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Vision

Monthly Economicand Financial Monitor

November 2018

Research Analysts

Administration

Ihor Danyliuk 416-869-7522Head of Research

Caroline Jukes 416-869-8039Administrative Manager

Tanya Bouchard 416-869-7934Supervisory Analyst

Research Publications

Vanda Bright 416-869-7141Manager, Publishing Services

Wayne Chau 416-869-7140Publishing Associate

Information

Giuseppe Saltarelli 514-879-5357 [email protected]

Economics & Strategy Stéfane Marion 514-879-3781Chief Economist and Strategist

Matthieu Arseneau 514-879-2252Deputy Chief Economist

Kyle Dahms 514-879-3195Economist

Angelo Katsoras 514-879-6458Geopolitical Analyst

Jocelyn Paquet 514-412-3693Economist

Paul-André Pinsonnault 514-879-3795Senior Fixed Income Economist

Marc Pinsonneault 514-879-2589Senior Economist

Krishen Rangasamy 514-879-3140Senior Economist

Banking & InsuranceGabriel Dechaine 416-869-7442Associate: Will Flanigan 416-507-8006Associate: Ganesh Kannan 416-507-9555

Diversified FinancialsJaeme Gloyn 416-869-8042Associate: Victor Dri 416-869-7495

Energy Services & AgricultureGreg Colman 416-869-6775Assoc: Anthony Linton 416-507-9054Assoc: Westley MacDonald-Nixon 416-507-9568Assoc: Michael Storry-Robertson 416-507-8007

ETFs & Financial Products Daniel Straus 416-869-8020Ling Zhang 416-869-7942

Associate: Linda Ma 416-507-8801Associate: Tiffany Zhang 416-869-8022

Healthcare & BiotechnologyEndri Leno 416-869-8047Associate: Stephen Kwai 416-869-7571Associate: Ammar Shah 416-869-7476

Industrial Products Maxim Sytchev 416-869-6517Associate: Adam Staszewski 416-869-7937Associate: Troy Sun 416-869-6754

Merchandising & Consumer ProductsVishal Shreedhar 416-869-7930Associate: Ryan Li 416-869-6767

Metals & MiningDon DeMarco 416-869-7572Associate: Rabi Nizami 416-869-7925

Shane Nagle 416-869-7936Associate: Lola Aganga 416-869-6516

Michael Parkin 416-869-6766Associate: Jonathan Egilo 416-507-8177Associate: John Sclodnick 416-869-8044

Oil & Gas› Intermediate Oil & Gas

Dan Payne 403-290-5441 Associate: Mitch Mastel 403-441-0952 Associate: Andrew Nguyen 403-290-5445

› Large Cap Oil & Gas

Travis Wood 403-290-5102 Associate: John Hunt 403-441-0955 Associate: Brad Lenz 403-441-0928 Associate: Alex Reid 403-290-5627

Pipelines, Utilities & Energy InfrastructurePatrick Kenny 403-290-5451Associate: Amber Brown 403-290-5624Associate: Dave Nielsen 403-355-6643

Real EstateMatt Kornack 416-507-8104Associate: Hussam Maqbool 416-507-8108

Tal Woolley 416-507-8009Associate: Salman Chattha 416-507- 8102

Special SituationsLeon Aghazarian 514-879-2574Associate: Zachary Evershed 514-412-0021

Endri Leno 416-869-8047Associate: Stephen Kwai 416-869-7571Associate: Ammar Shah 416-869-7476

Sustainability & Clean Tech Rupert Merer 416-869-8008Associate: Hassaan Khan 416-869-7538Associate: Adnan Waheed 416-869-6763

Technology Richard Tse 416-869-6690Associate: Andrew McGee 416-869-8049Associate: John Shao 416-869-7938

Technical AnalysisDennis Mark 416-869-7427

Telecom & MediaAdam Shine 514-879-2302Associate: Ahmed Abdullah 514-879-2564Associate: Luc Troiani 416-869-6585

Transportation & Industrial ProductsCameron Doerksen 514-879-2579Associate: Albert Matousek 514-390-7825

mailto:giuseppe.saltarelli%40nbc.ca?subject=Information%20-%20Vision

mailto:giuseppe.saltarelli%40nbc.ca?subject=Information%20-%20Vision

Table of Contents

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04

The Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05

Interest Rates and Bond Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Technical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Sector Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

› NBF Selection List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

› Analysts' Tables Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

› Analyst Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

› Alphabetical Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

NBF Disclosures, please visit URL: http://www .nbcn .ca/contactus/disclosures .html

http://www.nbcn.ca/contactus/disclosures.html

VISION NOVEMBER 2018 Back to Research Analysts Page 04

Economy› Based on October’s global stock market rout, investor concerns

are not isolated to just emerging economies anymore. Investors seem to understand that the escalation in the U.S.-China trade war could have ripple effects across global supply chains, hurting trade volumes and hence world GDP growth in the process. Europe’s old problems are also resurfacing with uncertainties to the economic outlook courtesy of Brexit and Italy’s populist policies. The U.S. dollar’s persistent strength is not helping either because it raises odds of default amidst record amounts of USD-denominated debt held worldwide. As such, we expect global growth to be no better than 3.7% this year and next.

› With another strong quarter under its belt, the U.S. economy is well on track to register its highest annual growth rate in years. A tight labour market finally seems to be pushing up wages, fueling concerns about inflation. As such, the Federal Reserve is likely to stick with its approach to gradually normalize monetary policy over the near term. But with the effects of fiscal stimulus expected to fade, U.S. GDP growth and hence Fed tightening should pace down in 2019.

› The Canadian economy remains well on track to grow about 2% this year despite an expected moderation in the third quarter. Reduced trade-related uncertainties courtesy of the USMCA, expectations of accelerating wages amidst labour shortages, the stabilization of the housing market, and generally positive signals from businesses about investment, have all made the Bank of Canada more confident about the economic outlook, which explains the central bank’s increasingly hawkish signals. We continue to call for three more interest rate hikes before end-2019, which would put the overnight rate in the lower end of the estimated range of 2.50%-3.50% for the neutral rate.

Interest rates and currency› Risks to our North American forecasts have grown on both

upside and downside this fall, widening the confidence intervals around the forecasts. In this context, equity risk premium and bond term premium have also surged. Our views of how much Canadian and U.S. monetary policies will normalize in 2019 are nonetheless unchanged. We continue to see the Canadian overnight rate at 2.5% and the upper bound of the target fed funds range at 3.0% at year end 2019. The yield to maturity of 10-year bonds is likely to continue drifting up over the next 12 months in response to firmer inflation numbers and further policy normalization on both sides of the border. We see 10-year Treasuries trading around 3.50% and 10-year Canadas around 3.10% a year from now.

› The loonie’s woes continued during October with neither the USMCA trade deal nor the Bank of Canada’s hawkish signals able to offset risk off sentiment and weak Western Canada Select oil price. We expect improvements on both of those fronts in the coming months with declining risk aversion (triggered perhaps by a slightly less protectionist Trump administration after the U.S. mid-term elections) and higher WCS prices (as inventories return to normal) giving a lift to the loonie. Rate spreads could also improve further in the C$’s favour if the federal government delivers some stimulus in this month’s Fall Economic Statement. For now, we are keeping unchanged our forecast for USDCAD to reach 1.27 by year-end.

Highlights

Stéfane Marion Chief Economist and Strategist 514-879-3781


The Economy


The Economy

Krishen Rangasamy Senior Economist 514-879-3140

World: Red OctoberBased on October’s global stock market rout, investor concerns are not isolated to just emerging economies anymore . Investors seem to understand that the escalation in the U .S .-China trade war could have ripple effects across global supply chains, hurting trade volumes and hence world GDP growth in the process . Europe’s old problems are also resurfacing with uncertainties to the economic outlook courtesy of Brexit and Italy’s populist policies . The U .S . dollar’s persistent strength is not helping either because it raises odds of default amidst record amounts of USD-denominated debt held worldwide . As such, we expect global growth to be no better than 3 .7% this year and next .

Investor concerns are seemingly not isolated to emerging economies anymore. World stock markets registered their worst performance since 2012 as evidenced by a 7% decline for the MSCI All-Country index during October, as indices in emerging and advanced economies both saw dramatic slumps.

-8

-6

-4

-2

0

2

4

6

8

2012 2013 2014 2015 2016 2017 201896

100

104

108

112

116

120

124

128

132

2017 2018

World: Red October

Index=100 in Jan. 2017

NBF Economics and Strategy (data via Datastream)

Advanced

World (All-Country)

Emerging

MSCI All-Country monthly performanceMSCI indices

m/m % chg.

… was the worst since 2012

Oct.

Stock market plunge in October …

Oct.

What’s behind the stock market rout? Investors noted the loss of momentum of the global economy in the third quarter. The eurozone’s real GDP reportedly grew just 0.8% annualized in Q3 (the worst performance since 2014Q2), while Japan’s GDP results (not yet available at this writing) were probably not spectacular either based on slumping exports and surging imports.

Also, the escalation in the U.S.-China trade war did not help assuage investors who are rightly concerned about ripple effects across global supply chains. Recall that roughly half of China’s

annual exports to the U.S. (or US$250 bn), will be subject to a 25% tariff as from early 2019. As such there are concerns about a deceleration in global trade volumes and hence weaker world GDP growth.

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2015 2016 2017 2018

World: Japanese exports tumble in Q3Japan’s real exports

q/q % chg. saar

NBF Economics and Strategy (data via Bank of Japan)

Q3

True, latest data from the CPB do not look alarming at first glance. Global trade volumes hit an all-time high in August, and are well on track to grow in Q3 at the fastest pace since 2010. That, coupled with the deceleration in industrial output points to a decline in global inventories during the third quarter. But while that’s positive for future production and hence economic growth, we’re not celebrating just yet. Early results for Q4 do not point to a quick rebound in industrial output. In the Eurozone for example, flash purchasing managers indices show that the loss of momentum observed in Q3 extended to the current quarter, with the manufacturing PMI declining to a 26-month low in October. In other words, exporters may be capping production and liquidating inventories ahead of an anticipated trade slowdown due to the U.S.-China situation.

0.984

0.988

0.992

0.996

1.000

1.004

1.008

1.012

1.016

1.020

2010 2012 2014 2016 2018-4

-2

0

2

4

6

8

10

12

14

16

2010 2012 2014 2016 2018

World: Biggest jump in trade volumes since 2010

* Assuming no change in September and no revisions to prior months NBF Economics and Strategy (data via Datastream)

Ratio of world industrial production to trade volumes (proxy for global inventories)

World trade volumes

q/q % chg. saar

Biggest jump in trade volumes since 2010, coupled with soft

industrial production …

Q3* Q3*

… points to a decline in global inventories

during the third quarter

Europe’s old domestic problems are also resurfacing with uncertainties to the economic outlook courtesy of Brexit and Italy’s populist policies. Italy’s latest budget, which calls for an


increase in the budget deficit to 2.4% of GDP (three times larger than what was proposed by the preceding government), was rejected by the European Commission which requested a revised plan by mid-November. Non-compliance could result in Brussels calling for a so-called “excessive budget procedure”, which would open the door to sanctions, including fines, in 2019. Investors are not waiting that long, ditching Italian bonds and causing yields to soar. It’s unclear how high Italian yields have to go to get Rome to reconsider its populist agenda. But in the meantime the threat of contagion to other European sovereigns should not be underestimated considering what happened in 2011-2012 in the aftermath of the Greek debt crisis.

