSX-PSK Current Yield 2.4%

PAYING A HIGH PRICE FOR A LOW YIELD PSK faces an additional key challenge on top of the inherent volatility in commodity pricing in the oil and gas business, It does not fully control its own destiny with respect to drilling and must lower royalty rates or upfront lease bonuses to drive additional activity and volumes during periods of poorer pricing. Without a quick recovery to US$55+ per barrel WTI and Cdn $2.75+ per mcf for AECO natural gas organic volume growth and drilling on PSK lands will remain challenged. PSK will generate funds flow of $1.15 per share in 2018 under a US$50 WTI scenario, assuming an FFO multiple of 25.0x we see PSK valued at $29.50, downside of 4%. SELL.

QUALITY RATING INTRINSIC VALUE

WTI Oil Price HH Gas Price USD/CAD Intrinsic Accounting & Disclosure 2/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value We highlight that IFRS accounting allows immediate recog- $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 20.50 nition of non-monetary assets received in lieu of lease bo- $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 26.00 nuses. In Q2 2017 this allowed PSK to book a future royalty stream as one-time lease bonus revenue, affecting income, $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 34.50 cash flows and asset reporting. Our base case values PrairieSky at $26.00 per share, assuming a return to US$67 WTI oil and US$3.75 NYMEX gas through 2021. Q2 2017 Adjusted Cash Flows 3/5 Company Profile 2016 2015 (6 mos.) Recent price 30.66 30.27 21.92 At our low case of US$51 WTI in 2017 we estimate CFPS of $1.15-$1.20 which easily covers the dividend obligation of Shares (millions incl. exch.) 236.6 228.0 229.0 $0.75, a payout ratio of 62%. If we see US$54 WTI a dividend Market cap. ($ millions) 7,254 6,902 5,020 hike could be on the table Revenue ($ millions) 183 23 170 The Balance Sheet 5/5 CFPS 0.30 0.90 0.73 Price to YTD CFPS 51.6x 25.3x 29.9x As of the end of Q2 2017, PrairieSky had no debt and $97 ROE (annualized) 4.6% 1.0% 3.4% million of cash. Dividends per share 0.38 0.72 1.30 Production (boe/d) 25,706 23,308 17,225 Business Operations 2.5/5 CFO* per boe 14.99 32.07 26.74 Net debt to EV 0% 0% 0% PrairieSky's royalty rate has remained flat from Q1 F16 to Q2 F17 despite improving commodity prices reinforcing our Net debt to CFO* 0.0 0.0 0.0 concerns surrounding sliding scale and operating leverage. Q2 2017 Cash Flow and Dividends 2016 2015 A recent Gross Overriding Royalty (‘GORR’) on Pengrowth’s (6 mos.) Lindbergh production was at a fixed 4% compounds this Reported CFO* issue. 70.3 204.6 168.1 Capital expenditures** 0.0 0.0 0.0 Corporate Governance 2.5/5 Available cash (shortfall) 70.3 204.6 168.1 With a relatively unique business model, evaluating man- Dividends declared (42.1) 186.7 206.5 agement's performance other than through share returns is % of CFO* -60% 91% 123% challenging. As a result, PrairieSky's compensation arrange- % of available cash N/A 91% 123% ments are skewed towards total returns and benchmarked against a peer group that mixes royalty companies and * CFO is cash from operations after working capital. We have added EBITDA from the Encana's development properties at a 25% effective tax rate dividend-paying oil and gas names. **Net of lease bonus payments

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-50% -25% 0 25% 50% Updated May 18, 2017 BUY QUEBECOR INC. Current Price C$40.12 Intrinsic Value C$45.00 TSX-QBR.b Current Yield 0.5%

POSITIVE OUTLOOK DESPITE NET NEUTRAL ERA With the recent CRTC ruling on net neutrality banning the use of data cap exemptions on content, a key differentiating tool in Videotron’s arsenal was decommissioned. Despite the setback, we have reason to believe wireless will continue to deliver results. Staying the strategic course has served Quebecor’s shareholders well, and continues to yield solid performance, led by steady gains in wireless subs of 27k all while ARPU drove higher to $52.49. On the cable front, internet sub growth improved 3.2% over the prior year with the addition of 15k customers. Declines in TV subs remained stable at - 2.4%, well above peers (Rogers and Shaw) while ARPU remained flat at $49.73. Finally, a debt refinancing helped reduce the cost of debt by more than 200bps on $625 million of principal.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We are maintaining our BUY rating and updating our intrinsic value estimate to $45. Disclosures are improving, with management providing wireless EBITDA figures for FY16, allowing for greater clarity over performance. YTD Mar 31, 2017 F15 F16 F17 C$ Millions Adjusted Cash Flows 4/5

Revenue (TTM) $4,027 $3,929 $4,038 Improving wireless profitability, continued cable EBITDA growth and the completion of LTE capex in 2016 will help increase free cash flow over time. EBITDA (TTM) $1,458 $1,456 $1,505

The Balance Sheet 2.5/5 Share price (reporting date) $33.05 $36.11 $41.53

Net debt: EBITDA sits at 3.3x after Quebecor increased its QMI stake from 75% to 81%. EV/EBITDA (TTM) - proportionate 8.1x 8.3x 7.7x

Business Operations 4/5 Dividend yield 0.3% 0.5% 0.4%

Wireless continues to drive growth, with 27k net additions, and ARPU increasing 5.8% to $52.49. Video net losses of 10k Market capitalization 4,059 4,420 4,895 were manageable and Internet adds of 15k were better than the 10k a year ago. Enterprise value 10,011 10,555 10,374

Corporate Governance 3/5 QMI Net debt: TTM EBITDA 3.2x 3.5x 3.3x

The rights of Class B shareholders are limited due to a combination of a dual class share structure and the Caisse’s Wireless subscribers (thousands) 662 796 921 ownership (includes veto rights for dividend increases, acquisitions and the right to force an IPO of QMI by 2019). Wireless ARPU $46.03 $49.61 $52.49

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DESMOND LAU [email protected] 416-866-8783 Updated April 27,2017 BUY RESTAURANT BRANDS INTL. Current Price US$56.66 Intrinsic Value US$60.00 TSX, NYSE-QSR Current Yield 1.3%

