January 6, 2016
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Top 10 Canadian Stock Picks for 2016
Scotia Wealth Management Portfolio Advisory Group
January 6, 2016
2016 shaping up to be another challenging year for Canadian equities… our list is defensively
positioned.
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This year’s Top 10 picks are (in alphabetical order): Agrium (AGU), Bank of Nova Scotia
(BNS), Brookfield Property Partners LP (BPY.un), Brookfield Renewable Energy Partners
(BEP.un), Canadian Tire (CTC.a), Chartwell Retirement Residences (CSH.un), Dollarama
(DOL), Element Financial (EFN), Enbridge (ENB), and Power Corp of Canada (POW).
The 2015 list declined in absolute terms, but managed to beat the S&P/TSX Composite.
o
Average decline of 9.73% for 2015’s Top 10 picks, 136 bps of outperformance over the
S&P/TSX Composite’s 11.09% decline last year.
Top 10 Canadian Stock Picks for 2016
Himalaya Jain, MBA, CFA – Director, Portfolio Manager, Portfolio Advisory Group
Warren Hastings, CFA – Associate Director, Portfolio Advisory Group
2016 shaping up to be another challenging year for Canadian equities… our list is defensively
positioned
Many of the factors that led to the 11% decline for the S&P/TSX Composite Index in 2015 remain as
challenges for 2016. Despite mounting strain on OPEC and non‐OPEC producers alike, the ongoing global
oversupply situation for crude oil shows no sign of reversing in the near‐term. Similarly, the deceleration
in the Chinese economy and general slow pace of global growth has also resulted in oversupply
conditions for many other non‐food commodities. Finally, low absolute interest rates, worries about
potentially higher loan losses, and a stretched housing market are keeping sentiment on the Canadian
Financials low. So long as these factors persist we think that the Canadian equity market will continue to
be hard‐pressed to attract the funds flow required to generate meaningful returns in 2016.
Rather than speculate on when commodity prices may rebound, the criteria for our 2016 Top 10 list
places greater emphasis on sustainable dividend income and valuation. Given the precarious nature of
cash flows and balance sheet strain, most resource companies do not fit these criteria. Admittedly, if
commodity prices do stage a meaningful recovery in 2016 the performance of our Top 10 list should
underperform the Index as it has little direct exposure to either energy or metal prices. On a risk/reward
basis, this is an outcome we are willing to live with. With expectations for mid‐single digit price
appreciation for the TSX, our Top 10 list for 2016 (see Exhibit 1) has a greater emphasis on dividend yield
than in prior years. Seven of our ten picks have dividend yields higher than the TSX’s 3.3% current yield.
A brief summary of each of our Top 10 picks is included later in this report.
Bloomberg Potential
Price Dividend Consensus Total Market
Company Sector Symbol 31‐Dec‐15 Dividend Yield Target Return Buy Hold Sell Cap ($Bln)
Agrium Materials ‐ Fertilizer AGU 123.67 4.84 3.9% 145.13 21% 13 10 2 17
Bank of Nova Scotia Financial ‐ Bank BNS 55.97 2.80 5.0% 65.78 23% 6 12 2 67 Brookfield Property Partners LP Financial ‐ Real estate BPY.un 32.22 1.47 4.6% 35.42 14% 4 0 0 8 Brookfield Renewable Energy Partners LP Utilities BEP.un 36.27 2.30 6.3% 39.94 16% 5 6 1 5 Canadian Tire Consumer Discretionary CTC.a 118.16 2.30 1.9% 144.62 24% 9 6 0 9 Chartwell Retirement Residences Healthcare CSH.un 12.70 0.55 4.3% 14.54 19% 3 3 0 2
Dollarama Consumer Discretionary DOL 79.94 0.36 0.5% 88.75 11% 9 4 2 10
Element Financial Financial ‐ Diversified EFN 16.70 0.10 0.6% 24.85 49% 13 0 0 6
Enbridge Energy ‐ Infrastructure ENB 46.00 2.12 4.6% 63.00 42% 14 3 1 40
Power Corporation of Canada Financial ‐ Diversified POW 28.94 1.25 4.3% 34.93 25% 4 5 0 13
Average 3.6% 24.5% 18
Source: Bloomberg, ScotiaMcLeod PAG
Exhibit 1 ‐ Canadian Top 10 Picks for 2016
Bloomberg Ratings
Agrium (AGU) is this year’s sole Materials pick. The company’s diversified business mix of retail and
wholesale supply to the agricultural sector means that its earnings are less vulnerable to commodity
prices swings. AGU is expected to generate free cash flow in 2016 that could direct toward dividend
increases and/or share buybacks.