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2010 2011 2012 2013 2014 2015 2016 2017 2018

World: Italy’s fiscal stance under the microscopeSpread between Italian and German 10-year government bond yields

%


Populistcoalition

governmenttakes power

Another looming threat for the eurozone is an economic slowdown in emerging markets. Europe’s already fragile banking sector could potentially see related losses. Spanish banks for instance have outstanding claims (on emerging markets) amounting to more than 15% of their assets.

0

2

4

6

8

10

12

14

16

Spain UK France Japan U.S. Germany Australia Canada

World: Spanish banks most exposed to emerging marketsOutstanding claims on borrowers in emerging markets as a share of bank assets at the end of 2018Q2

%

NBF Economics and Strategy (data via Bank of International Settlements)

Indeed, emerging markets have rarely looked as vulnerable as they are now. The stock market slump and sharp currency depreciations coincide with the deceleration of capital inflows into emerging economies this year. Foreign investor sentiment was no doubt affected by Washington’s trade protectionism (which casts doubts

about growth in export-centric emerging economies) and the tightening of monetary policy by the Federal Reserve which is raising the cost of borrowing worldwide (via rising bond yields) and giving a lift to the U.S. dollar. This is a double whammy for emerging economies which have not only seen debt climb to record levels, but also massive USD-denominated corporate debt issuance. According to the Bank of International Settlements, USD-denominated debt to non-bank borrowers in emerging markets amounted to US$3.7 trillion at the end of the second quarter or 11% of GDP.

0

5

10

15

20

25

30

35

40

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40

50

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120

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140

2000 2005 2010 20154

6

8

10

12

14

16

18

20

22

24

26

2000 2005 2010 2015

World: High leverage in emerging markets

%

NBF Economics and Strategy (data via IMF)

% of GDP (R)

Debt (L)

Emerging market share of global nonfinancial sector debt

US$ trillion

Total nonfinancial sector debt in emerging markets

%

Emerging markets have seen so much leverage in

recent years …

… that they now account for roughly a quarter of the world’s

nonfinancial sector debt

A persistent economic slowdown would likely raise defaults and hence increase odds of another financial crisis. Note that banks in emerging economies are already seeing an increasing share of non-performing loans.

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

3.75

4.00

4.25

4.50

4.75

5.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

World: Emerging market bad debt on the riseBanks’ gross non-performing loans as a share of total loans

%

NBF Economics and Strategy (data via IMF)

Advanced

TOTAL

Emerging

Another problem for emerging economies is the rising price of oil. Even assuming current levels hold until year-end, the price of Brent oil will average roughly US$74/barrel in 2018, a 35% increase from last year’s average. The associated extra costs to emerging market consumers are significant, amounting to nearly 1.4% of GDP in India and 0.8% of GDP in China.

The Economy


45

50

55

60

65

70

75

80

85

90

2017 2018

World: Rising oil prices hurting growth

NBF Economics and Strategy (data via Datastream, EIA)

Extra costs to consumers due to 35% increase in oil price (assuming consumption is unchanged)

US$/barrel

Brent oil price

2017 average

2018 average

+35%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

India China World

% of GDP

That explains part of the deceleration in the world’s second largest economy. Recall that China’s real GDP growth is on track to slow to around 6.5% this year after a sharper than expected deceleration in Q3. Growth indeed slowed in that quarter to 6.5% on a year-on-year basis, the lowest since the 2009 global recession.

6

7

8

9

10

11

12

13

14

15

16

-8

-4

0

4

8

12

16

20

24

28

32

2000 2005 2010 2015-40

-30

-20

-10

0

10

20

30

40

50

60

70

80

2010 2012 2014 2016 2018

World: China’s growth moderated in Q3

%


Investment

Consumption & Government spending

Trade

Q3

Share of real GDP growth, 4-quarter averageReal GDP and Electricity production

Electricityoutput (R)

Real GDP (L)

y/y % chg.

2018Q3

y/y % chg.

While real GDP growth moderated in Q3…

… China is succeeding in rebalancing its economy

towards consumption

But don’t underestimate the power of fiscal and monetary stimulus, especially in a centrally-planned economy like China. Fiscal stimulus is helping to boost growth but also assisting in rebalancing the economy away from exports, something that somewhat reduces China’s vulnerability to a further escalation of the ongoing trade war with the U.S. Lower reserve requirements announced recently by the People’s Bank of China should also prop up credit and support growth. So while China’s GDP growth will continue to moderate towards more sustainable levels, we continue to expect it to remain above 6% over the next couple of years.

World Economic Outlook

Forecast

2018 2019 2020Advanced countries 2.3 2.1 1.7United States 2.9 2.4 2.0Euroland 2.0 1.9 1.7Japan 1.1 0.9 0.3UK 1.4 1.5 1.5Canada 2.0 2.0 1.7Australia 3.2 2.8 2.7New Zealand 3.1 3.0 3.1Hong Kong 3.8 2.9 3.0Korea 2.8 2.6 2.8Taiwan 2.7 2.4 2.3Singapore 2.9 2.5 2.7

Emerging Asia 6.5 6.2 6.3China 6.6 6.2 6.2India 7.3 7.4 7.7Indonesia 5.1 5.1 5.2Malaysia 4.7 4.6 4.8Philippines 6.5 6.6 6.6Thailand 4.6 3.9 3.7

Latin America 1.2 2.2 2.7Mexico 2.2 2.5 2.7Brazil 1.4 2.4 2.3Argentina -2.6 -1.6 2.2Venezuela -18.0 -5.0 -2.0Colombia 2.8 3.6 3.7

Eastern Europe and CIS 3.0 2.2 2.6Russia 1.7 1.8 1.8Czech Rep. 3.1 3.0 2.5Poland 4.4 3.5 3.0Turkey 3.5 0.4 2.6

Middle East and N. Africa 2.0 2.6 2.9

Sub-Saharan Africa 3.1 3.8 4.0

Advanced economies 2.3 2.1 1.7Emerging economies 4.6 4.6 4.9World 3.7 3.6 3.6

Source: NBF Economics and Strategy

The Economy


U .S .: Wages accelerateWith another strong quarter under its belt, the U .S . economy is well on track to register its highest annual growth rate in years . A tight labour market finally seems to be pushing up wages, fueling concerns about inflation . As such, the Federal Reserve is likely to stick with its approach to gradually normalize monetary policy over the near term . But with the effects of fiscal stimulus expected to fade, U .S . GDP growth and hence Fed tightening should pace down in 2019 .

With a 3.5% annualized print in Q3, U.S. real GDP growth managed to comfortably top the economy’s estimated potential for the sixth consecutive quarter. While trade was an expected drag on growth, courtesy of rising imports and declining exports, domestic demand provided more than just an offset. Indeed, consumption had another strong quarter, while government spending accelerated sharply, both more than making up for drag from residential investment. Inventories contributed to economic growth in the third quarter thanks to surging imports, and that may somewhat limit production in the fourth quarter. We are keeping unchanged our forecast of 2.9% for 2018 real GDP growth.

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2014 2015 2016 2017 2018

U.S.: Economic growth strong again in the third quarter

NBF Economics and Strategy (data via Bureau of Economic Analysis)

q/q % chg. saar Nominal GDP

Real GDP

Real and Nominal GDP Contributions to real GDP

Q3

2018Q3 2018Q2

GDP 3.5 4.2

Consumption 2.7 2.6

Business Investm. Equip./Intell. 0.4 0.7

Business Investm. Struct. -0.3 0.4

Residential Investm. -0.2 0.0

Government 0.6 0.4

Domestic Demand 3.2 4.1

Exports -0.5 1.1

Imports -1.3 0.1

Trade -1.8 1.2

Final Sales 1.4 5.3

Inventories 2.1 -1.2

The Q3 output surge has not surprisingly given a lift to the labour market. Non-farm payrolls grew by more than half a million during the quarter. And that despite September’s weather-related deceleration — the number of people who missed work because of hurricane Florence/bad weather was the highest in months. Diminishing labour market slack is evidenced by a jobless rate of just 3.7%, the lowest since December 1969. Also, while average hourly earnings were little changed on a year-on-year basis at 2.8% in September, they seem to be gaining momentum. On a quarterly basis, i.e. looking at the more recent trend, wage growth accelerated to 3.4% annualized in Q3, the fastest pace in 10 years.

3

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5

6

7

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9

10

11

1970 1980 1990 2000 20101.2

1.6

2.0

2.4

2.8

3.2

3.6

4.0

4.4

2008 2010 2012 2014 2016 2018

U.S.: Biggest wage increase in 10 years

Private sector average hourly earningsUnemployment rate

% q/q % chg. saar


2018Q3 saw the biggestquarterly jump in 10 years

Sep.2018

Lowest since December 1969

Labour market is getting tighter as evidenced by

lowest jobless rate since 1969 …

… and fastest wage growth in 10 years

With margins under pressure, it’s a matter of time before firms start to pass on those increased costs to consumers. So, inflation pressures are likely to intensify over the near to medium term. Note that the annual core PCE deflator, the Federal Reserve’s preferred measure of inflation, was already at the 2% target in the third quarter, the highest since 2012. As such, the Fed is likely to stick with its approach to gradually normalize monetary policy over the near to medium term.

Will the Fed’s interest rate hikes cause the U.S. economy to choke? Probably not. Our optimism rests on the belief that the Fed will opt to exert restraint and not disrupt well-functioning U.S. credit markets which, despite earlier interest rate hikes, continue to flourish. While real estate loan growth (both residential and commercial) is softening, that’s being more than offset by stronger growth for commercial and industrial loans. The latter bodes well for business investment and hence economic growth.

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1980 1990 2000 2010-6

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2014 2015 2016 2017 2018

U.S.: Financial conditions still conducive to growth

y/y % chg.

TOTAL

Commercial and industrial loans

Residential real estate loans

Consumer loans

Commercial real estate loans

Loans and leases in bank credit

NBF Economics and Strategy (data via Federal Reserve, Chicago Fed)

Tighter

National Financial Conditions Index

Looser

Q32018Q3

Shaded areas represent U.S. recessions

The Economy


We doubt the Fed can hike as aggressively as suggested by its dot plot. Recall that last September, the FOMC’s median projections showed one more rate hike before year end followed by three rate hikes in 2019. We also expect an additional rate hike from the Fed before the end of 2018. But because we’re not as optimistic as the Fed about 2019 U.S. GDP growth, we have pencilled in just two hikes for next year. While growth should remain above potential next year, we suspect a sharp deceleration from this year’s pace amid fading impacts of fiscal stimulus. True, Congress could vote for another round of tax cuts — Trump recently floated the idea of a “10% tax cut for the middle class” —, something that would prompt us to revise our 2019 growth outlook. But we have serious doubts of such additional tax cuts materializing in light of the deteriorating fiscal picture.

Note that the U.S. budget deficit rose for a third year in a row, reaching US$779 billion or nearly 4% of GDP in fiscal year 2018 (which ended last September). While expenditures grew 3.2% (same as previous year), budget receipts rose only 0.4% or a full percentage point lower than the previous year’s increase. The deceleration in receipts is attributable to tax cuts, particularly for corporations. Corporate income tax receipts fell to US$205 bn, or just 6.1% of total budget receipts, the lowest ever recorded. According to the non-partisan Congressional Budget Office, even assuming no recession, based on current law the U.S. budget deficit is projected to soar past 5% of GDP by 2022, a clearly unsustainable path.