FOCUS ON NEW RESTAURANTS AND EXPENSE CONTROL

Restaurant Brands adjusted EBITDA increased by 8.7% to US$443.3 million in Q1-2017 despite very soft same store sales growth at (0.1%). This was mainly due to strong restaurant openings at Tim Hortons and Burger King offsetting the soft comps. Our saturation analysis using Canada Post Forward Sortation Area continues to expect 250 Tim Hortons Restaurants to be opened in Canada in 2017 and 2018 to reach 4,050. We have previously identified the top 30 countries where Burger King has actively been expanding and we expect Burger King to open about 550 restaurants per year internationally. Quarterly dividend is increased by $0.01 to $0.19 per share.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We derive an intrinsic value of US$60.00 using a DCF model and a NAV model. Our intrinsic value generates a competitive 5% free cash Restaurant Brands’ disclosures are on par with those of other flow yield on our 2017 forecasts. Restaurant Brands remains a BUY. Canadian and U.S. quick-service restaurants, although geographic disclosure has been reduced since the acquisition of Tims. Free Cash Flows 4/5 FY end December We expect Restaurant Brands to generate $7 billion in free cash 2016 2017E 2018E flow between 2017 and 2021, or approximately $1.4 billion a (US$ Millions, except as noted) year. This should support debt reduction and dividend increases going forward. Burger King System Sales $18,209 $19,404 $20,626 The Balance Sheet 3/5 $816 $868 $920 QSR’s strong free cash flow should allow moderate deleverag- Burger King EBITDA ing over the next few years, with Adjusted Net Debt to EBITDA Burger King EBITDA as % of improving from 6.9x at the end of 2015 to 3.4x by 2020. 71.3% 71.0% 71.6% Revenue

Business Operations 4/5 Tim Hortons System Sales $6,405 $6,949 $7,180

We estimate that a standard Tim Hortons restaurant in Canada Tim Hortons EBITDA $1,072 $1,164 $1,198 with $2.0 million in annual unit volume generates an annual cash profit of ~$305K which represents a 62% return on the fran- Tim Hortons EBITDA as % of 35.7% 36.1% 36.1% chise’s initial setup costs, much higher than that of U.S. McDon- Revenue ald’s and Dunkin’ Donuts locations, at 10% and 25%, respectively. In our view, strong economics support Tims’ continued Cana- Total EBITDA $1,888 $2,032 $2,118 dian expansion. We estimate Tims has room to add 400 or more new Canadian locations by 2018 to reach a total of 4,050 res- $40.00 $56.66 $56.66 taurants, in line with management’s estimate of 4,100. We be- Share Price lieve Burger King could add as many as 2,900 restaurants outside of North America by 2020. Market Capitalization $18,779 $26,630 $26,630

Corporate Governance 3/5 Enterprise Value (EV) $30,906 $38,559 $38,332 Restaurant Brands has 11 directors, including nine independent directors. 3G Funds owns 42.7% voting power and National In- EV/EBITDA 16.4x 19.0x 18.1x demnity Company (a wholly-owned subsidiary of Berkshire Hathaway owns 11.6% voting power, and Pershing Square Funds owns 7.4% voting power. Shares Outstanding (millions) 470 470 470

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KATHLEEN WONG [email protected] 416-866-8783 Updated May 18, 2017 BUY ROGERS COMMUNICATIONS INC. Current Price C$62.97/US$45.88 Intrinsic Value C$63.00 TSX-RCI.B; NYSE-RCI Current Yield 3.1%

GETTING BACK ON THE GROWTH TRAIN Q1-17 was a transitional quarter for Rogers just prior to the arrival of new CEO Joe Natale, but it reaffirmed a continued turnaround in both the wireless and cable divisions. Postpaid net adds of 60k handily beat Street estimates of 28k and were accompanied by 7 bps churn reduction, while 8k cable sub additions compared favourably to a loss of 20k a year ago. We expect Natale to try to close the 30 bps wireless churn gap with Telus. Given Gigabit Internet availability throughout Rogers’ entire footprint, and the upcoming adoption of Comcast’s X1 platform next year, we expect further improvements on the cable side. With more room to grow its dividend and operational momentum in wireless and cable, we are not concerned about the premium valuation and believe that it is warranted.

QUALITY RATING INTRINSIC VALUE Accounting & Disclosure 3/5 We are maintaining our BUY recommendation and $63 intrinsic value estimate. Accounting is consistent with peers, but disclosures of retention expense, retention volumes and cost of acquisition are lacking. YTD March 31, 2017 F15 F16 F17 C$ Millions

Adjusted Cash Flows 3/5 Revenue (TTM) $13,005 $13,484 $13,795 At the $1.92 dividend, Rogers is paying less than 60% of F17 free cash flows. EPS (TTM) $2.72 $2.88 $2.98

EBITDA (TTM) $4,982 $5,009 $5,157 The Balance Sheet 4/5 Price (reporting date) $41.86 $50.20 $61.42 Rogers’ net debt to F16 EBITDA ratio is approximately 3.0, above the Company’s 2.0x to 2.5x target ratio. EV/EBITDA (TTM) 7.2x 8.1x 9.0x

P/E (TTM) 15.4x 17.4x 20.6x Business Operations 3/5

Wireless ARPU trends should improve over the longer-term, FCFE yield 7.0% 6.3% 5.8% as roaming plans and simplified pricing effects are worked through the base, as well as a $5 price hike. Gigabit Internet is bringing back Internet subscribers while the upcoming Dividend yield 4.6% 3.8% 3.1% launch of Comcast’s X1 platform is expected to bring much needed relief to the TV business. Market capitalization $21,547 $25,853 $31,631

Corporate Governance 4/5 Enterprise value $35,634 $40,798 $46,156 Good. Net debt: TTM EBITDA 3.1x 3.2x 3.0x

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DESMOND LAU [email protected] 416-866-8783 Updated June 23, 2017 BUY

Current Price C$94.02/US$71.07 ROYAL BANK OF CANADA Intrinsic Value C$96.00 TSX-RY; NYSE-RY Current Yield 3.7%

CONTINUED EXECUTION IN CANADIAN BANKING WILL BE KEY RY’s strong results in the quarter were once again powered by the Canadian Banking business, which has outperformed most peers that have thus far reported Q2 results. With expense control set to play a more prominent role in maintaining growth in the Canadian lending business, we believe that RY’s superior ability to execute will stand out relative to peers over the next couple of years. Other key businesses also performed well in the quarter including Capital Markets, which continues to grow both domestically and outside of Canada, and Wealth Management, where RY’s dominant market position in Canada is nicely complemented by the City National franchise in the U.S.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4.5/5 Our intrinsic value estimate for RY is $96.00, which we calculate by applying a multiple of 12.3x on our F2018 EPS estimate of $8.03 No items noted. and a multiple of 1.95x on our BV per share estimate of $47.37 at the end of F2017, and taking the average of the two. Capital 4/5 FY end Oct. 31 F14 F15 F16 C$ Buybacks adversely impacted RY’s CET 1 ratio, which declined from 11.0% last quarter to 10.6% at the end of Q2. Management Common equity tier 1 ratio 9.9% 10.6% 10.8% continues to view a 10.5% CET 1 ratio as its minimum target and (BIII) does not expect that a G-SIB designation, should it materialize, would be additive to its current capital requirements (i.e. Closing share price $80.01 $74.77 $83.80 management suggest that the G-SIB would potentially replace the existing D-SIB classification that is mandated by OSFI). EPS (adjusted, TTM) $6.22 $6.76 $6.80 Credit 4/5 P/E (TTM) 12.9x 11.1x 12.3x RY reported total loan loss provisions of $302mm in the quarter. That represented a loss ratio of 23 bps, which was little changed BV/share $33.69 $39.51 $43.32 sequentially but well below the 36 bps reported in the same quarter of last year. Results in Q2 benefited from lower PCLs in P/BV 2.4x 1.9x 1.9x Capital Markets, partly offset by slightly higher PCLs in commercial lending. Oil & Gas-related losses were $32mm in Q2, a reversal from last quarter’s $39mm of recoveries, but still Dividend yield 3.8% 4.2% 4.0% comfortably below losses of $115mm recorded in Q2 of last year. Market capitalization (millions) 115,393 107,925 124,476