While the Canadian banks are facing similar headwinds, relative differences in their exposures and
strategies have resulted in some trading at a substantial discount to the peer group average. Amongst
the big‐5, Bank of Nova Scotia (BNS) is trading at the steepest discount to its peers. We don’t expect this
discount to increase much further in 2016, and indeed could begin to narrow later in the year.
Brookfield Property Partners (BPY.un) is appearing on our list for the second consecutive year as we
continue to like the prospects of its U.S.‐centric real estate portfolio and large discount to net asset
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value. Similarly, Brookfield Renewable Energy Partners (BEP.un) also reappears on our 2016 list. We
think the current valuation reflects low hydrology conditions and we are optimistic that water flow
could return to normal levels in the second half of 2016.
Canadian Tire (CTC.a) has been selected due to its lower relative valuation and recent momentum in
same‐store sales growth. We expect CTC to direct free cash flow toward share buybacks, modest
dividend growth and potential acquisitions.
Although now classified under the Healthcare sector, Chartwell Retirement Residences (CSH.un) is
within a real estate subsector that is proving less economically sensitive than others. We selected CSH
for its defensive qualities as well as prospects for ongoing consolidation within the seniors housing
segment.
Dollarama (DOL) is one the few remaining organic growth stories in Canada. The recent weakness in
share price, triggered by lower than expected guidance, provides an opportunity to add DOL to our 2016
list. Element Financial (EFN) is another growth‐oriented name that has recently traded to attractive
levels.
With approximately 5% of earnings being directly exposed to commodity prices, we think the share price
decline for Enbridge (ENB) is overdone. Indeed, the company recently raised its dividend by 14% and
reiterated guidance for mid‐teen growth in free cash flow.
Power Corp of Canada (POW) is on our list again for 2016 as its absolute and relative valuation remains
attractive and the company has commenced dividend increases again after an extended pause.
After many years of avoiding gold and gold equities, we have started to warm up to the sector as the
commodity price is hovering near the total cost of production and the equities are now more reasonably
valued. Indeed, now that the Federal Reserve has started to raise rates, the headwinds facing gold have
come to fruition. Furthermore, the metal could be resilient in the event that U.S. economic activity
disappoints. While there are no gold equities on our 2016 Top 10 list, we leave it to investors to
substitute one of our chosen names with an ETF such as iShares S&P/TSX Global Gold Index ETF (XGD)
should they hold a stronger conviction than we do about a potential cooling trend for the U.S. economy.
The 2015 list declined in absolute terms, but managed to beat the S&P/TSX Composite
Our expectations at this time last year called for challenging conditions in 2015 for the three most
heavily weighted sectors (Financials, Energy, Materials). Despite having only modest expectations, the
ongoing downtrend in commodity markets resulted in an 11.09% price‐only decline for the TSX, wiping
out much of the gains of the two preceding years. The Energy (‐25.7%) and Materials (‐22.8%) sectors
fared the worst as commodity prices failed to stabilize, but other important sectors such as Financials (‐
5.5%) and Industrials (‐12.5%) also declined meaningfully. Although we purposely selected defensive
names for 2015, the widespread declines spared very few sectors. Our 2015 Top 10 list beat the
S&P/TSX Composite by a thin margin of 136bps, with only three of our picks ending in positive territory,
and five of ten picks beating the Index. Nevertheless, the 2015 outperformance was the fourth
consecutive year in which our Top 10 list beat its benchmark.