-1,600

-1,400

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-1,000

-800

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-200

0

200

400

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-3

-2

-1

0

1

2

1985 1990 1995 2000 2005 2010 20156

7

8

9

10

11

12

13

14

15

1985 1990 1995 2000 2005 2010 2015

U.S.: Make the budget deficit great again

US$ bn


2018

Corporate income taxes as a share of budget receipts

%

U.S. budget deficit worsened to US$779 bn

or 3.8% of GDP in 2018 …

… in part due to declining corporate income taxes which accounted for just

6.1% of total budget receipts, the lowest ever recorded

%

U.S. budget balance

In dollars (L)

% of GDP (R)

2018

Another reason we’re less optimistic than the Fed about 2019 growth and hence the pace of monetary tightening is the U.S. dollar’s surge. The combination of nominal dollar appreciation and rising inflation since the start of the year has pushed the greenback to a 15-year high in real effective terms. This decline in relative competitiveness will eventually hurt American exporters. And this, even before considering the damage done by the White House’s trade spat with China.

92

96

100

104

108

112

116

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124

128

132

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

U.S.: Dollar is the least competitive in 15-years Real effective USD exchange rate

NBF Economics and Strategy (data via Bank of International Settlements)

Q3

Highest since 2003Q3

The Fed may also be underestimating the sensitivity of the economy to higher interest rates. While consumption spending is unlikely to fold amidst rate hikes — after deleveraging during the Great recession, household balance sheets are largely in good shape —, business investment could struggle if rising borrowing costs cause commercial and industrial loan growth to stall. Moreover, highly levered firms which have arguably over-indulged in corporate bond issuance in recent years, will find it more challenging to roll over maturing debt.

Also warranting a go-slow approach from the Fed is a fragile housing market. Home sales and housing starts have been weak this year, coinciding with the ramp up of interest rates. Little surprise then that homeownership rates remain well below pre-recession levels across all demographic groups.

4,7004,8004,9005,0005,1005,2005,3005,4005,5005,6005,7005,800

440

480

520

560

600

640

680

720

2015 2016 2017 2018

U.S.: Housing market struggling this yearResales and new home sales

thousands


Sep.

thousands

Existing home sales (L)

New home sales (R)

All told, despite the tough talk, the Fed is likely to keep rates below what it considers as neutral for a while, enough in our view to allow U.S. real GDP growth to remain above 2% next year.

The Economy


Canada: Labour shortagesThe Canadian economy remains well on track to grow about 2% this year despite an expected moderation in the third quarter . Reduced trade-related uncertainties courtesy of the USMCA, expectations of accelerating wages amidst labour shortages, the stabilization of the housing market, and generally positive signals from businesses about investment, have all made the Bank of Canada more confident about the economic outlook, which explains the central bank’s increasingly hawkish signals . We continue to call for three more interest rate hikes before end-2019, which would put the overnight rate in the lower end of the estimated range of 2 .50%-3 .50% for the neutral rate .

After a hot second quarter, Canada’s economic growth likely returned to more sustainable levels in Q3. Monthly GDP results for July and August indeed point to a quarterly growth rate of slightly under 2% annualized, not far from the economy’s estimated potential. Solid output growth over the past year has not surprisingly been beneficial to the labour market. According to the Labour Force Survey, Canada has created 19K jobs/month on average in the last 12 months, two-thirds of which were in the private sector. Also positive is the fact that all of the job creation was in full-time positions.

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Canada: Robust job creationEmployment created in last 12 months according to the Labour Force Survey (Oct2017-Sep2018)

Thousands/month

NBF Economics and Strategy (data via Statistics Canada)

The labour market is so hot that employers are finding it increasingly difficult to find qualified workers. The job vacancy rate — the number of job vacancies as a share of the sum of all occupied and vacant jobs — jumped in the second quarter to 3.4%, the highest on records. And that despite little change in the jobless rate. That typically suggests the labour market is becoming less efficient via a worsening of the skills mismatch problem. Further evidence of labour market tightness can be found in the Bank of Canada’s latest Business Outlook Survey (BOS). The proportion of respondents facing labour shortages increased again, with the balance of opinion on the intensity of labour shortages surging to a 12-year high.

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SE

R01

Canada: Is the problem of skills mismatch getting worse? Job vacancy rate versus Jobless rate

NBF Economics and Strategy (data via Statistics Canada)

17Q4

Unemployment rate (%)

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(%)

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The BOS was largely positive with firms expressing optimism as evidenced by the survey’s aggregate indicator remaining near all-time highs. A higher proportion of firms compared to last summer’s survey expected sales growth to increase over the next year thanks in part to optimism about export growth particularly amid strong U.S. demand. Firms were keen to increase investment in machinery and equipment, the corresponding index rising to the highest in six quarters. Note that the surveys were conducted before the USMCA trade deal was struck and the massive LNG Canada project in British Columbia was announced. So, the largely positive results likely understate the current enthusiasm of Canadian firms.

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Canada: Worst labour shortages since 2006

Standardized units

* LSI= % of firms reporting more intense labour shortages minus the % reporting less intense shortages NBF Economics and Strategy (data via Bank of Canada)

Balance of opinion on investment

LSI*

2018 Q3

Bank of Canada’s Business Outlook Survey aggregate indicator

Firms remained upbeat in 2018Q3

Labour shortages worst since 2006

Labour shortage intensity (LSI*) versus Balance of opinion on investment in

machinery and equipment

2018Q3

%

True, not all is rosy for Canada. Higher intentions to invest may not apply to the oil sector which continues to struggle from low prices. Western Canada Select oil prices remain grounded, hurt by record high inventories, a result of limited transportation capacity (e.g. lack of pipelines and oil freight trains) and record oil production. As such, unless transportation capacity increases in the coming months, Albertan oil producers may want to pare back output.

The Economy


An otherwise buoyant economy, coupled with upward pressures on wages and hence inflation (due to labour shortages), reduced trade-related uncertainties (courtesy of the USMCA), a stabilization of the housing market, and positive signals from businesses about future investment and hiring plans, convinced the Bank of Canada to adopt a more hawkish tone in October. The central bank not only raised the overnight rate by 25 basis points to 1.75% (which was expected by markets), but also dropped its reference to future “gradual” rate hikes. That could mean a more aggressive path to monetary tightening than what was expected previously. The BoC, however, gave itself some room to go slower if needed, saying it will continue to monitor both domestic (sensitivity to rate hikes) and global conditions (i.e. trade developments) because of their implications for the inflation outlook.

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Canada: Housing market is stabilizingSeasonally adjusted home resales

NBF Economics and Strategy (data via CREA)

thousands

Q3

We’re still calling for three more interest rate hikes of 25 basis points each before year end-2019, which would then put the overnight rate in the lower end of the estimated range of 2.50%-3.50% for the neutral rate. Of course, should fiscal policy turn more stimulative, we stand ready to adjust those forecasts.

The federal government already offered some handouts during its announcement on carbon pollution pricing in October. Since Ontario, New Brunswick, Manitoba, and Saskatchewan do not have a climate plan deemed acceptable by Ottawa, they will be subject to a federal fuel charge and an output-based pricing system for emissions-intensive industries as from 2019. Households in those provinces will be compensated through roughly C$2 bn in handouts. That’s about 0.1% of GDP, although the growth impact is likely to be much smaller if, as we expect, people save part of that cash in anticipation of higher fuel bills later. So, we’re not changing our growth forecasts based on this announcement — instead it’s the LNG Canada project in BC that prompted us to slightly raise our GDP growth forecasts for 2019 and 2020 to 2.0% and 1.7% respectively.

But it’s always possible Ottawa announces more impactful goodies for voters ahead of the 2019 federal elections. As such, the federal government’s Fall Economic Statement, scheduled for November 21st, will be watched very closely. Canadian businesses too will be seeking new measures from Ottawa aimed at levelling the playing field with U.S. firms who already had an edge before recent tax cuts handed out by Congress further widened the competitiveness gap.

Recall that Canada ranked only 12th in the latest Global Competitiveness Report, down two spots from last year’s world rankings. According to the World Economic Forum, the competitiveness gap with the U.S. widened further in 2018. While the federal government can do little about market size (which hugely favours the U.S.), it can address the competitiveness gap with the U.S. in other ways. For instance, Ottawa could help narrow the gap in innovation capability by increasing investment in research and development and/or by more aggressively courting highly skilled foreign workers. Inefficiencies in product markets could be addressed by lowering barriers to trade, including those that hinder inter-provincial flows. The labour market could also use a helping hand in light of observed inefficiencies e.g. shortages and skills mismatch. For instance, facilitating on-the-job training and recognizing foreign qualifications could help better integrate youth and immigrants in the labour market. Infrastructure spending also needs to increase significantly after Canada ranked only 25th in the world on that metric.

Canada: Slipping down the competitiveness rankings

*The GCI measures national competitiveness by taking an average of the 12 pillars of competitiveness NBF Economics and Strategy (data via World Economic Forum’s “The Global Competitiveness Report 2018”)

2018 GCI for the U.S. and Canada for each pillar of competitiveness

Global competitiveness index* for 2018

60 70 80 90

ItalyFrance

CanadaFinland

DenmarkSweden

UKHong Kong

NetherlandsJapan

SwitzerlandGermany

SingaporeU.S.

Rank

(1)

(2)

(3)

(4)

(5)

(6)

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(17)

(31)

(12)

020406080100Institutions

Infrastructure

Info/techadoption

Macroeconomicstability

Health

SkillsProduct market

Labour market

Financialsystem

Market size

Businessdynamism

Innovationcapability

Canada U.S.

So while our 2019 Canadian GDP growth forecast is 2.0%, we acknowledge upside risks should Ottawa deliver a larger-than-expected fiscal stimulus. Downside risks, including a deteriorating global economic outlook and slumping commodity prices, should not be underestimated either.

The Economy


Q4/Q4(Annual % change)* 2016 2017 2018 2019 2020 2006 2018 2019 2020

Gross domestic product (2012 $) 1.6 2.2 2.9 2.4 2.0 3.1 2.1 2.0Consumption 2.7 2.5 2.7 2.4 2.0 2.7 2.0 2.0Residential construction 6.5 3.3 (0.1) 0.5 2.4 (2.2) 2.0 2.2Business investment 0.5 5.3 6.5 2.4 1.5 5.7 2.0 1.7Government expenditures 1.4 (0.1) 1.8 2.4 1.6 2.6 2.0 1.2Exports (0.1) 3.0 4.3 1.7 0.9 3.5 1.0 1.0Imports 1.9 4.6 4.5 2.2 1.1 3.3 1.2 1.0Change in inventories (bil. $) 23.4 22.5 30.0 48.8 46.8 50.0 48.0 46.0Domestic demand 2.3 2.5 2.9 2.3 1.9 2.9 2.0 1.9

Real disposable income 1.7 2.6 2.8 1.8 1.7 2.8 1.7 1.7Household employment 1.7 1.3 1.5 1.1 1.0 1.5 1.0 0.9Unemployment rate 4.9 4.4 3.9 3.6 3.5 3.8 3.6 3.5Inflation 1.3 2.1 2.5 2.3 2.4 2.4 2.4 2.4Before-tax profits (1.1) 3.2 7.5 5.9 4.1 8.1 4.5 3.7Federal balance (unified budget, bil. $) (587.0) (666.0) (779.0) (981.0) (1,020.0) ... ... ...Current account (bil. $) (432.9) (449.1) (434.4) (436.8) (437.0) ... ... ...