Business Operations 4/5 ROE (adjusted) 19.7% 18.7% 16.3%

With the exception of Insurance and the very small P&C Net interest margin 1.56% 1.40% 1.41% Banking business outside of Canada, RY’s various business lines generally performed well in the quarter. Most importantly, Canadian Banking saw strong growth of 6.0% YoY as the # shares outstanding (millions) 1,442 1,443 1,485 business has clearly rebounded the last two quarters after several quarters of relative underperformance. Capital Markets showed robust growth of 15% relative to the prior year period, BUSINESS COMPOSITION while the Wealth business saw a 9% jump in adjusted earnings. RY’s retail/wholesale earnings mix is approximately 78%/22%. Canadian P&C contributes ~50% to overall earnings. Nearly two- Corporate Governance 4.5/5 thirds of revenue were earned in Canada, while the U.S. and other International contribute ~20% and ~17% of total revenue, No items noted. respectively.

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-50% -25% 0 25% 50% Updated June 29, 2017 BUY SHAW COMMUNICATIONS INC. Current Price C$30.14/US$23.13 Intrinsic Value C$31.50 TSX-SJR.b; NYSE-SJR Current Yield 3.9%

SUB GROWTH IN THE GR EEN Shaw added ~13k TV subs this quarter, marking the first time in five years that the Company has generated positive TV growth. The customer improvement has been much faster than anticipated, especially when compared to Comcast’s trajectory (X1 launched 4 years before growing TV subs). Shaw’s pro-forma leverage ratio of 1.9x is now lowest amongst peers, but we are not expecting dividend increases until at least 2019, given the $350m in incremental wireless capex to be spent in F18. Nevertheless, a more complete handset offering, better network coverage and the ability to bundle a rebranded wireless product are positive catalysts to come.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We are maintaining our BUY and increasing our intrinsic value estimate to $31.50. Good aside from revenue smoothing of 2-year promo plans and capitalization of equipment subsidies, compared to expensing by peers. YTD May 31, 2017 F15 F16 F17 C$ Millions Adjusted Cash Flows 3/5 Revenue (TTM) ex. media 4,329 4,670 5,234 Dividend increases will be on hold for a few years, as Shaw builds out its LTE network. The company also loses about $260M in FCF from the media sale, but is comfortable with a EPS (TTM) 1.62 2.76 1.06 high payout ratio (100% with DRIP).

EBITDA ex. media 1,996 2,090 2,178 The Balance Sheet 4/5

$27.83 $24.86 $30.14 Following the sale of ViaWest for $2.3b, Shaw’s pro-forma Share price (at reporting) net debt-to-EBITDA decreased to 1.9x, which is the lowest in the industry. EV/EBITDA (TTM) 8.1x 7.8x 8.9x

Business Operations 4/5 FCFE Yield (TTM) 5.8% 4.2% 4.0% With BlueSky TV and Gigabit internet rolled out to its entire footprint, investments are now bearing fruit, yielding strong P/E (TTM) 17.2x 9.0x 28.4x Consumer segment sub growth. Further investment to improve the LTE network is expected to enhance Wireless performance down the line. Market cap 13,122 12,017 14,870

Corporate Governance 3/5 Enterprise Value 18,757 17,586 19,452

The Shaw family continues to effectively control the company through ownership of 79% of the multiple voting Net debt: TTM EBITDA 2.3x 2.5x 2.5x shares.

Dividend Yield 4.0% 4.8% 3.9%

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DESMOND LAU [email protected] 416-866-8783 Updated May 12, 2017 BUY

Current Price C$46.54/US$34.00 SUN LIFE FINANCIAL INC. Intrinsic Value C$50.00 TSX-SLF; NYSE-SLF Current Yield 3.6%

A CHALLENGING FIRST QUARTER SLF reported underlying EPS of $0.93 in Q1, coming in well below consensus of $0.99. Underlying ROE was relatively weak at 11.5%, remaining below management’s targeted range of 12% to 14% for the second consecutive quarter. While the shorter-term outlook for earnings growth is now less certain, in our view, we continue to expect gradual progression for SLF moving forward as the company benefits from its expanded distribution in Asia, while some of the adverse policyholder experience that impacted all of the company’s businesses in the U.S. abates in the coming quarters. Our BUY recommendation for SLF is unchanged, although we are reducing our intrinsic value estimate to $50.00. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3.5/5 Our intrinsic value is $50.00, based on our F2017 BV/share estimate of $34.16 and a 1.45x target multiple. Management disclosed that a 10 bps reduction in the ultimate reinvestment rate (URR) would lead to a $75MM hit to SLF’s earnings. That figure is in-line with the impact noted by SLF as at Q4 2016. FY end Dec. 31 2014 2015 2016 C$

Capital 4/5 Share price (at end of period) 41.92 43.15 51.55 The company’s capital position remains strong with the MCCSR ratio ending Q1 at 229% (and a more robust 249% for the holding Book value / share 26.87 31.02 32.10 company which holds liquid assets of $1.1 billion), while the quarterly dividend was increased by 4% to $0.435/share. P:BV 1.56x 1.4x 1.6x The Balance Sheet 4/5 MCCSR (of Canadian subsidi- 217% 240% 226% We do not see any issues with the company’s holdings of debt and ary) equity securities. At the end of Q1 2017, 97% of SLF’s $4.3 billion exposure to the energy sector within its corporate debt securities Underlying ROE 11.6% 12.8% 12.2% portfolio was investment grade. The comparable figure was 99% for its $2.4 billion exposure to real estate, while for the total book of debt securities it was 98%. Dividend yield 3.5% 3.6% 3.3%

Business Operations 3.5/5 Reported Underlying EPS (TTM) 2.96 3.76 3.80

Results improved in most of SLF’s business lines in Q1 2017. Underlying earnings in Asia were particularly strong (up16%), driven by robust Underlying P:E 14.2x 11.5x 13.6x sales across all regions resulting from the company’s expanded distribution. Earnings in Canada increased a more modest 5% YoY due largely to favorable policyholder experience, which was Market capitalization ($B) 25.7 26.4 31.1 somewhat offset by expense growth in the wealth business tied to growth initiatives. MFS reported a 12% jump in underlying earnings although results # of shares O/S ($M) 613 612 614 were flat if we exclude the favorable impact of fair value adjustments on share-based compensation. The U.S. was clearly the AUM ($B) 734 891 903 laggard in the quarter as earnings declined by almost 30% with weakness reported in each of the three businesses within that segment. BUSINESS COMPOSITION

SLF’s underlying earnings in Q1 2017 did not move materially from prior Corporate Governance 4/5 quarters. The split was among SLF Canada (40%), SLF Asset Management (32%; the majority of which is U.S.-based MFS), SLF U.S. (13%), and SLF Asia No significant issues noted. (14%).