The top performing pick from our
2015 list was Brookfield Property
Partners (BPY.un), which we had
selected for its largely U.S.‐centric
real estate portfolio and large
discount to net asset value.
Although much of the gain was due
to BPY’s non‐CAD exposure, we note
that
the
company
modestly
outperformed the U.S. REIT sector in
USD terms. Through strong leasing
conditions in several of its U.S. office
markets
and
progress
in
its
development pipeline, BPY managed
to increase its net asset value per
unit by 3.1% on a USD basis during
the first nine months of 2015. We
continue to like the risk/reward
characteristics for BPY and have
renewed it as one of our top picks
for 2016.
Brookfield Renewable Energy Partners (BEP.un) also performed relatively well for much of 2015. In mid‐
October we downgraded BEP as we became increasingly concerned that Q3 results would be negatively
impacted by the weak Brazilian Real and poor hydrology. Indeed, the company did report weak Q3
results and the units subsequently declined. In early December, we upgraded our opinion as we believed
much of our concern was adequately reflected in the unit price. With the Real showing signs of
stabilization and El Nino climate conditions expected to moderate by mid‐2016, we have maintained BEP
on our list again for 2016 mainly for its attractive distribution yield.
Having included Magna International (MG) on our top 10 list in 2012, 2013 and 2014, we chose to
maintain our exposure to the recovering auto sector by selecting Linamar (LNR) for our 2015 Top 10 list.
Although Linamar did end the year with a modest 5.33% gain, it significantly outperformed MG’s 10.84%
decline in 2015. Although further strength in the U.S. auto market is likely, we think the cycle of margin
expansion is nearing maturity and therefore have not selected an auto parts name for our 2016 list.
At this time last year, we expected that global supply/demand conditions for crude oil would start to
improve by late 2015. It was on this basis that three of our top 10 picks were in the energy sector.
Company Ticker 31‐Dec‐14 31‐Dec‐15 Change
Brookfield Property Partners LP BPY‐u 26.45 32.22 21.81% Brookfield Renewable Energy Partners LP BEP‐u 35.90 36.27 1 9.85% Canadian Natural Resources CNQ 35.92 29.96 2 (16.59%) Cenovus Energy CVE 23.97 17.50 (26.99%) Empire Company EMP/a 29.21 25.74 (11.87%) Linamar LNR 70.95 74.73 5.33% Lundin Mining LUN 5.72 3.80 (33.57%) Pembina Pipeline PPL 42.34 30.15 (28.79%) Power Corporation of Canada POW 31.76 28.94 (8.88%) Royal Bank of Canada RY 80.24 74.15 (7.59%) Average price‐only return for top 10 list * (9.73%) S&P / TSX Composite Index 14632.44 13009.95 (11.09%) Outperformance (Underperformance) 1.36% Notes: 1 Performance for BEP‐u reflects PAG downgrade on Oct 16 and subsequent upgrade on Dec 10 2 Closing price is as of Dec 10 when CNQ was downgraded by PAG * Top 10 list average return would have been ‐10.54% if all candidates were held throughout 2015 Source: Bloomberg, ScotiaMcLeod PAG
Exhibit 2 ‐ Performance of 2015 Canadian Top 10 List
See no te s PriceJanuary 6, 2016
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Although they were selected for their defensive qualities, Cenovus (CVE), Canadian Natural Resources
(CNQ), and Pembina Pipeline (PPL) could not escape the prolonged oil price slump and the poor investor
sentiment that accompanied it.
The two Financials on our 2015 list managed to beat the Index but both closed in negative territory.
Royal Bank (RY) performed modestly better than the TSX bank group average, but the sector traded
lower on concerns about slowing profit growth, potential for higher loan losses in the resource sector,
and ongoing anxiety relating to the Canadian housing market. Power Corp. (POW) declined in line with
the broader insurance sub‐sector.
Empire Ltd. (EMP) performed reasonably well until early September, when it announced that it had
experienced integration issues relating to its Canada Safeway acquisition. The stock is unlikely to regain
investor confidence until it demonstrates that the integration issues have been addressed, which may
take until mid‐2016.