-304* or as noted

Current Q4 2018 Q4 2019 Q4 202010-30-18 Q4 2018 Q1 2019 Q2 2019 Q3 2019 2018 2019 2020

Fed Fund Target Rate 2.25 2.50 2.50 2.75 3.00 2.50 3.00 3.50 3 month Treasury bills 2.29 2.41 2.44 2.71 2.93 2.41 2.93 3.43 Treasury yield curve 2-Year 2.84 2.91 2.96 3.05 3.20 2.91 3.27 3.31 5-Year 2.94 3.03 3.06 3.16 3.25 3.03 3.37 3.27 10-Year 3.12 3.20 3.25 3.33 3.42 3.20 3.50 3.41 30-Year 3.36 3.39 3.41 3.47 3.55 3.39 3.62 3.51 Exchange rates U.S.$/Euro 1.14 1.16 1.19 1.21 1.22 1.16 1.23 1.25 YEN/U.S.$ 113 113 114 115 115 113 113 111

** end of period

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019actual actual actual forecast forecast forecast forecast forecast

Real GDP growth (q/q % chg. saar) 2.2 4.2 3.5 2.4 1.9 2.3 1.9 2.1CPI (y/y % chg.) 2.3 2.6 2.6 2.4 2.1 2.3 2.4 2.4CPI ex. food and energy (y/y % chg.) 1.9 2.2 2.2 2.2 2.2 2.4 2.5 2.6Unemployment rate (%) 4.1 3.9 3.8 3.8 3.7 3.7 3.6 3.6

National Bank Financial

Quarterly pattern

United StatesEconomic Forecast

Financial Forecast**

The Economy


Q4/Q4(Annual % change)* 2016 2017 2018 2019 2020 2018 2019 2020

Gross domestic product (2007 $) 1.4 3.0 2.0 2.0 1.7 2.0 2.0 1.6Consumption 2.4 3.5 2.2 2.1 1.3 2.1 2.0 1.0Residential construction 3.3 2.9 (0.5) (1.5) (1.9) (2.9) (2.0) (1.8)Business investment (9.4) 2.8 6.9 3.6 3.5 5.6 3.4 3.2Government expenditures 2.7 2.6 2.7 2.0 1.7 2.0 2.0 1.5Exports 1.0 1.1 3.2 4.6 3.1 6.0 3.2 3.5Imports (1.0) 3.6 3.1 2.4 2.1 1.9 2.7 2.0Change in inventories (millions $) 978 13,921 6,116 -454 -53 -842 -1,024 83Domestic demand 1.1 3.0 2.7 2.0 1.4 2.0 1.9 1.1

Real disposable income 1.3 3.7 1.9 1.5 1.5 1.0 1.5 1.5Employment 0.7 1.9 1.2 1.0 0.7 0.8 0.8 0.7Unemployment rate 7.0 6.3 5.9 5.7 5.7 5.8 5.7 5.7Inflation 1.4 1.6 2.3 2.1 2.4 2.0 2.5 2.3Before-tax profits (1.9) 19.9 4.5 6.0 4.2 6.5 5.0 3.5Current account (bil. $) (65.4) (63.3) (62.1) (48.5) (37.3) .... .... ....

* or as noted

Current Q4 2018 Q4 2019 Q4 202010-30-18 Q4 2018 Q1 2019 Q2 2019 Q3 2019 2018 2019 2020

Overnight rate 1.75 1.75 2.00 2.25 2.50 1.75 2.50 2.50 3 month T-Bills 1.74 1.91 2.11 2.40 2.46 1.91 2.44 2.43 Treasury yield curve 2-Year 2.30 2.36 2.41 2.54 2.59 2.36 2.60 2.74 5-Year 2.40 2.48 2.51 2.70 2.79 2.48 2.80 2.90 10-Year 2.45 2.57 2.62 2.96 3.03 2.57 3.10 3.19 30-Year 2.50 2.60 2.65 2.99 3.06 2.60 3.13 3.24

CAD per USD 1.31 1.27 1.25 1.25 1.27 1.27 1.28 1.32 Oil price (WTI), U.S.$ 66 72 73 71 70 72 69 68

** end of period

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019actual actual forecast forecast forecast forecast forecast forecast

Real GDP growth (q/q % chg. saar) 1.4 2.9 1.7 2.0 1.9 2.2 1.6 2.2CPI (y/y % chg.) 2.1 2.3 2.7 2.0 1.6 2.1 2.1 2.5CPI ex. food and energy (y/y % chg.) 1.8 1.8 2.1 1.8 1.4 1.8 1.8 2.4Unemployment rate (%) 5.8 5.9 5.9 5.8 5.8 5.7 5.7 5.7

National Bank Financial

Quarterly pattern

CanadaEconomic Forecast

Financial Forecast**

The Economy


Interest Ratesand Bond Markets


Interest Rates and Bond Markets

Paul-André Pinsonnault Senior Fixed Income Economist 514-879-3795

Common goals, divergent narrativesLast month we noted that the FOMC intended to provide less forward guidance than financial markets have got used to in recent years, a move already observable in the press release of the June rate-setting meeting. Further steps along these lines were taken in the September rate-announcement press release and in Fed communications since then.

In its June statement the FOMC dropped line that the fed funds rate was “likely to remain, for some time, below levels that are expected to prevail in the longer run” (our emphasis). In the September rate announcement it was the statement that “the stance of monetary policy remains accommodative” that disappeared from the press release. Since August, meanwhile, Fed officials have been taking their distance from the exercise of estimating the neutral policy rate (R* — the conceptual rate that would neither accelerate nor slow economic growth). Notable along this path was the comment of New York Fed president John Williams, referring to R*, that what appeared to be a bright point of light was really a fuzzy blur. Fed chair Jerome Powell has also downplayed the usefulness of R* estimates in monetary policymaking, making the case that any estimate is at best imprecise and subject to revision. Moreover, the minutes of the September FOMC meeting report that in discussion of the outlook for the path of the policy rate, many participants noted that “estimates of the level of the neutral federal funds rate would be only one among many factors that the Committee would consider in making its policy decisions.”

As the FOMC narrative has evolved, one point in the previous guidance has been kept: Fed officials still refer to a “gradual” path of monetary policy normalization. On October 25 the Fed’s new vice chair Richard Clarida, in his first public speech, said he thought “some further gradual adjustment in the policy rate range will likely be appropriate.”

Our interpretation: The FOMC seems to be saying it is not sure how much it will need to raise its policy rate over time, but will proceed gradually in order to “balance the risk of tightening monetary policy too quickly … against the risk of moving too slowly.” In our view, this balancing act is critical to keeping economic expansion on track. And considering the Fed monetary toolkit and the constraints on fiscal policy (debt-to-GDP ratio) as a countercyclical tool, it is clear that U.S. authorities have little dry powder to lift the economy if an unexpected shock were to push growth below stall speed.

On this side of the border, the Bank of Canada, as widely expected, raised the overnight rate 25 bps to 1.75% on October 24. But the deletion from its rate-announcement press release of the reference to raising its target rate at a “gradual pace” surprised many, especially at a time when global financial markets are showing signs of vulnerability. Both the front end of the Canadian yield curve and the foreign exchange market reacted to this change in wording.

To market participants the Bank’s bias appeared quite clear: higher and quicker if possible. Not only did the opening statement of the press conference say the policy rate will need to rise to neutral in order to achieve the inflation target, but senior deputy governor Carolyn Wilkins said the destination is quite clear. After all, the Bank trumpets that its estimate of the neutral range is 2.5% to 3.5%. Reinforcing the market perception was the Bank’s own assessment that the current policy rate remains quite stimulative — it is still negative in real terms — at a time when the economy doesn’t need it. For market participants, the Bank had just admitted it was falling behind the curve.

Governor Stephen Poloz, trying to limit market participants’ hawkish interpretation of the BoC’s October 24 communication, said that in dropping “gradual” the Bank was giving itself more flexibility to adjust its policy rate faster or slower depending on incoming data. For many that was equivalent to the usual reminder that central banks are data dependent. It did not change their view of the Bank’s bias.

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Neutral range according to both Fed and BoC Midpoint 3.0%

Both Fed and BoC are talking about a 3% neutral policy rateBased on the midpoint of the BoC and the FOMC SEP estimated ranges of 2.5 to 3.5%

NBF Economics and Strategy (data via Bloomberg)

%


No doubt the bias of both FOMC and Bank of Canada is to push their policy rates higher over time. The question is: will the window for them to do so remain open in the coming months?

So far, the central banks have viewed the equity market’s weakness as a normal adjustment to higher long rates — a higher discount rate for expected corporate earnings. Still, nearly half the stocks in the MSCI US index were down more than 20% going into the last few trading days of October. On October 26 the S&P 500 was down 9.3% from its 52-week high. It was not alone: the fall from 52-week highs was 10.0% in Canada, 14.1% for the Eurostoxx index, 23.3% for MSCI Emerging Asia and 10.6% for the MSCI World All Country index.

Is there more to it than just a discount-factor adjustment?

Although the Bank of Canada says the outlook for global economic growth remains solid, Markit manufacturing PMI indexes show a loss of momentum. Concern that global growth has peaked is intensifying, while trade tensions between the U.S. and China are weighing on investment intentions and on some commodity prices. In other words, financial-market repricing appears to reflect more than adjustment to central bank policy rates.

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World: Growth is deceleratingMarkit manufacturing PMI indexes

Index, 1995=100

Global Index

Emerging markets

On the inflation front, tight labour markets in both Canada and the U.S. suggest that North American inflation risks should at least be kept on investors’ radar screens. After years of low inflation, anecdotal evidences of companies passing on to customer higher costs are mounting south of the border, and in Canada, the BoC’s Business Outlook Survey shows companies expecting wage gains to pick up over the coming quarters.

All things considered, the tails of the probability distribution of potential economic outcomes seem to have fattened since the summer. This is consistent with the rise of the term premium on 10-year Treasuries from −60 bps in late August to −38 bps currently.

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%

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NBF Economics and Strategy (data via Bloomberg) 2018-10-26

Higher term premium accounts for most of the rise of 10-year yieldsMarket expectations of the10-year-average short rate has moved little: +4 bps since August 24

10-year Treasury zero coupon yield

10-year term premium

The ramp-up of interest rates since August has of course not been limited to the 10-year Treasury yield. U.S. mortgage rates have followed the lead of the senior market, with the 30-year contract rate up 33 bps to 5.11% since August 24. Not good news for home sales and housing starts, which have been weak this year. This is not just an interest-rate story. Surveys report up to 78% of respondents believing that renting is cheaper than owning a home. Hardly surprising, given that growth of median family income has lagged that of home prices by a substantial margin. The housing sector as a component of economic growth is loudly urging the Fed to go slow.

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Median home price

Household income

1995 = 100

U.S.: Family income lagging housing prices

(singles and condos)

Housing sector urging the Fed to go slow

Housing weakness not just hurricane fallout

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Million units

New and existing home sales

So the uncertainties of the economic projections have grown. However, our U.S. forecasts remain centred on the same numbers as last month. We continue to expect growth to average 2.4% in 2019 and 2.00% in 2020 with headline inflation of 2.3% and 2.4% respectively. Given this outlook, we are also keeping our interest-rate projection unchanged at one more FOMC rate hike this year, in December. With our growth forecast for 2019 matching the lower bound of the September FOMC participants’ central-



tendency projections of 2.4% to 2.7%, we see one fewer rate hike next year than is suggested by the median dots in the Summary of Economic Projection.

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2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 321 year 5 10 20 30 NBF Economics and Strategy (data via Bloomberg) 2018-10-26

U.S. yield curve

September 26, 2018

October 26, 2018

+ 12 months projection%

On this side of the border, the announcement of the massive LNG Canada project in British Columbia combined with reduction of trade uncertainty by the USMC Agreement has prompted us to nudge our growth projection up to 2.0% from 1.9% in 2019 and to 1.7% from 1.5% in 2020. However, the 2019 upgrade is not material enough to change our overnight-rate forecast for year end 2019. We continue to see the Bank taking a long pause at 2.5% (the low end of its own estimate of the neutral-rate range).