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-50% -25% 0 25% 50% May 1, 2017 SELL SUNCOR ENERGY INC. Current Price C$41.45 / US$30.68 Intrinsic Value C$38.50 TSX-SU; NYSE-SU Current Yield 3.1%

SHAREHOLDER YIELD BEING STRETCHED Suncor is maintaining a laser focus on shareholder yield given a lack of growth opportunities post 2017, after the completion of Fort Hills We believe a focus on shareholder yield should be balanced by capital discipline and, at US$50 WTI, our analysis shows that Suncor cannot finance both an announced $2 billion NCIB as well as its $2.1 billion annual dividend. We continue to view the decision to sell shares at $35 (June 2016) and repurchase (over the next 12 months) at $40+ as a signal that options are running out. We remain sellers of Suncor, as names like Canadian Natural Resources Ltd. provide a similar dividend yield, while also offering organic production growth

QUALITY RATING INTRINSIC VALUE WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 2/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value IFRS requires the capitalization of financing costs tied to $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 30.50 major projects under construction, which was optional un- $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 38.50 der Canadian GAAP. Suncor’s interest capitalization per $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 54.00 share has increased as a result, to $0.26 in 2013, $0.29 in 2014, and $0.31 per share for 2015. Our base case values Suncor at $38.50 per share, reflecting a return to US$65 WTI oil and US$3.75 NYMEX gas through 2020.

9 Adjusted Cash Flows 3/5 Company profile 2017 Q1 2016 2015 Price 40.83 43.90 35.72 At US$55 WTI in 2017 we forecast funds from operations of $8.8 billion and free cash of $3.3 billion covering the ~$2.2 Shares (millions incl. exch.) 1,667.2 1,667.9 1,446.0 billion dividend obligation. 2018 will see >40% declines in Market cap. ($ millions) 68,072 73,221 51,652 capex as management indicates no growth post Fort Hills. Revenue ($ millions) 7,843 26,968 29,680

The Balance Sheet 3/5 CFPS 0.98 3.41 4.76

At the end of Q1 2017, Suncor's net debt was $13.2 billion Price to YTD CFPS 10.5x 12.9x 7.5x including $3.5 billion in cash and 1.9x trailing twelve month ROE (annualized) 12.0% 1.1% (4.9%) cash flows. Suncor is putting its balance sheet to work, an- nouncing a $2 billion NCIB to be completed within 12 Dividends per share 1.28 1.28 1.15 months and retiring $1.7 billion of outstanding debt. Production (000's boe/d) 725 739 578

CFO* per boe 24.61 21.07 32.64 Business Operations 3.5/5 Net debt to EV 16% 16% 18% Suncor expects Fort Hills and Hebron to commence produc- Net debt to CFO* 2.0x 2.5x 1.6x tion on schedule in late 2017, increasing volumes by more than 100,000 barrels per day. Oil sands will need to shoul- der the load between now and then. Cash Flow and Dividends 2017 2016 2015 Reported CFO* 1,628.0 5,680.0 8,936.0 Corporate Governance 3/5 Capital expenditures (1,380.0) (6,582.0) (6,961.0) Suncor's new CEO, Steven Williams, has promised that he Available cash (shortfall) 248.0 (902.0) 1,975.0 will not pursue 'growth at any cost'. While the Voyageur Dividends declared 634.0 1,877.0 1,490.0 upgrader was cancelled (a positive), Fort Hills continues to move forward despite marginal economics. Control of Syn- % of CFO* 39% 33% 17% crude means exposure to the project’s historical poor relia- % of available cash 256% N/A 75% bility * CFO is cash from operations after working capital and asset retirement expenditures

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-50% -25% 0 25% 50% Updated May 18, 2017 BUY TELUS CORP. Current Price C$45.21 / US$ 33.23 Intrinsic Value C$50.00 TSX-T; NYSE-TU Current Yield 4.2%

TELUS SOON TO HARVEST WHILE BCE NEEDS TO GROW

Since 2010, Telus has deployed its resources aggressively, with consistent 10% annual dividend increases as well as investments to build out fibre directly to customer households. Telus’ fibre-to-the-home investments will cover a considerable portion of its footprint by the end of the year, with the company expected to return to free cash flow growth in 2018. Yet its shares now trade at a meaningful discount to large-cap peers. With Telus approaching a position to harvest those investments, we are upgrading our recommendation on Telus to a BUY with a $50 intrinsic value estimate.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 We are upgrading our recommendation to a BUY with a $50 intrinsic value estimate. Accounting and disclosures are reasonable.

YTD Mar 31, 2017 F15 F16 F17 C$ Millions Adjusted Cash Flows 3/5

We estimate that Telus will pay out about 105% of F17E and 12,135 12,582 12,889 96% of F18E free cash flow, respectively. Revenue (TTM)

EPS (TTM) $2.39 $2.25 $2.16 The Balance Sheet 4/5 4,274 4,264 4,350 The net debt-EBITDA ratio of 3.0x sits outside of the 2.0-2.5x EBITDA (TTM) target and will limit the extent of share buybacks that can be done in the future (management is targeting $250M per Share price (reporting date) $42.80 $39.63 $45.21 year through 2019).

EV/EBITDA (TTM) 8.40x 8.41x 9.14x

Business Operations 3/5 P/E (TTM) 17.9x 17.6x 20.9x Wireline subscriber were slightly slower than a year ago, with 7k TV adds vs 11k in Q1-16. Wireless ARPU grew 3.9%, while churn was down 4bps. FCFE yield (TTM) 4.0% 3.9% 0.9%

Dividend Yield 3.7% 4.6% 4.2%

Corporate Governance 4/5 Market capitalization $25,894 $23,501 $26,719

Good. Enterprise value $35,905 $35,875 $39,773

Net debt: TTM EBITDA 2.3x 2.9x 3.0x

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DESMOND LAU [email protected] 416-866-8783 Updated July 11, 2017 BUY THE JEAN COUTU GROUP (PJC) INC. Current Price C$20.10 Intrinsic Value C$24.00 TSX-PJC.a Current Yield 2.3%

Q1-F2018 IN LINE; BILL 81 STILL AN OVERHANG Jean Coutu’s Q1-F2018 Pro Doc was very soft due to the removal of cap on professional allowances (“PAs”) of generic drugs. However, the Pro Doc softness was partly offset by the strong results from the franchising segment.