The worst performer on our 2015 list was Lundin Mining (LUN). Although LUN handily beat many of its
base metal peers (TCK.b, FM, HBM) due to its stronger balance sheet, it also succumbed to the
substantial drop in base metal commodity prices.
Agrium Inc. (AGU ‐ TSX)
Description:
Agrium Inc. is a major producer and distributor of agricultural products and services in North and South
America, Australia and Egypt through its agricultural retail‐distribution and wholesale nutrient businesses.
Investment Thesis:
The only materials name on this year’s Canadian Top 10 list, AGU stands to benefit, in our view, as sector
investors seek defensive alternatives to names exposed to challenging base metal markets.
AGU’s retail operations are significantly more stable than the wholesale segment, and in recent years the
retail segment has represented approximately 75% of total revenue. Within wholesale, nitrogen fertilizer is
AGU’s largest product and low natural gas prices should help to preserve margins in 2016.
At 12.3x NTM EPS, AGU’s valuation remains well below its 2015 high of 15.0x.
The 3.9% dividend yield is attractive and the dividend is poised for further growth, in our view, given AGU’s
conservative payout ratio (46% of F16e EPS) and expected 6% YOY EPS growth in F16.
Bloomberg consensus: 13 Buy, 10 Hold, and 2 Sell ratings with a $145.13 12‐month share price target.
Bank of Nova Scotia (BNS ‐ TSX)
Description:
Bank of Nova Scotia is Canada’s third‐largest bank by market capitalization (as at 31 Dec/2015) with
operations throughout a number of North and South American countries and parts of Asia.
Investment Thesis:
BNS trades at the lowest multiple of F16e EPS amongst the Big Five Canadian banks while offering the third‐
highest EPS growth, based on consensus estimates. In addition, it is tied with CM for the best dividend yield
amongst the Big Five at 5.0%.
BNS underperformed its Big Five peers in 2015 on a total return basis, likely because of concerns over the
bank’s international exposure and declining commodity prices. However, the operating performance of BNS’
International division has improved in recent quarters, reflecting restructuring efforts in F15, while credit
quality has remained stable despite BNS’ above‐average commodity loan exposure.
Bloomberg consensus: 6 buys, 12 holds, 2 sells with an average 12‐month unit price target of $65.78.
Brookfield Property Partners LP (BPY.un – TSX)
Description:
Brookfield Property Partners is a global commercial property company that owns, operates and invests in
office, retail, multifamily, industrial, and hotel assets. Approximately two‐thirds of BPY’s assets are located in
the U.S.
Investment Thesis:
BPY units offer a rare combination of below‐average valuation (16% NAV discount versus the peer group
average at 10%, according to 23 Dec/2015 Scotiabank GBM estimates) and above‐average growth (22%
AFFOPU CAGR F15E‐F17E versus the peer group average at 5%).
According to the Scotiabank GBM analyst, unit price catalysts include near‐term debt reduction and asset sales
at valuations in excess of IFRS values. BPY is targeting net proceeds from disposition of ~US$1B in 2016
(possibly from the sale of several Australian office assets), while targeted leverage in the next six months is in
the ~50% range (versus ~53%‐54% today).
BPY targets annual distribution growth of 5%‐8% and the units currently yield 4.6%. We believe the
distribution is sustainable in view of BPY’s FFOPU growth target of 8%‐11% per annum.
Bloomberg consensus: 4 buys, 0 holds, and 0 sells, with an average 12‐month share price target of $35.42.
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Brookfield Renewable Energy Partners LP (BEP.un ‐ TSX)
Description:
Brookfield Renewable is one of the largest publically traded renewable energy producers in the world.
Investment Thesis:
BEP has more than 7,000 MW of installed generating capacity, geographically diversified across North and
South America and Europe. Hydro, arguably the highest quality renewable asset, represents 81% of BEP.un’s
power generation. ~90% of BEP’s generation is contracted with power purchase agreements having a
weighted average remaining life of 17 years, supporting long‐term cash flow stability.