But what about the pace of normalization over the year?

Although the BoC’s bias is for the policy rate to move higher faster, it remains highly data-dependent and international financial conditions have tightened. Foreign exchange and equity markets have been volatile, adding uncertainty to the outlook. Under these conditions we are inclined to stick with our projections of last month — hikes in January, April and July 2019.

A risk to this forecast is finance minister Bill Morneau’s fiscal update, due November 21. The minister has indicated he wants to make sure Canadian and international businesses have the ability to invest in Canada. Depending on the nature and scope of the measures he might announce, the Bank could decide to move up its policy normalization with a rate hike as soon as December 5.

Bottom line: Risks to our North American forecasts have grown on both upside and downside this fall, widening the confidence intervals around the forecasts. In this context, equity risk premium and bond term premium have also surged. Our views of how much Canadian and U.S. monetary policies will normalize in 2019 are nonetheless unchanged. We continue to see the Canadian overnight rate at 2.5% and the upper bound of the target fed funds range at 3.0% at year end 2019. The yield to maturity of 10-year bonds is likely to continue drifting up over the next 12 months in response to firmer inflation numbers and further policy normalization. We see 10-year Treasuries trading around 3.50% and 10-year Canadas around 3.10% a year from now.


Bond Market - Canada

Close-on10/26/18 9/28/18 7/27/18 4/27/18 10/27/17

Interest Rates90-day (B/A's) 2.184 2.015 1.930 1.735 1.4142 years 2.265 2.214 2.064 1.898 1.4445 years 2.343 2.341 2.205 2.131 1.65910 years 2.393 2.427 2.295 2.323 1.98830 years 2.429 2.422 2.332 2.412 2.339Spreads90 d - 2 years 8.1 19.9 13.4 16.3 3.02 - 5 years 7.8 12.7 14.1 23.3 21.52 - 10 years 12.8 21.3 23.1 42.5 54.410 - 30 years 3.6 -0.5 3.7 8.9 35.1CurrenciesCAD / USD 1.3104 1.2909 1.3055 1.2829 1.2808EUR / CAD 0.6691 0.6674 0.6574 0.6426 0.6726

Source: NBF Economics and Strategy (data via Bloomberg)


Long33.6%

Short48.2%

Mid18.2%

Federal30.4%

Corporate30.9%

Provinces38.7%Benchmark Allocation

Short 46.3%, Mid 21.2%, Long 32.5%Federal 36.0%, Provinces 36.1%

Corporations 27.9%

Recommended bond allocationRecommended duration 7.31 vs the September projected benchmark 7.31 Maintain overweight in provincial and corporate bonds

NBF Economics and Strategy

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U.S. interest ratesLast observation October 26, 2018

%Long corporate

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U.S. 2-yearTarget fed funds

30-year mortgage


Canadian bond market – total returns


Total Returns 10/26/2018 Since Since Since Since

09/28/2018 07/27/2018 04/27/2018 10/27/2017Cash 0.11 0.34 0.65 1.15

CanadaShort 0.11 0.16 0.39 0.20Mid 0.27 -0.13 0.38 -0.96Long 0.17 -0.73 0.65 0.18Universe 0.16 -0.06 0.47 0.02

Provincial -0.11 -0.62 0.50 0.38Municipal -0.01 -0.43 0.53 0.58

CorporateAA 0.05 0.35 0.58 0.37A -0.07 -0.32 0.10 0.26BBB -0.05 0.07 0.72 1.28Universe -0.03 0.02 0.58 0.83

Total 0.01 -0.24 0.51 0.37

S&P/TSX -7.20 -8.50 -3.58 -3.87

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Canadian interest ratesWeekly, last observation October 26, 2018

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Long provincial

Canada10-yearCanada 2-year

BoC overnight target




Technical Analysis


In the November Vision we take more of a big picture perspective and highlight a number of charts that are developing trends in broad sectors of the market.

NASDAQ 100 Equal Weighted Index ( .NDXE) Daily .NDXE 2016-10-24 - 2018-11-27 (EST)

Cndl, .NDXE, Trade Price, 2018-10-19, 3,619.60, 3,633.55, 3,561.36, 3,569.28, N/A, N/A, SMA, .NDXE, Trade Price(Last), 200, 2018-10-19, 3,702.23, SMA, .NDXE, Trade Price(Last), 50, 2018-10-19, 3,773.79PriceUSD

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Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Source: Reuters › While the NASD 100 index along with the NASD made a full recovery to make new highs in recent months the NDX 100 Equal

Weight index is telling a different story. The FANG stocks have dominated market action with their out-sized gains that is distorting the true trend of the market. The Equal Weight NDX may be a fairer representation of the real market trend. The accompanying chart indicates that the NDX EW made only marginal highs above its early 2018 highs while the NDX made a much bigger move into new highs. The recent correction has taken the NDX EW toward its early 2018 lows where there is support. However, there is much technical damage with this chart breaking a rising trend line and its moving averages. A break of support at 3450 completes a 10-month top and turns the trend bearish. The NASD leadership would likely see weaker action despite a more constructive profile on the NDX and NASD charts.

Technical Analysis

Dennis Mark, cfa Analyst 416-869-7427



iShares Edge MSCI USA Momentum Factor ETF (MTUM) Daily MTUM.K 2016-10-24 - 2018-11-28 (EST)

Cndl, MTUM.K, Trade Price, 2018-10-22, 109.500000, 109.500000, 109.450000, 109.450000, +0.320000, (+0.29%), SMA, MTUM.K, Trade Price(Last), 200, 2018-10-22, 111.464950, SMA, MTUM.K, Trade Price(Last), 50, 2018-10-22, 115.726400PriceUSD

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Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Source: Reuters

› The MTUM chart represents a momentum factor ETF. Momentum and growth investing has been a dominant theme for quite some time but is now starting to show cracks that call into question their bull trends. Recent weakness in this chart broke a rising trend line as well as breaking below their moving averages. Initial breaks usually see a rebound that attempts to get back on trend. Over the near term, if this rebound attempt stalls it will be important for this chart to hold US$109. A six-month top will be completed if support fails here. This would suggest that some of the strongest best performing stocks in recent months will come under pressure.

Technical Analysis


Technical Analysis


STOXX Europe 600 Index ( .STOXX) Daily [.STOXX List 1 of 22] .STOXX 2013-10-23 - 2019-01-25 (ZUR)

Cndl, .STOXX, Trade Price, 2018-10-22, 361.78, 363.83, 360.95, 361.06, -0.18, (-0.05%), SMA, .STOXX, Trade Price(Last), 200, 2018-10-22, 382.36, SMA, .STOXX, Trade Price(Last), 50, 2018-10-22, 377.42PriceEUR

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101.825MN D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D JQ4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Source: Reuters

› The STOXX 600 represents a broad list of European equities. As the accompanying chart indicates, the recent weakness has broken the chart below its moving averages and a rising trend line. Chart support at 366 has been broken and the last significant support at 360 is being challenged. A 20-month top will be completed on this breakdown. The action here may not directly drive equities in Canada, but it certainly is not a positive.


Technical Analysis

KBW Nasdaq Bank Index ( .BKX)Daily .BKX 2016-10-24 - 2018-11-28 (EST)

Cndl, .BKX, Trade Price, 2018-10-22, 99.90, 100.20, 98.91, 98.92, -0.89, (-0.89%), SMA, .BKX, Trade Price(Last), 200, 2018-10-22, 108.91, SMA, .BKX, Trade Price(Last), 50, 2018-10-22, 107.33PriceUSD

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Vol, .BKX, Trade Price, 2013-01-11, 55.270MVolumeAuto

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Source: Reuters

› Both the money center bank index and the regional bank index broke down recently. Canadian banks have been out-performing US banks in recent months and may not be directly impacted. However, the risk is that continuing weakness may drag Canadian banks down suggesting that there is now higher risk in the Canadian banks. The breakdown from a 10-month top on the BKX indicates a bearish trend that takes this chart to 88 to 90.



Technical Analysis

S&P/TSX SmallCap Index ( .SPTSES)

Daily [.SPTSES List 1 of 204] .SPTSES 2013-10-23 - 2019-01-24 (TOR)Cndl, .SPTSES, Trade Price, 2018-10-22, 598.29, 598.65, 594.54, 594.54, -2.58, (-0.43%), SMA, .SPTSES, Trade Price(Last), 200, 2018-10-22, 632.26, SMA, .SPTSES, Trade Price(Last), 50, 2018-10-22, 618.77

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N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D JQ4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Source: Reuters

› A potential 30-month top is being carved out on the S&P/TSX Small cap index. Small caps have generally underperformed in recent months and could accelerate that under-performance if a top is completed here. The key support at 595 has been tested five or six times and is again being challenged. Failure here completes a top that points to 100 points of downside risk.



Technical Analysis

TSX Capped Consumer Staples ( .GSPTTCS)Daily [.GSPTTCS List 1 of 11] .GSPTTCS 2013-10-23 - 2019-01-24 (TOR)

Cndl, .GSPTTCS, Trade Price, 2018-10-22, 521.14, 521.49, 518.59, 520.66, -0.35, (-0.07%), SMA, .GSPTTCS, Trade Price(Last), 200, 2018-10-22, 530.32, SMA, .GSPTTCS, Trade Price(Last), 50, 2018-10-22, 529.13PriceCAD

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N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D JQ4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018

Source: Reuters

› The bull trend on the S&P/TSX consumer staples index has been losing upside momentum for the past couple of years after a multi-year bull trend. Many of the consumer staple stocks have been in neutral trading ranges that could be carving out potential tops. It will be important for this index to maintain support above 505 as a breakdown would indicate a reversal of trend to the downside with initial risk to 440. Failure here would also indicate that a number of consumer stocks could be breaking their respective tops as well.



In this section, commentaries and stock closing prices are based on the information available up to October 22, 2018. Information in this section is based on NBF analysis and estimates and Thomson Reuters Eikon.