We have reduced our F2018E and F2019E Pro Doc EBITDA based on the higher-than-expected PAs that Pro Doc is paying. On April 12, 2017, the Quebec government announced that it will modify the regulation to restore the 15% cap on PAs. We expect the 15% cap to be reinstated beginning in Q2-F2019 (i.e. June 2018). We continue to expect the elevated SG&A expense level to roll off when all shipments will be made from the Varennes distribution centre beginning in October 2017.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 We have derived a new $24.00 intrinsic value (down from $25.00) for Jean Coutu using a net asset value model. Our lower intrinsic value Disclosures are on par with those of other Canadian retailers reflects the higher-than-expected PAs that Pro Doc will have to pay in across the board. Jean Coutu reports Pro Doc as a separate the next few quarters before the Quebec government reinstates the segment. 15% cap on PAs. Note that our intrinsic value has also included an estimated negative impact of Bill 81. Adjusted Cash Flows 3/5

Cash flows are positive and stable, and should grow at a FY end February F2017 F2018E F2019E steady pace. Free cash flow increased from $119m in F2016 to (C$ Millions, except as noted) (2016) (2017E) (2018E) $187m in F2017 largely due to investment in a new, larger distribution centre in the previous year. Fully-Diluted EPS $1.08 $0.87 $1.16 The Balance Sheet 4/5

Jean Coutu has a strong balance sheet with no debt and Retail Sales 4,474 4,505 4,614 $179m in cash at the end of Q4-F17. Book value of Jean Coutu’s land and buildings was about $422 million at the end of Revenue 2,978 2,921 3,008 F2017 and management has previously indicated that the market value of its owned real estate is more than $500 million before considering the new DC (~$190m investment in total), in- Franchising EBITDA 240 240 256 cluding $30 million worth of surplus real estate. Therefore, Jean Coutu has access to capital by either crystallizing the value of its real estate or levering up its balance sheet. Pro Doc EBITDA 71 14 63

Business Operations 4/5 Total EBITDA 311 254 320 Jean Coutu is the number one pharmacy player in Quebec and benefits from aging demographics. Pro Doc (generic drug EBITDA Margin 10.45% 8.78% 10.72% manufacturer acquired by Jean Coutu in 2007) is the key profit driver and will help to mitigate the negative impact of recent drug reforms. Pro Doc’s EBITDA margin is 25%+ even after lower Share Price $20.05 $20.10 $20.10 generic drug prices from competitive tendering, much higher than the 6.50% regulated mark-up for prescription wholesaling. P/E 18.5x 17.3x 14.7x Corporate Governance 2/5 Market Capitalization 3,697 3,614 3,523 The Jean Coutu family controls about 93% of the votes with 57% of outstanding equity through owning 100% of Class B shares having 10 votes per share. Should the Jean Coutu family cease EV/EBITDA 11.3x 13.5x 10.4x to be the beneficial owner of at least 50% of the outstanding votes, the Class B shares will revert back to one vote per share. Shares Outstanding (millions) 184 180 175 Ten out of 15 directors (67%) are independent.

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KATHLEEN WONG [email protected] 416-866-8783 Updated June 23, 2017 BUY TORONTO DOMINION BANK Current Price C$65.28/US$49.32 Intrinsic Value C$71.00 TSX-TD; NYSE-TD Current Yield 3.7%

A SOLID QUARTER DRIVEN BY U.S. GROWTH & BETTER CREDIT PERFORMANCE TD reported better than expected Q2 results with strong YoY earnings growth across all of its businesses. The U.S. Retail segment continued to improve on the back of elevated top-line growth, while Canadian P&C Banking surprised with a much better quarter driven by both lower loan loss provisions and a stronger net interest margin. Credit performance at the all-bank level improved, with no signs of deterioration on either side of the border. QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our intrinsic value estimate for TD is $71.00, which we calculate by TD recently changed its presentation of the U.S. Retail segment applying a multiple of 12.3x to our F2018 EPS estimate of $5.84 and related to how it accounts for results from the acquired a multiple of 1.8x to our BV per share estimate of $38.75 at the end Nordstrom and Target portfolios. Full amounts for revenues, PCLs, of F2017, and taking the average of the two. and expenses had previously been included in the U.S. Retail FY end Oct. 31 segment, whereas under the new presentation, only TD’s F14 F15 F16 proportionate share is recorded in the U.S. Retail segment, while C$ the partners’ share is recorded in Corporate. Common equity tier 1 ratio 9.4% 9.9% 10.4% Capital 4/5 (BIII) Closing share price $55.47 $53.68 $60.86 TD’s CET 1 capital ratio, which ended the quarter at 10.8%, was down 10 bps from last quarter as share repurchases (15 million in the quarter) and an increase in risk-weighted assets offset strong EPS (adjusted, TTM) $4.30 $4.60 $4.87 internal capital generation. Credit 4/5 P/E (TTM) 12.9x 11.7x 12.5x

Loan loss provisions at the consolidated level totaled $500mm in the quarter, declining meaningfully versus both last quarter’s BV/share $28.45 $33.81 $36.71 $633mm, and the $584mm reported in the same quarter of last year. Lower losses were primarily driven by the U.S. commercial P/BV 1.9x 1.6x 1.7x portfolio. Other credit metrics were also favorable for TD in Q2 as gross impaired loans declined 3% sequentially and 8% YoY to $3.3 billion, while new formations of $1.2 billion in the quarter were 10% Dividend yield 3.5% 3.8% 3.6% lower than in Q1 and 21% below the prior year period. Market capitalization (millions) 102,320 99,582 113,029 Business Operations 4/5

All of TD’s business lines reported strong YoY growth in adjusted ROE (adjusted) 15.9% 14.7% 13.9% earnings. U.S. Retail was particularly strong, improving by more than 18%, while Wholesale Banking was up 13%. Most surprising Net interest margin (AEA) 2.18% 2.05% 2.01% was the 7% earnings growth in Canadian P&C Banking, which had been underperforming peers in recent quarters. The U.S. # shares outstanding (millions) 1,845 1,855 1,857 Retail business continues to perform well with earnings of US$636mm in the quarter improving by a very robust 18% relative to the prior year period. Better credit performance helped although the increase was driven predominately by strong top- BUSINESS COMPOSITION line growth of 10% (both net interest income and fee-based revenue were up nicely). TD’s retail/wholesale earnings mix is 90%/10%. Geographically, ~60 of revenues are from Canada and 35% are from the U.S. Corporate Governance 4/5 Canadian P&C banking accounts for ~45% of adjusted earnings, No items noted. excluding the Corporate segment.

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TRANSALTA CORP. Current Price $7.26 Intrinsic Value $8.00 TSX-TA Current Yield 2.3%

BALANCING GROWTH & LEVERAGE

TA’s financial profile has improved drastically alongside supportive Alberta regulatory reform, with coal compensation payments complimenting asset sales as it continues to de-lever its balance sheet. As at Q1-F17, TA’s FFO-to-average debt ratio increased to 18.2%, a marked 300 bps improvement compared to Q4-F15. We maintain our $8.00 per share value estimate and BUY recommendation.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3.5/5 We value TA at $8.00 per share.