Reflecting strong organic and acquisition growth potential, BEP targets distribution growth of 5%‐9% annually
along with a payout ratio of 60% to 70% of funds from operations. The units currently yield 6.3%.
Recent weakness in unit price reflects lower than expected Q3 results which stem from lower hydrology and
weakness in the Brazilian Real. We are optimistic that El Nino climate conditions should begin to moderate by
mid‐2016 and hydrology should gradually return to normal levels thereafter.
As at 18 Dec/2015, BEP.un units traded at a 7.6% FCF yield based on Scotiabank GBM F16e, a discount to peers
FTS, EMA, and H, despite BEP’s superior growth profile (27% F15e‐F17e FCFPS CAGR).
Bloomberg consensus: 5 buys, 6 holds, 1 sell with an average 12‐month unit price target of $39.94.
Canadian Tire Corporation Limited (CTC.a ‐ TSX)
Description:
Through 1,700 bricks and mortar locations across Canada, Canadian Tire operates many iconic retail brands
including its namesake Canadian Tire, SportChek, and Mark’s. CTC also operates a sizable financial services
segment and holds an 84% effective ownership interest in CT REIT.
Investment Thesis:
Despite slowing economic conditions, SSSG within the company’s two largest retail banners remain firmly in
positive territory and overall retail margins continue to expand YOY as investment efforts and a focus on cost
start to pay dividends.
Broad market weakness in recent months has reduced CTC’s valuation to a more reasonable 13.9x forward P/E
from 15.8x at mid‐year.
CTC.a has a current dividend yield of 1.9%, and a 5‐year compound annual dividend growth rate of 20%. Given
CTC’s payout policy of 25%‐30% of prior year normalized earnings, we believe the dividend is sustainable. The
dividend is complemented by CTC’s share buyback program, the size of which was increased to $550M for
2016 from $400M in 2015.
Bloomberg consensus: 9 Buys, 6 Holds, 0 Sell ratings; $144.62 average 12‐month target price.
Chartwell Retirement Residences (CSH.un ‐ TSX)
Description:
Chartwell Retirement Residences is the largest operator in the Canadian seniors housing sector, with over 175
locations across four provinces. It offers a range of senior living options including independent and assisted
living retirement homes, memory care, long term care and extended care residences.
Investment Thesis:
Though a constituent of the S&P/TSX Healthcare subindex, CSH.un compares favourably to seniors housing
peer Sienna Senior Living Inc. (SIA‐TSX), offering similar AFFO per unit growth at a narrower NAV premium and
lower leverage.
With an AFFO payout ratio below 70% based on Scotiabank GBM F16e and F17e, Chartwell’s distribution (4.3%
yield) is highly sustainable, in our view, particularly when compared with the payout ratios of its former peers
in the S&P/TSX REIT subindex.
The company’s portfolio repositioning efforts are nearing completion and recent results show favourable
same‐property income growth trends. The seniors housing segment is also experiencing consolidation which
should limit downside to valuation.
Bloomberg consensus: 3 Buys, 3 Holds, 0 Sell ratings; $14.54 average 12‐month target price.
Dollarama Inc. (DOL ‐ TSX)
Description:
Dollarama is a Canadian dollar store operator offering a broad assortment of everyday consumer products,
general merchandise and seasonal items at select fixed price points up to $3.00. The company operates over
1,000 stores across all ten Canadian provinces.
Investment Thesis:
DOL stock sold off following the company’s Q3F16 earnings report, likely due to the more conservative than
normal tone management struck on its most recent investor conference call. While management pointed to
reasons why it expects the pace of growth to return to more normalized levels in future years, consensus
earnings estimates were little changed and currently imply an EPS CAGR of ~13% (F16e‐F18e). Meanwhile,
valuation has pulled back to approximately 25x forward earnings, down from a 2015 high of approximately
29x.