Sector Analysis


NBF Selection ListSector Analysis

Sector Company Ticker Price Target Price Div. Yield Est. TR IndustryEnergy

Enbridge Inc. ENB $42.19 $57.00 6.70% 41.46% Oil, Gas & Consumable FuelsEncana Corp. ECA US$11.25 US$22.00 0.61% 96.09% Oil, Gas & Consumable FuelsEnerplus Corp. ERF $13.83 $23.00 1.00% 67.17% Oil, Gas & Consumable FuelsInter Pipeline Ltd. IPL $22.46 $31.00 7.89% 45.50% Oil, Gas & Consumable FuelsKelt Exploration Ltd. KEL $6.78 $12.50 0.00% 84.37% Oil, Gas & Consumable FuelsMullen Group Ltd. MTL $15.36 $18.50 4.46% 24.35% Energy Equipment & ServicesPinnacle Renewable Holdings Inc. PL $15.60 $20.00 4.23% 32.05% Coal & Consumable FuelsTidewater Midstream and Infrastructure Inc. TWM $1.32 $2.25 2.96% 73.48% Oil, Gas & Consumable FuelsTorc Oil & Gas TOG $5.89 $11.50 5.13% 99.73% Oil, Gas & Consumable Fuels

Materials Atlantic Gold Corp. AGB $1.66 $2.75 0.00% 65.66% GoldBluestone Resources Inc. BSR $1.39 $2.40 0.00% 72.66% Metals & MiningKirkland Lake Gold Ltd. KL $28.13 $34.00 0.47% 21.29% GoldLundin Mining Corp. LUN $5.35 $9.50 2.35% 79.81% Metals & MiningSandstorm Gold Ltd. SSL $5.30 $7.50 0.00% 41.51% GoldSSR Mining Inc. SSRM $14.19 $17.00 0.00% 19.80% GoldStelco Holdings Inc. STLC $21.23 $34.50 2.11% 64.39% Metals & MiningTeck Resources Ltd. TECK.b $30.84 $44.00 0.82% 43.32% Metals & MiningWesdome Gold Mines Ltd. WDO $3.97 $4.50 0.00% 13.35% Gold

Industrials Bombardier Inc. BBD.b $3.73 $6.00 0.00% 60.86% Capital GoodsCanWel Building Materials CWX $5.10 $7.50 11.91% 58.04% Capital GoodsCanadian Pacific Railway CP $265.16 $303.00 1.01% 15.25% TransportationCervus Equipment Corp. CERV $12.38 $19.00 3.27% 56.70% Capital GoodsExchange Income Corp. EIF $30.55 $44.00 7.18% 51.19% TransportationHorizon North Logistics Inc. HNL $2.78 $3.80 3.33% 39.57% Commercial & Professional ServicesIBI Group Inc. IBG $4.46 $8.50 0.00% 90.58% Commercial & Professional ServicesSNC-Lavalin Group Inc. SNC $48.01 $69.00 2.48% 46.11% Capital GoodsTranscontinental Inc. TCL.a $21.16 $30.00 4.02% 45.75% Commercial & Professional Services

Consumer Discretionary Park Lawn Corp. PLC $23.98 $32.00 1.98% 35.35% Consumer ServicesSpin Master Corp. TOY $49.75 $65.00 0.00% 30.65% Consumer Durables & Apparel

Consumer Staples Empire Company Ltd. EMP.a $23.37 $30.00 1.89% 30.25% Food & Staples RetailingPremium Brands Holdings Corp. PBH $92.50 $130.00 2.16% 42.59% Food Products

Health Care Akumin Inc. AKU.u US$4.03 US$5.25 0.00% 30.27% Health Care Equipment & ServicesCRH Medical Corp. CRH $4.12 $5.75 0.00% 39.56% Health Care Equipment & ServicesIMV Inc. IMV $7.64 $12.00 0.00% 57.07% Pharmaceuticals, Biotechnology & Life Sciences

Financials ECN Capital Corp. ECN $3.43 $5.00 1.18% 46.94% Diversified FinancialsFirera Capital Corp. FSZ $12.47 $16.00 6.50% 34.72% Diversified FinancialsGreat-West Lifeco Inc. GWO $30.11 $39.00 5.23% 34.69% InsuranceManulife Financial Corp. MFC $21.15 $27.00 4.43% 31.82% InsuranceSun Life Financial SLF $49.43 $59.00 4.01% 23.20% InsuranceTMX Group X $82.13 $97.00 2.81% 20.93% Diversified Financials

Information Technology CGI Group Inc. GIB.a $80.77 $100.00 0.00% 23.81% Software & ServicesOpen Text Corp. OTEX US$34.35 US$50.00 1.86% 47.33% Software & ServicesShopify Inc. SHOP US$134.37 US$180.00 0.00% 33.96% Software & Services

Communication Services BCE Inc. BCE $52.86 $60.00 5.78% 19.22% Diversified Telecommunication Services

Utilities Boralex Inc. BLX $17.75 $23.50 3.67% 35.94% UtilitiesInnergex Renewable Energy inc. INE $12.05 $17.50 5.55% 50.87% Utilities

Real Estate American Hotel Income Properties REIT HOT.un $8.55 $10.00 10.48% 26.91% Real EstateCominar REIT CUF.un $11.23 $16.00 6.57% 48.89% Real EstateCrombie REIT CRR.un $12.97 $15.00 6.98% 22.51% Real EstateCT REIT CRT.un $12.47 $14.50 5.85% 22.12% Real EstateH&R REIT HR.un $19.53 $25.00 6.99% 35.07% Real EstateRioCan REIT REI.un $24.11 $28.00 6.02% 22.11% Real Estate

The NBF Selection List highlights our Analyst’s best investment ideas each Month.A maximum of three names per Analysts are selected based on best Total Estimated Return.Prices as of October 22 2018Source: NBF Research, Thomson Reuters


Analysts' Tables GlossarySector Analysis

GENERAL TERMS

Stock Sym. = Stock ticker

Stock Rating = Analyst’s recommendation

OP = Outperform SP = Sector Perform UP = Underperform TENDER = Recommendation to accept acquisition offer UR = Recommendation under review R = Restricted stock

Risk Rating = Analyst’s recommendation

BA = Below Average A = AverageAA = Above AverageS = Speculative

∆ = Price target from the previous month. ↑ or ↓ = Price target upgrade or downgrade.

Price target = 12-month price target

∆ = Recommendation change from the previous month. ↑ or ↓ = Recommendation upgrade or downgrade.

Shares/Units O/S = Number of shares/units outstanding in millions.

FDEPS = Listed are the fully diluted earnings per share for the last fiscal year reported and our estimates for fiscal year 1 (FY1) and 2 (FY2).

EBITDA per share = Listed are the latest actual earnings before interest, taxes, depreciation and amortization for the fiscal year 1 (FY1) and 2 (FY2).

P/E = Price/earnings valuation multiple. P/E calculations for earnings of zero or negative are deemed not applicable (N/A). P/E greater than 100 are deemed not meaningful (nm).

FDCFPS = Listed are the fully diluted cash flow per share for the last fiscal year reported and our estimates for fiscal year 1 (FY1) and 2 (FY2).

EV/EBITDA = This ratio represents the current enterprise value, which is defined as the sum of market capitalization for common equity plus total debt, minority interest and preferred stock minus total cash and equivalents, divided by earnings before interest, taxes, depreciation and amortization.

NAV = Net Asset Value. This concept represents the market value of the assets minus the market value of liabilities divided by the shares outstanding.

DEBT/CAPITAL = Evaluates the relationship between the debt load (long-term debt) and the capital invested (long-term debt and equity) in the business (based on the latest release).

SECTOR-SPECIFIC TERMS

› OIL AND GAS

EV/DACF = Enterprise value divided by debt- adjusted cash flow. Used as a valuation multiple. DACF is calculated by taking the cash flow from operations and adding back financing costs and changes in working capital.

CFPS/FD = Cash flow per share on a fully diluted basis.

DAPPS = Debt-adjusted production per share. Used for growth comparisons over a normalized capital structure.

D/CF = Net debt (long-term debt plus working capital) divided by cash flow.

› PIPELINES, UTILITIES AND ENERGY INFRASTRUCTURE

Distributions per Share = Gross value distributed per share for the last year and expected for fiscal year 1 & 2 (FY1 & FY2).

Cash Yield = Distributions per share for fiscal year 1 & 2 (FY1 & FY2) in percentage of actual price.

Distr. CF per Share-FD = Funds from operations less maintenance capital expenditures on a fully diluted per share basis.

Free-EBITDA = EBITDA less maintenance capital expenditures.

P/Distr. CF = Price per distributable cash flow.

Debt/DCF = This ratio represents the actual net debt of the company (long-term debt plus working capital based on the latest annual release) on the distributable cash flow.

› FINANCIALS (DIVERSIFIED) & FINANCIAL SERVICES

Book value = Net worth of a company on a per share basis. It is calculated by taking the total equity of a company from which we subtract the preferred share capital divided by the number of shares outstanding (based on the latest release).

P/BV = Price per book value.

› REAL ESTATE

Distributions per Unit = Gross value distributed per unit for the last year and expected for fiscal year 1 & 2 (FY1 & FY2).

Cash Yield = Distributions per share for fiscal year 1 & 2 (FY1 & FY2) in percentage of actual price.

FFO = Funds from Operations is a measure of the cash generated in a given period. It is calculated by taking net income and adjusting for changes in fair value of investment properties, amortization of investment property, gains and losses from property dispositions, and property acquisition costs on business combinations.

FD FFO = Fully diluted Funds from Operations.

P/FFO = Price per Funds from Operations.

› METALS AND MINING: PRECIOUS METALS / BASE METALS

P/CF = Price/cash flow valuation multiple. P/CFPS calculations for cash flow of zero or negative are deemed not applicable (N/A). P/CFPS greater than 100 are deemed not meaningful (nm).

P/NAVPS = Price per net asset value per share.

› SPECIAL SITUATIONS

FDDCPS = Fully diluted distributable cash flow per share. Cash flow (EBITDA less interest, cash taxes, maintenance capital expenditures and any one-time charges) available to be paid to common shareholders while taking into consideration any possible sources of conversion to outstanding shares such as convertible bonds and stock options.

› SUSTAINABILITY AND CLEAN TECH

Sales per share = revenue/fully diluted shares outstanding.

P/S = Price/sales

› TRANSPORTATION AND INDUSTRIAL PRODUCTS

FDFCFPS = Fully diluted free cash flow per share.

P/CFPS = Price/cash flow per share valuation multiple. P/CFPS calculations for cash flow of zero or negative are deemed not applicable (N/A). P/CFPS greater than 100 are deemed not meaningful (nm).


Banking & InsuranceSector Analysis

Gabriel Dechaine Analyst 416-869-7442 —

Associates: Will Flanigan: 416-507-8006 Ganesh Kannan: 416-507-9555

Canadian Banks & Lifecos – Sticking to lifecos over banks

› Royal Bank of Canada (RY: TSX) . Solid, but unspectacular quarter:

RY’s Q3/18 results contained some spectacular elements, such as (1) 11% Canadian P&C earnings growth underpinned by 5% operating leverage; (2) 19% Wealth segment growth, underpinned by exceptional City National metrics; and (3) 14% Capital Markets growth, underpinned by stronger than expected trading and investment banking revenues. As a whole, the quarter was merely “solid” weighed down by elevated initiative spending in a few segments, continuing a trend of disappointing efficiency/operating metrics on a consolidated basis.

› Canadian Life Insurance Companies:2018 has not been kind to Canadian lifeco stocks, with the sector underperforming the Big-6 banks and the broader market by a wide margin. Several macro (e.g., flattening yield curve) and industry (e.g., negative U.S. LTC read-throughs) factors have played a role. However, we believe the sector still offers several positive or improving fundamental characteristics, such as good EPS growth potential, an accelerating pace of dividend increases and strong balance sheet and capital positions. Trading at six-year lows on valuation relative to the Big-6 and down during a year of rising long bond yields (unusual), we continue to like the sector and believe patient (and opportunistic) investors will be rewarded.