TA’s disclosure is more granular than the average utility in our coverage universe, but essentially in line with its closest peer, Capital Power Corp. Period Ending Q1-F17 F16 F15 (Amounts in C$) Adjusted Cash Flows 1/5

PPA expires and environmental legislation will materially Share price $7.80 $7.43 $4.91 reduce TA’s EBITDA in F21, but debt reduction initiatives, and divestiture options make its leverage manageable. Shares outstanding (millions) 287.9 287.9 284.0

The Balance Sheet 2/5 Market capitalization (millions) $2,246 $2,139 $1,394

TA’s balance sheet is a work-in-progress, serving as a head- Net debt (book value, millions) $6,975 $6,847 $7,158 wind to a standalone plant development and acquisitions. TA might do well to divest of its underappreciated TA Co- gen investment to reduce leverage. Enterprise value (millions) $9,221 $8,525 $8,552

Adjusted EBITDA (TTM) $1,034 $1,039 $945 Business Operations 4/5

Aside from macro elements (i.e. interest rates), the key risk Adjusted FCF per share (TTM) $1.38 $1.34 $1.13 to TA’s value proposition at the current price is a sustained low gas price environment, which could prompt new gas EV/EBITDA (TTM) 8.9x 8.2x 9.0x plant development and greater market share loss.

P/ACFFO (TTM) 5.7x 4.4x 4.3x Corporate Governance 1/5 Average AB price per MWh $17 $17 $33 The Popular transaction might prove costly to TA, as it ne- gates any inherent fuel hedging in its Alberta portfolio-an Adjusted FFO-to-debt 18.2% 17.6% 15.2% important consideration given the relatively high CO2 costs on the horizon for coal plants. Net debt-to-EBITDA 6.7x 6.6x 7.6x

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated May 8, 2017 BUY

TRANSALTA RENEWABLES INC. Current Price $15.47 Intrinsic Value $15.50 TSX-RNW Current Yield 5.7%

ALL SET FOR DROPDOWNS

TransAlta Renewables Inc. (“RNW”) offers a contracted, largely-renewable asset base at a reasonable 9.7x multiple of F18E EBITDA, , while paying a sustainable 5.7% dividend yield that is expected to grow upon commissioning of the South Hedland gas plant later this year. As such, we maintain a BUY recommendation and $15.50 per share value estimate.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 3/5 A reasonable comparative valuation prompt us to rate RNW a BUY, with $15.50 per share value estimate. We are increasing our rating by one point, as RNW’s accounting and disclosure includes actual output vs. expectations by fuel source. We see it as a positive development as RNW’s financial performance is more dependent on renew- Period Ending Q1-F17 F16 F15 able output. (Amounts in C$)

Adjusted Cash Flows 4/5 Share price $15.30 $14.34 $10.37

RNW’s cash flow is relatively low risk, given output is entirely contracted. Accordingly, the primary risk revolves around Shares outstanding (millions) 224.1 224.1 224.1 the output from renewable assets. Market capitalization (millions) $3,429 $3,214 $2,324

The Balance Sheet 4/5 Free cash flow per share (TTM) $1.10 $1.10 $1.08 Our balance sheet rating focuses on the risk of leverage, which is relatively low at RNW. In fact, we’d characterize Dividend per share (Current) $0.88 $0.88 $0.81 RNW as under-levered, especially following the Australian asset drop-down. Payout ratio 80% 80% 75%

Business Operations 4/5 Electricity output—wind (GWh) 3,040 3,097 2,911

In addition to site development and expansion options Electricity output—hydro (GWh) 430 444 351 stemming from Alberta’s CLP, RNW is well-positioned to acquire additional assets from TA via prospective drop downs. Adjusted EBITDA (TTM) $404 $407 $261

Corporate Governance 2/5 EV/EBITDA 12.3x 12.0x 13.9x

We’re concerned that a conflict of interests might prevent Adjusted FFO per share (TTM) $1.27 $1.27 $1.22 RNW from employing more debt to enhance shareholder returns. Net debt-to-EV 31% 34% 36%

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NASIBA AKHMEDOVA [email protected] 416-866-8783 Updated February 17, 2017 BUY

TRANSCANADA CORP. Current Price $62.22 Intrinsic Value $67.50 TSX-TRP; NYSE - TRP Current Yield 4.0%

FINISHING STRONG: TRP DELIVERS SOLID Q4 RESULTS & A PROMISING OUTLOOK We continue to rate TransCanada a BUY because of its unique combination of income and value attributes. Our $67.50 per share value estimate implies a 7.5% F20E FCF yield, which is underpinned by a portfolio of low-to-medium risk growth projects.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our value estimate is now $67.50 per share.

Compared to its most similar peer, Enbridge Inc., we find TRP’s disclosure to be slightly better, since it offers a more granular look (i.e. EBITDA and earnings vs. only adjusted earnings at ENB) into the assets that make up its reporting For the Period Ended F16 F15 F14 segments. (Amounts in C$)

Adjusted Cash Flows 4/5 Share price $60.54 $45.19 $57.10

With its major capital projects commencing operations in the coming years, we expect TRP’s operating cash flow to Shares (millions) 864 703 709 increase markedly, granting it significant capacity to fund future growth projects and to increase the dividend. Market capitalization (millions) $52,292 $31,751 $40,484

The Balance Sheet 3/5 Net debt (millions) $54,526 $38,513 $31,711 Like most other regulated Canadian businesses, TRP is bene- fiting from the current low interest rate environment, with ample access to debt capital. The unexpected equity issuance in November will improve leverage metrics. Enterprise value (millions) $106,818 $70,264 $72,195

Business Operations 3/5 Adjusted EBITDA (TTM) $6,647 $5,908 $5,521

Results from TRP’s Alberta power assets has declined alongside spot power prices, but with a mostly gas-fired genera- Adjusted EPS (TTM) $2.78 $2.50 $2.42 tion fleet, we believe TRP is relatively well positioned to ride out new climate change initiatives. EV / EBITDA (TTM) 16.1x 11.9x 13.1x

Corporate Governance 2.5/5 P/E (TTM) 21.8x 18.1x 23.6x No significant issues noted.

Net debt-to-EBITDA (TTM) 8.2x 6.5x 5.7x

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated July 20, 2017 BUY TRICON CAPITAL GROUP INC. Prior Close $11.03 Intrinsic Value $12.80 TSX-TCN Current Yield 2.4%

LEVERAGE TO U.S. HOME PRICES

Tricon’s investments in land development and single-family rental homes provide a leveraged approach for Canadian investors seeking exposure to U.S. home price appreciation. Supply and demand fundamentals in the U.S. market have remained constrained since the 2008/2009 financial crises and are likely to continue to see steady appreciation in the near term. Additionally, based on our review of the company’s financial statements and disclosures, we think investor concerns regarding Tricon’s accounting are somewhat overdone as we find current disclosure reasonable.