DOL pays a modest but growing dividend (0.5% yield, 19% 3‐year dividend CAGR) and has also been active on
the share buyback front, recently increasing the size of its NCIB to 6.4M shares from 4.5M over the one‐year
period ending 16 June 2016.
Bloomberg consensus: 9 Buys, 4 Holds, 2 Sell ratings; $88.75 average 12‐month target price.
Element Financial Corp. (EFN ‐ TSX)
Description:
With total assets of approximately $23B, Element is one of North America’s leading fleet management and
equipment finance companies. Element operates across North America in four verticals of the equipment
finance market ‐ Fleet Management, Rail Finance, Commercial & Vendor Finance, and Aviation Finance.
Investment Thesis:
EFN offers significant exposure to the commercial lending market in the U.S., which the Scotiabank GBM
analyst expects will represent ~80% of the company’s assets by the end of 2016. Accordingly, EFN stands to
benefit from continued growth in equipment demand in that market, fuelled by the ongoing U.S. economic
recovery. Further consolidation within the U.S. commercial lending market could serve as an additional share
price catalyst.
We believe the current share price represents an attractive entry point, particularly with valuation (11.1x NTM
EPS and 1.33x BVPS) near historic lows.
EFN recently initiated a modest dividend (6% payout ratio on F16e EPS, 0.6% yield).
Bloomberg consensus: 13 Buys, 0 Holds, 0 Sell ratings; $24.85 average 12‐month target price.
Enbridge Inc. (ENB ‐ TSX)
Description:
Enbridge Inc. operates the world’s longest crude oil and liquids transportation system with a growing presence
in the natural gas transmission and midstream businesses, and increasing involvement in power generation
and transmission. Enbridge is also a major distributor of natural gas in Ontario, Quebec, New Brunswick and
New York State.
Investment Thesis:
As a defensive energy infrastructure name, Enbridge is the only energy sector constituent on the 2016
Canadian Top 10 list. Less than 5% of ENB’s earnings are directly exposed to commodity prices, and 95% of
ENB’s revenue is derived from investment grade customers.
ENB’s guidance calls for 15%‐18% cash flow CAGR (2014‐2019) and 14%‐16% dividend per share CAGR (2015‐
2019). Given a FCF payout ratio likely to remain in the 50% range, we believe the dividend is highly
sustainable and the 4.6% dividend yield is attractive.
Bloomberg consensus: 14 Buys, 3 Holds, 1 Sell rating; $63.00 average 12‐month target price.
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Power Corporation of Canada (POW – TSX)
Description:
Power Corporation of Canada is a diversified international management and holding company with interests in
companies in the financial services, communications and other business sectors. Its primary asset is a nearly
two‐thirds interest in Power Financial Corporation (PWF), which itself controls Great‐West Lifeco Inc. (GWO)
and IGM Financial Inc. (IGM).
Investment Thesis:
POW continues to trade at a substantial NAV discount of approximately 19% versus a long‐term average closer
to 16%. Additionally, POW’s main asset – its interest in PWF – itself trades at a NAV discount near 19% versus
a long‐term average of ~11%. All else equal, POW shares would benefit from a narrowing in either discount.
At the POW level, this could come about as the market more fully recognizes the value of POW’s non‐public
holdings (estimated at ~$4.79/share by the Scotiabank GBM analyst). The analyst also believes POW shares
would benefit from the collapse of the Power Group’s dual holdco structure, though he ascribes a low
likelihood to the scenario and acknowledges it is a decision that would rest with Power Corp.’s controlling
shareholder, the Desmarais family.
In addition to attractive valuation, POW shares yield 4.3%. With an EPS payout ratio below 40% based on
consensus F16 EPS estimates, we believe the dividend is highly sustainable.
Bloomberg consensus: 4 buys, 5 holds, and 0 sells, with an average 12‐month share price target of $34.93.