Selections› Manulife Financial› Great-West Lifeco› Sun Life Financial› Royal Bank of Canada› Bank of Montreal › Toronto Dominion Bank

Market Shares Stock Last FDEPS Book Value per Share 12-MthStock Stock Cap O/S Price Year Last est. est. P/E Last est. est. P/BV Div. PriceSym. Rating (Mln) (Mln) 10/22 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target

BankingBank of Montreal BMO OP 66,367 640 103.69 10/2017 7.96 8.95 9.59 11.6 10.8 63.32 64.54 69.70 1.6 1.5 3.6% 115.00Bank of Nova Scotia BNS SP 87,649 1,232 71.17 10/2017 6.54 7.05 7.39 10.1 9.6 49.31 50.31 54.24 1.4 1.3 4.6% 81.00CIBC CM SP 51,346 444 115.74 10/2017 11.11 12.23 12.69 9.5 9.1 72.41 73.94 80.51 1.6 1.4 4.7% 127.00National Bank NA NR 20,638 338 61.02 10/2017 5.45 5.96 6.25 10.2 9.8 33.91 34.66 37.81 1.8 1.6 4.1% NRRoyal Bank of Canada RY OP 142,690 1,441 99.00 10/2017 7.61 8.57 9.05 11.6 10.9 49.64 50.75 55.68 2.0 1.8 4.0% 111.00Toronto-Dominion Bank TD OP 135,393 1,829 74.04 10/2017 5.55 6.49 7.00 11.4 10.6 39.34 39.86 43.74 1.9 1.7 3.6% 86.00Canadian Western Bank CWB SP 2,933 89 32.97 10/2017 2.63 2.98 3.26 11.1 10.1 25.87 26.25 28.04 1.3 1.2 3.2% 38.00Laurentian Bank LB SP 1,762 42 41.96 10/2017 6.08 5.59 5.66 7.5 7.4 53.43 55.10 58.05 0.8 0.7 6.1% R 45.00InsuranceGreat-West Lifeco GWO OP 29,563 988 29.91 12/2017 2.67 3.00 3.26 10.0 9.2 21.22 21.92 23.53 1.4 1.3 4.8% 39.00Industrial Alliance IAG SP 5,197 110 47.40 12/2017 4.87 5.46 5.93 8.7 8.0 46.56 48.51 53.00 1.0 0.9 3.1% 62.00Manulife Financial MFC OP 41,386 1,984 20.86 12/2017 2.22 2.68 2.86 7.8 7.3 20.32 21.52 24.12 1.0 0.9 3.6% 27.00 Sun Life Financial SLF OP 29,821 604 49.34 12/2017 4.14 4.78 5.06 10.3 9.8 34.53 35.88 38.76 1.4 1.3 3.6% 59.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted; NR = Not Rated


Diversified FinancialsSector Analysis

Jaeme Gloyn, CFA Analyst 416-869-8042 —

Associate: Victor Dri: 416-869-7495

Company Updates

Element Fleet Management Corp . (EFN: TSX)De-Risked Balance Sheet, Improved Cash Flow, and $150 mln Profitability Plan? We’re In!

› Coming off restriction at Outperform; $9 .50 price target:

In our view, EFN has taken the necessary steps to significantly de-risk the balance sheet and improve cash flows. Furthermore, we believe management’s core-fleet profitability improvement plan is reasonable and achievable within the time-frame provided. Moreover, management’s track-record executing “turn-arounds” lends credibility to the strategy. But 100% success is not without risks in a highly competitive industry that recently outperformed EFN and 2020 convert refinance risk. Therefore, to arrive at our $9.50 PT, we apply the peer (i.e. ALD.PA, the closest peer) valuation multiple of ~10.5x P/E (whereas we believe EFN should trade at a premium in a normal world) to our NBF-adjusted diluted EPS forecast of $0.90 in 2020E (assumes 100% success on profitability plan). Our PT translates to a P/B multiple of ~3x our Q4 2019 TBV estimate – more than fair for a company expected to deliver 25-30% ROTE through our forecast horizon. As EFN demonstrates sustainable execution on-plan, we see potential for the multiple to re-rate above industry average.

› Significantly de-risked balance sheet and improved cash flow:

First, we anticipate tangible leverage will remain below 8.0x (credit rating threshold) and trend lower through our forecast horizon. Second, we estimate EFN has significant cash flow capacity to repay maturing convertible debentures in June 2019 and 2020. Overarching our view is that we interpret “lender support to implement the strategic plan” to mean that the senior lending syndicate is accommodative with respect to financial covenants. That said, we believe EFN will still need to refinance the 2020 maturity (with another convert) or de-lever more than our current forecast to comfortably remain onside with covenants. Of note, Fitch and DBRS reaffirmed BBB+ credit ratings.

› Achievable and reasonable goals give us confidence :

EFN’s $150 mln by 2020 profitability plan will include 80% cost savings/productivity improvements and 20% revenue enhancements. In our view, cost saving initiatives, e.g. staff cuts (eliminate four layers in org. structure) and automation, will occur. Therefore, success of the plan hinges on productivity improvements, e.g. eliminate billing issues, service/vehicle delivery errors. This is achievable in our view given previous issues were self-inflicted and the remedies reside internally. Success on this front will drive the expected revenue lift from reduced churn and improved pricing power. Importantly, management does not include M&A, better-than-industry asset growth, nor NIM expansion in its plan estimates. This means EFN won’t need to reach to achieve the $150 mln target, i.e. a reasonable goal. Furthermore, EFN has contracted two external consultants experienced in change management, mitigating execution and talent risk, in our view.

Selections› TMX Group› ECN Capital› Fiera Capital› Morneau Shepell Inc.


Diversified FinancialsSector Analysis

Jaeme Gloyn, CFA Analyst 416-869-8042 —Associate: Victor Dri: 416-869-7495

Mkt Shares Stock Last FDEPS Book Value per Share 12-MthStock Stock Cap O/S Price Year Last est. est. P/E Last est. est. P/BV Div. PriceSym. Rating (Bln) (Mln) 10/22 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target

Mortgage FinanceEquitable Group EQB SP 1.01 16.5 61.18 12/2017 9.46 10.15 10.50 6.0 5.8 69.03 82.68 92.31 0.7 0.7 1.8% 70.00First National Financial FN SP 1.61 60.0 26.82 12/2017 2.71 2.85 3.12 9.4 8.6 7.92 9.36 10.44 2.9 2.6 6.9% 28.00Genworth MI Canada MIC OP 3.62 89.9 40.32 12/2017 5.16 5.35 5.57 7.5 7.2 44.79 49.98 53.78 0.8 0.7 4.7% 51.00Home Capital Group HCG SP 1.08 80.2 13.50 12/2017 2.74 1.53 1.62 8.8 8.3 23.40 24.13 25.36 0.6 0.5 0.0% 16.50MCAN Mortgage Corp. MKP UP 0.34 23.7 14.17 12/2017 1.67 1.65 1.62 8.6 8.8 12.94 13.03 13.22 1.1 1.1 9.0% 17.00Street Capital Group SCB SP 0.11 122.2 0.90 12/2017 0.06 0.02 0.14 42.1 6.4 1.15 1.17 1.31 0.8 0.7 0.0% 0.90Timbercreek Financial TF OP 0.73 79.3 9.24 12/2017 0.70 0.68 0.75 13.7 12.3 8.75 8.76 8.80 1.1 1.0 7.5% 10.25Specialty FinanceECN Capital ECN OP 1.15 336.2 3.42 12/2017 0.05 0.08 0.16 40.3 21.5 3.63 3.57 3.65 1.0 0.9 1.2% 5.00Element Fleet Management EFN OP 3.10 380.5 8.14 12/2017 -0.44 0.60 0.90 13.6 9.0 8.40 7.73 8.35 1.1 1.0 3.7% 9.50 Alaris Royalty Corp. AD OP 0.73 36.5 19.94 12/2017 0.32 1.55 1.67 12.9 11.9 16.84 16.99 17.20 1.2 1.2 8.1% 22.00Callidus Capital Corp. CBL UR 12/2015HR CompaniesMorneau Shepell MSI OP 1.6 55.8 27.88 12/2017 0.65 0.87 1.20 32.2 23.2 6.58 9.60 10.13 2.9 2.8 2.8% 31.00People Corporation PEO OP 0.4 56.2 8.00 12/2017 0.10 0.15 0.25 55.1 32.6 1.77 1.80 1.97 4.5 4.1 0.0% 9.25Securities ExchangeTMX Group X OP 4.54 55.5 81.72 12/2017 4.63 5.36 5.68 15.2 14.4 59.18 60.75 62.85 1.3 1.3 2.8% 97.0012/2015InsuranceIntact Financial Corp. IFC SP 14.02 139.2 100.72 12/2017 4.99 6.35 6.84 15.9 14.7 48.64 52.22 54.99 1.9 1.8 2.8% 103.00Fairfax Financial Holdings FFH OP 17.82 27.5 648.70 12/2017 62.18 50.04 50.83 13.0 12.8 453.99 478.98 520.57 1.4 1.2 1.9% 850.00Asset ManagersFiera Capital Corp. FSZ OP 1.18 95.4 12.36 12/2017 1.06 1.16 1.33 10.6 9.3 6.77 6.73 6.76 1.8 1.8 6.5% 16.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted


Greg Colman Analyst 416-869-6775 —

Associates: Anthony Linton: 416-507-9054

Westley MacDonald-Nixon: 416-507-9568 Michael Storry-Robertson: 416-507-8007

Energy Services

› LNG Canada receives greenlight from Shell with positive FID, representing a monumental win for the Canadian energy space in both the short and the long term:

The early October announcement from Shell that the LNG Canada consortium (which also includes PETRONAS, PetroChina, KOGAS, and Mitsubishi) to proceed with Phase 1 of the ~$40 bln LNG Canada project represents the largest energy project in Canadian history, dwarfing even the largest oil sands project in both size and scope. While this project is directionally positive for the energy services sector as a whole, we reiterate our view that the positive FID will have the greatest immediate impact on the accommodations providers, Black Diamond Group (BDI: TSX, $4 .50 Target, Sector Perform) and Horizon North Logistics (HNL: TSX, $3 .80 Target, Outperform). We believe the construction of the LNG facility in Kitimat, B.C., and the associated pipeline construction and drilling ramp-up will bolster total industry demand for beds. We believe both BDI and HNL would receive a fair share of the increase in demand, benefitting from both higher utilization and rental rates. We expect bids to be awarded for work in the coming weeks and months which should be a positive catalyst for shares. We also see a substantial opportunity for

heavy-haul trucking services provider Mullen Group Ltd . (MTL: TSX, $18 .50 Target . Outperform). With LNG Canada entering the construction phase, we believe the higher margins associated with a large, capital-intensive project could be just what the doctor ordered for MTL. To date in 2018, MTL’s OFS division has achieved EBITDA margins of 15.1%, well below the 22.1% average of 2008-2017. The depressed margins are driven by the recent decrease in large, capital intensive projects in Western Canada. With the positive FID for LNG Canada, we believe a return to margins closer to the post-2009 average could occur in the future which would likely lead to a re-rate in shares to higher levels.