QUALITY RATING INTRINSIC VALUE

Our NAV valuation approach for the individual investment Accounting & Disclosure 3.5/5 verticals yields an intrinsic value of C$12.80 which takes into consideration recent strength of the Canadian dollar. Tricon’s financial statements reflect the holding company’s finances. The company has improved disclosure on certain of its investment subsidiaries so that investors can get a more direct read of the underlying operations, but more could be Period Ending F15 F16 Q1 F17 done. C$ Millions (except as noted) Cash Flows 3/5

To date the company has not produced significant cash Share price $9.06 $9.46 $10.92 flows to shareholders as the company has been focused on investing in growing the individual verticals. Balance Sheet 4/5 Shares outstanding 112.0M 112.8M 113.0M

Tricon has a sound balance sheet at the holding company level with the majority of outstanding debt being convertible. Market capitalization $1,015.1 $1,066.7 $1,234.3 At the investment company level, the land development business does not have any debt associated with it while the single-family rental business has raised debt via securitization Enterprise value (EV) $1,129.5 $1,288.3 $1,295.9 structures we believe to be sound. Business Operations 4/5 Debt to shareholders’ equity 10.5% 23.1% 7.7% Tricon’s businesses are operated as investment companies and Tricon has been focused on growth. The relatively simple commodity type nature of the investments made in Revenue (in USD) $102.1 $111.4 $27.9 housing provide some comfort to investors

Corporate Governance 4/5 Net income (in USD) $58.5 $59.8 $7.8

In our opinion management has been active in improving disclosure in response to investor inquiry and has recently improved its incentive compensation structure related to Total assets (in USD) $826.5 $972.7 $1,183.5 stock options to be more shareholder friendly.

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-50% -25% 0 25% 50% Updated April 18, 2017 SELL VALEANT PHARMACEUTICALS INTL., INC. Current Price C$12.64/US$9.48 Intrinsic Value US$9.00 TSX-VRX; NYSE-VRX Current Yield 0.00%

NO SIGNS OF A TURNAROUND On February 28, 2017, VRX reported its Q4-F16 results and provided F17 guidance. The company issued lower than expected F17 Adjusted EBITDA guidance. While admitting that near term prospects are not rosy, management nonetheless unveiled ambitious revenue growth forecasts through 2020. However, based on our review, we remain skeptical they can achieve these targets. Therefore, we maintain our SELL recommendation and reduce our intrinsic value from US$10.00 to US$9.00.

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 0/5 Given the uncertainties facing the company, we caution As a result of the SEC’s questioning in 2016, VRX will no long- that valuation remains a stab in the dark. We maintain our er report its Adjusted EPS and will modify its Adjusted EBITDA SELL recommendation and reduce our intrinsic value esti- metric. However, we note that Adjusted EBITDA will contin- mate from US$10.00 to US$9.00 per share. ue to exclude material and recurring restructuring, litigation and share based compensation costs. Given the criminal investigation and lack of any evidence from VRX that con- Period Ending tradicts the allegation of Philidor-related irregularities sug- F14 F15 F16 US $ Millions (except as noted) gests that investors should factor in a material legal reserve.

Cash Flow Sustainability 2/5 Share price $144.45 $101.65 $13.76 VRX may lose approximately 22% of its 2017 Adjusted EBITDA to generic competition through 2018. The ongoing reim- bursement and pricing pressure have substantially reduced VRX’s cash flow and growth profile. In addition, potential Shares outstanding (millions) 335.4 341.2 347.3 challenges from tax authorities could lower VRX’s cash flow by approx. 20%.

Market capitalization $47,887 $34,682 $4,783 Balance Sheet 0/5 VRX’s Net Debt to Adjusted F17 EBITDA is approximately 8.1x, compared to the average of 2x for the peer group. Enterprise value (EV) $62,941 $64,268 $34,675 Business Operations 1/5

The business is much weaker than management has let on due to the following: 1) The growth at B&L, Salix, Derm and Revenue TTM $8,263 $10,390 $9,674 Neuro segments is rapidly deteriorating and calls into question past cost synergies; 2) underperforming Walgreen’s deal and continued backlash from payors hurts profitability; 3) the financial fall out from ongoing investigations may Reported Adj EBITDA (TTM) $4,112 $4,781 $4,305 amount to $5 billion. Corporate Governance 0/5 Reported Organic Growth 13% 10% (6%) We worry that resolving VRX’s internal control weaknesses will be challenging, given the deep rooted culture that was in place since 2008. Management’s compensation tied to rise in share price reinforces emphasis on short term gains EV-to-EBITDA (TTM) 14.3x 10.3x 8.1x at the expense of long-term value.

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DIMIRTY KHMELNITSKY [email protected] 416-866-8783 Updated July 27, 2017 BUY VERMILION ENERGY INC. Current Price C$41.49 / US$33.31 Intrinsic Value C$60.50 TSX-VET; NYSE-VET Current Yield 6.2% CANADIAN ARM BOLSTERS LONG-RUN GROWTH Management reinforced that Canada is set to take a more prominent role in Vermilion’s long run growth plans, with $20 million in Canadian capex pulled forward to 2017, increasing total spending to $315 million, versus original guidance of $295 million. We also see that leverage can continue to improve from 2.1x Debt/FFO in 2017 to 1.9x at the end of 2019 with flat US$50 WTI (assuming a 30% DRIP participation rate). We are fans of Vermilion’s strategy of small ‘bolt-on’ acquisitions that are set to unlock value over time. BUY

QUALITY RATING INTRINSIC VALUE

WTI Oil Price HH Gas Price USD/CAD XR Intrinsic Accounting & Disclosure 3.5/5 Commodity Case 2017 / 2021 2017 / 2021 2017 / 2021 Value

A key feature of accounting under IFRS is the treatment of $62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 54.50 the Australian Petroleum Resource Rent Tax, which moves from being a periodic royalty expense under C-GAAP to $67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 60.50 conventional tax treatment on the income statement and $77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 68.50 balance sheet. Our intrinsic value for Vermilion is $60.50 per share at long-run prices of US$67 for WTI oil and US$3.75 for NYMEX gas.