Important Disclosures The author(s) of the report own(s) securities of the following companies. BPY.UN, Brookfield Renewable Energy Partners LP, Canadian Natural Resources Limited, MG, The supervisors of the Portfolio Advisory Group own securities of the following companies. Bank of Nova Scotia, Scotia Capital Inc. is what is referred to as an “integrated” investment firm since we provide a broad range of corporate finance, investment banking, institutional trading and retail client services and products. As a result we recognize that we there are inherent conflicts of interest in our business since we often represent both sides to a transaction, namely the buyer and the seller. While we have policies and procedures in place to manage these conflicts, we also disclose certain conflicts to you so that you are aware of them. The following list provides conflict disclosure of certain relationships that we have, or have had within a specified period of time, with the companies that are discussed in this report.
Scotia Capital (USA) Inc. or its affiliates has managed or co‐managed a public offering in the past 12 months. Agrium Inc., Bank of Nova Scotia, Brookfield Renewable Energy Partners LP, BROOKFIELD RENEWABLE ENRGY P, Canadian Natural Resources Limited, Cenovus Energy Inc., Enbridge Inc., Pembina Pipeline Corporation, PPL CORP, Royal Bank of Canada
Scotia Capital (USA) Inc. or its affiliates has received compensation for investment banking services in the past 12 months. Agrium Inc., Bank of Nova Scotia, Brookfield Renewable Energy Partners LP, Canadian Natural Resources Limited, Cenovus Energy Inc., Dollarama Inc., Element Financial Corporation, Enbridge Inc., Lundin Mining Corporation, Pembina Pipeline Corporation, Power Corporation of Canada, Royal Bank of Canada
Scotia Capital (USA) Inc. had an investment banking services client relationship during the past 12 months. Agrium Inc., Bank of Nova Scotia, Canadian Natural Resources Limited, HudBay Minerals Inc., Lundin Mining Corporation
Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities of the following issuer(s): Canadian Tire Corporation Limited, Enbridge Inc., Power Corporation of Canada, Royal Bank of Canada
The Bank of Nova Scotia is the parent company and a related issuer of Scotia Capital Inc. and ultimate parent company and related issuer of Scotia Capital (USA) Inc. Bank of Nova Scotia
Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advice for a fee with respect to, the following issuer(s): Agrium Inc., Bank of Nova Scotia, Brookfield Renewable Energy Partners LP, BROOKFIELD RENEWABLE ENRGY P, Canadian Natural Resources Limited, Cenovus Energy Inc., Enbridge Inc., Pembina Pipeline Corporation, PPL CORP, Royal Bank of Canada, Teck Resources Limited
This issuer owns 5% or more of the total issued share capital of The Bank of Nova Scotia. Royal Bank of Canada
Scotiabank acted as a financial advisor for HudBay Minerals Inc. in a precious metals stream transaction with Silver Wheaton Corp. HudBay Minerals Inc. Scotiabank is acting as financial advisor to Teck Resources Limited in the purchase agreement with Franco‐Nevada Corporation related to silver production at the Antamina S.A. mine in Peru. Teck Resources Limited Scotia Waterous Inc. was retained as financial advisor to Canadian Natural Resources Limited and to provide their Board with an assessment of the fairness and adequacy of the sale of royalty positions to PrairieSky Royalty Ltd. Canadian Natural Resources Limited General Disclosures
The ScotiaMcLeod Portfolio Advisory Group prepares this report by aggregating information obtained from various sources as a resource for ScotiaMcLeod Wealth Advisors and their clients. Information may be obtained from the Equity Research and Fixed Income Research departments of the Global Banking and Markets division of Scotiabank. Information may be also obtained from the Foreign Exchange Research and Scotia Economics departments within Scotiabank. In addition to information obtained from members of the Scotiabank group, information may be obtained from the following third party sources: Standard & Poor’s, Valueline, Morningstar CPMS and Bloomberg. The information and opinions contained in this report have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness.
While the information provided is believed to be accurate and reliable, neither Scotia Capital Inc., which includes the ScotiaMcLeod Portfolio Advisory Group, nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of such information. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is provided to you for informational purposes only. This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation or particular needs of any specific person. Investors should seek advice regarding the appropriateness of investing in financial instruments and implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.
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Nothing contained in this report is or should be relied upon as a promise or representation as to the future. The pro forma and estimated financial information contained in this report, if any, is based on certain assumptions and management’s analysis of information available at the time that this information was prepared, which assumptions and analysis may or may not be correct. There is no representation, warranty or other assurance that any projections contained in this report will be realized. Opinions, estimates and projections contained in this report are our own as of the date hereof and are subject to change without notice. Copyright 2012 Scotia Capital Inc. All rights reserved Additional DisclosuresScotiaMcLeod is committed to offering its valued clients a disciplined approach to investing. A hallmark of this approach is access to comprehensive research reports, including fundamental, technical, and quantitative analysis that investors can use to assist them in bringing informed judgment to their own financial situation and investment decisions. In addition to the reports prepared by ScotiaMcLeod through its Portfolio Advisory Group, we also offer our clients access on request to insights in the form of research from other leading firms such as Standard and Poor’s, which offers independent research of relevance to our investment process. Further to your request, please find attached a research report of Standard and Poor’s (or one of its research affiliates), a member of the National Association of Securities Dealers (or similar securities regulatory authority). As Standard & Poor’s is not subject to Canadian regulation, this research report does not conform to Canadian disclosure requirements. ScotiaMcLeod is a division of Scotia Capital Inc. Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Neither Scotia Capital Inc. nor its affiliates accepts any liability whatsoever for any loss arising from any use of this document or its contents, including for any errors or omissions in the data or information included in the document or the context from which it is drawn. The content may have been based at least in part, on material provided by Standard & Poor's (S&P), our correspondent research service. S&P has given ScotiaMcLeod general permission to use its research reports as source materials, but has not reviewed or approved this report, nor has it been informed of its publication. S&P’s Stock Appreciation Ranking System is used by S&P analysts to rate stocks within their coverage universe assigning one to five STARS – five STARS – five STARS indicating a “buy” and one STAR a “sell”. S&P’s analysts also provide earnings estimates for these covered issues.
S&P’s Stock Appreciation Ranking System is a rank of the potential for future performance over a six to 12‐month period. The STARS selection process relies on a disciplined investment approach that combines fundamental and technical analysis, sector weightings, reasonable turnover, performance‐based bonus system, and a “top‐down” overlay with influence from the S&P's Investment Policy Committee. The overarching investment methodology is “growth at a reasonable price”. Unlike equity valuations from other financial firms, STARS is a forecast of a company's future capital appreciation potential versus the expected performance of the S&P 500 before dividends.
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Definition of Scotiabank GBM Equity Research Ratings & Risk Rankings We have a four‐tiered rating system, with ratings of Focus Stock, Sector Outperform, Sector Perform, and Sector Underperform. Each analyst assigns a rating that is relative to his or her coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. The rating assigned to each security covered in this report is based on the Scotiabank, Global Banking and Markets research analyst’s 12‐month view on the security. Analysts may sometimes express to traders, salespeople and certain clients their shorter‐term views on these securities that differ from their 12‐month view due to several factors, including but not limited to the inherent volatility of the marketplace. Ratings Focus Stock (FS) The stock represents an analyst’s best idea(s); stocks in this category are expected to significantly outperform the average 12‐month total return of the analyst’s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Sector Outperform (SO) The stock is expected to outperform the average 12‐month total return of the analyst’s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Sector Perform (SP) The stock is expected to perform approximately in line with the average 12‐month total return of the analyst’s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Sector Underperform (SU) The stock is expected to underperform the average 12‐month total return of the analyst’s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst. Other Ratings Tender – Investors are guided to tender to the terms of the takeover offer. Under Review – The rating has been temporarily placed under review, until sufficient information has been received and assessed by the analyst. Risk Rankings As of June 22, 2015, Scotiabank, Global Banking and Markets discontinued its Low, Medium, and High risk rankings. The Speculative risk ranking reflects exceptionally high financial and/or operational risk, exceptionally low predictability of financial results, and exceptionally high stock volatility. The Director of Research and the Supervisory Analyst jointly make the final determination of the Speculative risk ranking.