Adjusted Cash Flows 4/5 Q2 2017 Company Profile 2016 2015 (6 mos.) We expect Vermilion to generate ~$5.20 per share in cash flow next year at US$51 WTI oil and US$3.00 NYMEX gas, ris- Price 41.49 50.51 37.61 ing to ~$5.80 per share in 2018 at US$55 WTI and US$2.75 Shares (millions incl. exch.) 120.5 115.7 110.8 natural gas. Market cap. ($ millions) 5,000.1 5,844.0 4,167.9 Revenue ($ millions) 254 829 940 The Balance Sheet 2.5/5 CFPS 2.50 4.40 4.01 In March 2017 VET issued US$300 million aggregate principal Price to YTD CFPS 8.3x 11.5x 9.4x amount of 8 year senior unsecured notes which will be used to repay debt outstanding on its bank facility. In addition ROE (annualized) 11.5% -9.3% -11.2% the facility was reduced by $600 million to $1.4 billion. At Dividends per share 1.29 2.58 2.58 Q2-F17 net debt was $1.25 billion, and we expect net debt to remain at or below 1.7x EBITDA in 2017, assuming US$51 Production (boe/d) 65,896 63,523 54,922 WTI, well under the company's 4.0x Debt-to-EBITDA cove- CFO* per boe 25.01 21.92 22.17 nant. Net debt to EV 20% 18% 24% Net debt to CFO* 2.1x 2.6x 3.0x Business Operations 3/5 Q2 2017 Cash Flow and Dividends 2016 2015 Despite having relatively far flung assets, Vermilion's steady (6 mos.) track record across its operating segments lends credibility Reported CFO* 301.6 509.5 444.4 to the company's diversified strategy. Vermilion has guided Capital expenditures (154.7) (241.5) (486.9) to 10% production growth in 2017 and 9% growth in 2018 Available cash (shortfall) 146.9 268.0 (42.5) Dividends declared 147.5 299.1 283.6 Corporate Governance 2.5/5 % of CFO* 49% 59% 64% We are wary of strategy creep given the company's many % of available cash 100% 112% N/A jurisdictions, which makes management's decision to enter the Hungary and Croatia worth keeping tabs on. * CFO is cash from operations after working capital, cash interest expense and asset retirement expenditures

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-50% -25% 0 25% 50% Updated July 27, 2017 BUY WASTE CONNECTIONS INC. Current Price US$66.00 Intrinsic Value US$72.50 NYSE-WCN Current Yield 0.7%

A SHOPPING SPREE IS ON THE HORIZON While we don’t typically ascribe value to unannounced transactions, a strong indication of M&A activity combined with its history of successful integration and improvement of acquired businesses warrants an exception for WCN. With significant capital available to deploy (over $2 billion of discretionary cash generated by the end F18), we believe

QUALITY RATING INTRINSIC VALUE

Accounting & Disclosure 4/5 Our $72.50 per share estimate is $2.50 per share higher on account of assumed prospective M&A value creation.

The control deficiency reported in WCN’s 10K is immaterial, and will not impact core EBITDA, EPS or free cash flow. Period Ending WCN’s peers. While we’d like more detail on operating Q2-F17 F16 F15 US$ Millions expense and SG&A, excluding a “core price” disclosure that isn’t adjusted for rollbacks.

Adjusted Cash Flows 5/5 Share price $64.42 $78.59 $56.32

The BIN acquisition continues to pay dividends. Literally. Shares outstanding (millions) 263.4 175.4 122.4 We believe WCN is capable of hiking its dividend by almost 20% in October, due to robust FCF generation. Market capitalization $16,970 $13,787 $6,894 The Balance Sheet 3/5

Net debt $3,755 $3,819 $2,157 WCN’s leverage is essentially at the midpoint of its peer group. However, WCN’s track record of margin improvement and FCF conversion suggest the organic business’ Enterprise value (EV) $20,725 $17,606 $9,051 debt service capability is above average.

Business Operations 4/5 Revenue (TTM) $4,401 $3,376 $2,117

Operating conditions remain strong in the North American EBITDA (TTM) $1,374 $1,071 $711 waste management sector, with growing volume reducing risk of price competition. Adjusted EPS (TTM) $2.27 $1.98 $1.98

Corporate Governance 3/5 Net debt-to-EBITDA (TTM) 2.7x 3.6x 3.0x

Integration is ahead of schedule, boosting our confidence that WCN can generate additional value accretion EV-to-EBITDA (TTM) 15.1x 16.4x 12.7x through prospective M&A.

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DARRYL MCCOUBREY [email protected] 416-866-8783 Updated April 18, 2017

WHEATON PRECIOUS METALS Current Price C$29.31/US$22.00 TSX-SLW; NYSE-SLW Market Capitalization (million) C$12,980/US$9,700

THE TAX MAN COMETH Based on our analysis of Silver Wheaton’s corporate structure, the Income Tax Act and recent legal precedents on transfer pricing, we believe the CRA has a much stronger case against the company than management is letting on. We believe that: 1) The case for incorporating in the Caymans based on geographic proximity or financial expertise is questionable; 2) Most of the company’s value-added functions appear to take place in Canada; and 3) Silver Wheaton’s peers do not use offshore structures to the same extent. Should Silver Wheaton lose to the CRA’s tax challenge, we estimate that back taxes, interest and transfer pricing penalties through 2016 could amount to approximately $1 billion. In addition, the CRA challenge also threatens to reduce future earnings and cash flow by the Canadian tax rate of about 26%. Ultimately, a ruling that invalidates Silver Wheaton’s Cay- man arrangements also has the potential to reduce the company’s competitiveness when sourcing future deals.

Risk Areas  Tax — The Income Tax Act explicitly prevents transactions for the sole purpose of tax reduction. Our analysis reveals that: Cayman employees appear to be limited to administrative functions; about half of the company’s total compensation is paid to Canadian-based executives; and flight times and flight costs are generally worse from the Cay- mans than from Silver Wheaton’s Canadian headquarters. Our analysis of two key recent legal precedents suggests that SLW’s transfer pricing could be flawed because it failed to encompass all factors that an independent third party would consider relevant. In addition, we find it telling that SLW’s peers make limited use of off-shore structures. For example, Sandstorm Gold, run by Silver Wheaton’s former CFO, has not structured streams through its offshore subsidiary since 2009, citing that the tax benefits do not outweigh the risks.

 Earnings Quality — Despite the massive exposure, SLW did not record any provision for the reassessment.

 Cash Flow Sustainability — All else equal, SLW’s tax rate may rise materially, threatening to reduce future earnings and cash flow by the Canadian tax rate of about 26%. Meanwhile, the company has deposited a letter of credit for C$202 million with the CRA representing approximately 50% of the reassessed amounts of tax, interest and penalties for 2005-2010 tax years. We estimate that over the next four years SLW may need to deposit an additional US$230 million in letters of credit as security with the CRA related to potential back taxes for 2011-2016.

Updates Since Last Report  After reassessing the Company for 2005-2010 tax years, the CRA has expanded its audit to 2011-2013 tax years. The dispute is currently being litigated in the tax court and the timing of the resolution remains uncertain. Based on past precedents it may take as long as seven years to resolve.

DIMITRY KHMELNITSKY [email protected] 416-866-8783

Viewpoint July 28, 2017

TD West Tower 100 Wellington Street West Suite 3110, PO Box 80 Toronto, Ontario, Canada M5K 1E7

Tel: (416) 866-8783 www.veritascorp.com

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