Selections› Horizon North Logistics

(HNL: TSX, Outperform, $3.80 Target)

› Enerflex Ltd. (EFX: TSX, Outperform, $18.50 Target)

› Mullen Group Ltd. (MTL: TSX, $17.00, Outperform)

Market Shares StockStock Stock Cap O/S PriceSym. Rating (Mln) (Mln) 10/22 2017 2018e 2019e 2017 2018e 2019e 2018e Target Return

Black Diamond Group Ltd. BDI SP 184.35 55.2 3.34 27.9 35.2 41.6 10.7 5.8 5.2 1.3 4.50 35% Calfrac Well Services Ltd. CFW SP 584.28 143.9 4.06 180.1 281.0 255.0 8.5 6.0 6.5 3.7 4.85 19%CES Energy Solutions Corp. CEU SP 946.67 268.2 3.53 152.3 169.7 188.6 10.7 9.6 8.3 2.3 6.50 84%Enerflex Ltd. EFX OP 1511.3 89.0 16.99 210.3 212.2 274.0 7.9 7.6 5.5 0.8 18.50 9%High Arctic Energy Services Inc. HWO SP 196.47 53.1 3.70 0.1 50.6 40.6 4.3 4.4 4.1 0.0 4.50 22%Horizon North Logistics Inc. HNL OP 451.69 164.3 2.75 30.0 44.7 80.2 16.5 12.6 6.8 1.8 3.80 38% Mullen Group Ltd. MTL OP 1580.5 103.8 15.23 173.3 192.8 231.6 11.4 10.1 8.2 1.9 18.50 25% National Energy Services Reunited NESR OP 887.71 85.6 10.38 159.7 168.9 197.5 8.8 7.5 5.9 1.5 15.00 45%Pason Systems Corp. PSI OP 1712.7 85.4 20.06 98.2 132.8 141.7 15.8 12.0 11.2 nmf 23.00 15%Secure Energy Services Inc. SES OP 1309.6 164.5 7.96 157.2 187.2 210.5 10.9 9.2 8.2 1.9 12.50 57%Shawcor Ltd. SCL OP 1699.7 70.1 24.23 226.2 136.4 204.8 7.6 12.8 8.3 0.0 36.00 49%STEP Energy Services Ltd. STEP OP 284.08 67.2 4.23 123.6 146.1 237.7 2.6 4.7 2.5 1.8 12.00 184%Tervita Corp TEV OP 998.06 117.6 8.49 156.0 198.0 247.3 7.9 8.7 7.1 3.8 11.40 34%Trican Well Services TCW OP 627.74 328.7 1.91 180.0 128.4 141.4 4.8 5.8 5.1 nmf 3.50 83%Trinidad Drilling Ltd. TDG SP 478.55 273.5 1.75 129.4 157.4 204.6 9.6 6.6 4.6 3.0 2.20 26%

EBITDA (mlm) EV/EBITDA 12-Mth PriceNet Debt/EBITDA

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

Energy Services & AgricultureSector Analysis


Greg Colman Analyst 416-869-6775 —

Associates: Anthony Linton: 416-507-9054

Westley MacDonald-Nixon: 416-507-9568 Michael Storry-Robertson: 416-507-8007

Agriculture

› Heightened macro-uncertainty is creating a compelling entry point into Cervus Equipment Corp . (TSX: CERV, $19 .00 target, Outperform) as the long-term outlook for Canadian Ag and trucking demand remains intact:

After delivering solid (and in line) Q2/18 results featuring impressive same-store-sales growth of 20%, we are eyeing continued strength in 2019 led by the cyclical upswing in the trucking business. In Q2, recall Ag equipment sales reached a new quarterly record (+19% y/y) driven by a strong early-order program that was launched early in 2017, while trucking equipment sales also jumped 34% y/y due to an extremely tight trucking market in Canada. We believe the risks to the business outlook in 2018/19 – namely peaking new equipment sales and heightened competition in the used market – are well reflected in valuation today with shares down 20% year-to-date. We like the long-term outlook for Ag equipment sales as Canadian farm profitability is healthy, while equipment continues to age supporting the replacement cycle. OEM commentary remains generally supportive with a commitment to increasing production only gradually, which we expect to support used equipment prices and margins for the dealers. We think the newly redesigned NAFTA agreement removes uncertainty for Canadian farmers and is a net benefit to the dealers. Heightened uncertainty has created an opportunity to buy a solid business at a fraction of the long-term average valuation multiple, 3.6x our 2018 EBITDA estimates versus the long-term average 5.5x. We like the risk/ reward opportunity on this stock today and reiterate our Outperform rating and $19.00 target (>50% upside) driven by 5.4x 2018 EBITDA.

Selection› Cervus Equipment Corp.

(TSX: CERV; Outperform; $19.00 Target)

Market Shares Stock Last Net Y1 Net 12-MthStock Stock Cap O/S Price Year (A) est. est. (A) est. est. Debt Debt/ PriceSym. Rating (Mln) (Mln) 10/22 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (mln) EBITDA Target

Ag Growth International Inc. AFN R 980.22$ 16.5 59.50$ Dec-17 1.73$ R R R R 123.33$ R R R R 560.02$ R RAGT Food and Ingredients Inc. AGT OP 428.99$ 24.2 17.70$ Dec-17 (1.53)$ (0.69)$ 1.29$ nmf 13.8x 64.87$ 71.21$ 113.10$ 13.7x 8.0x 484.46$ 6.8x 21.00$ Cervus Equipment Corporation CERV OP 204.65$ 16.5 12.41$ Dec-17 1.18$ 1.48$ 1.71$ 8.4x 7.2x 53.84$ 59.02$ 67.18$ 4.0x 3.3x 46.46$ 0.8x 19.00$ Rocky Mountain Dealerships Inc. RME SP 197.69$ 19.9 9.94$ Dec-17 1.17$ 1.02$ 1.02$ 9.8x 9.8x 40.16$ 40.85$ 43.05$ 6.1x 5.0x 26.18$ 0.6x 13.00$

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

P/E EV/EBITDAFDEPS EBITDA (mln)

Energy Services & AgricultureSector Analysis


Healthcare & BiotechnologySector Analysis

Highlights as of October 2018

Akumin Inc . (AKU .u / AKU: TSX) – Investor Meeting TakeawaysOn October 9 and 10, NBF hosted Akumin’s President and CEO Mr. Riadh Zine for well-received investor meetings in Toronto and Montréal. While our initiating coverage report explores in detail our investment thesis and outlook on the company, discussed topics throughout the meetings included 1) industry tailwinds that are expected to continue providing a favourable consolidation opportunity; 2) Akumin’s integration of acquired imaging centres and 3) the company approach to drive organic growth.

› Positive industry tailwinds:The fragmented US medical imaging industry is positioned for ongoing consolidation and supported by tailwinds including 1) industry fragmentation - we estimate that Akumin will control ~1% (revenue) of the ~US$20-25 bln freestanding medical imaging, 2) marginal imaging providers looking to exit – impacts of a reduction in reimbursement rates and increased regulatory burden are opting providers to exit at depressed (3-5x EBITDA) multiples, 3) stabilization of procedural reimbursement rates – cuts for higher ticket procedures (MRI and CT scans) in 2007-2015 have stabilized recently, 4) payor/patient supported volume shift to lower cost imaging centres, and 5) Industry M&A could boost valuations - CDI (second largest with ~100+ centres) owned by PE firm Black Diamond Capital Management, is being marketed for sale via auction.

› Realizing acquisition efficiencies:As the majority of Akumin’s growth is expected from the acquisition of local imaging centres (management guiding to ~1 transaction per quarter), realization of synergies via staffing optimization, IT integration and increased purchasing power for supplies is key. We highlight AKU’s IT platform that through a differentiated approach in radiology imaging handling and billing automation creates a relative advantage versus the industry. Overall, we expect AKU’s technology approach to aid the company in largely maintaining its industry-leading profitability versus both large and small imaging operators – Akumin’s current EBITDA margin is at 20-23% vs leader RadNet at ~15% and smaller operators at 15-20%.

› Achieving organic growth:Aiming to achieve organic growth in 18 months following an acquisition, Akumin’s strategy includes 1) a standardized and consistent service across its centres; 2) partnering with leading radiologists; and 3) customer/patient engagement via marketing campaigns and longer operating hours.

We maintain our Outperform rating and US$5.25 target, which implies 9.4x 2019e EV/EBITDA, 12.3x 2019e P/CF and 20x 2019e P/E. AKU currently trades at 7.7x 2019e EV/EBITDA and 15.3x 2019e P/E while its closest peer RadNet trades at 8x 2019e EV/EBITDA and 25x 2019e P/E.

Selections› Akumin (AKU.u / AKU) › CRH Medical (CRH)› IMV Inc. (IMV)

Market Shares Stock Last FDDCPS EBITDA (mln) Net Y1 Net 12-MthStock Stock Capitalization O/S Price Quarter Current (A) est. est. P/DCPS (A) est. est. EV/EBITDA Debt Debt/ PriceSym. Rating (Mln) (Mln) 10/22 Reported Yield Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (Mln) EBITDA Target

Healthcare and BiotechnologyAkumin AKU.u OP 247.62 61.4 4.03 2/2018 0.0% 0.03u 0.24u 0.43u 16.472 9.5 14.9u 32.6u 45.7u 10.3 7.8 83.6u 2.6 5.25uCRH Medical CRH OP 299.42 72.7 4.12 2/2018 0.0% 0.30u 0.37u 0.41u 8.6 7.7 34.3u 35.1u 40.5u 7.6 6.8 59.9u 1.5 5.75IMV Inc. IMV OP 342.95 44.9 7.64 2/2018 0.0% (0.21) (0.33) (0.20) nmf nmf (9.4) (15.0) (9.4) nmf nmf 0.0 nmf 12.00Jamieson Wellness JWEL OP 924.36 38.1 24.28 2/2018 1.4% 0.85 1.08 1.32 22.5 18.5 60.7 67.7 78.2 15.7 13.3 165.6 2.1 29.00Knight Therapeutics GUD OP 1,159.64 142.8 8.12 2/2018 0.0% 0.12 0.14 0.18 54.0 41.6 (7.3) (4.7) (4.0) nmf nmf 0.0 0.0 9.50Medical Facilities Corp. DR SP 438.39 31.0 14.15 2/2018 8.0% 1.29u 1.23u 1.13u 8.9 9.6 51.1u 54.5u 50.9u 7.9 8.5 121.1u 2.4 14.00ProMetic Life Sciences PLI UP 362.40 710.6 0.51 2/2018 0.0% (0.18) (0.14) (0.14) nmf nmf (110.1) (93.0) (97.0) nmf nmf 153.9 nmf 0.75Theratechnologies TH OP 545.04 76.7 7.11 2/2018 0.0% (0.16) 0.03 0.39 nmf 18.2 (6.9) 5.6 34.2 97.0 15.9 (2.7) -0.1 14.25TSO3 TOS SP 45.05 92.9 0.49 2/2018 0.0% (0.06)u (0.22)u (0.11)u nmf nmf (4.3)u (13.1)u (8.4)u nmf nmf 13.3u 0.0 1.25

Special SituationsCrius Energy Trust KWH.UN OP 352.86 57.0 6.19 2/2018 13.5% 0.87u 0.76u 0.92u 6.3 5.2 64.9u 78.6u 98.2u 4.7 3.9 97.6u 1.0 9.00K-Bro Linen KBL OP 393.15 10.6 37.23 2/2018 3.2% 2.42 2.41 3.04 15.5 12.2 26.9 33.6 43.9 13.1 9.7 62.4 1.4 41.00Just Energy Group JE SP 603.79 149.8 4.03 1/2019 12.4% 0.62 0.71 0.80 5.7 5.0 174.4 190.0 220.2 6.8 5.9 591.1 2.7 4.50Rogers Sugar RSI SP 572.15 105.8 5.41 3/2018 6.7% 0.48 0.37 0.50 14.6 10.9 81.3 96.0 102.0 9.6 8.5 328.6 3.2 5.75Chemtrade Logistics Income Fund CHE_u OP 1,308.38 92.6 14.13 2/2018 9.6% 1.23 1.72 2.01 7.3 6.2 283.2 315.4 365.6 7.8 6.7 1325.1 3.6 18.25

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US Dollars

Endri Leno Analyst 416-869-8047

— Associates: Stephen Kwai: 416-869-7571

Ammar Shah: 416-869-7476


Industrial ProductsSector Analysis

› Extrapolating Stantec’s historical seasonality implies undervaluation of core business…is it enough for us to change our thesis?

Given Q1/18 + Q2/18 actual consulting EBITDA of $91 mln and $117 mln, we find an implied EBITDA (for the year) based on historical Q1/Q2 seasonality of ~$434.6 mln (consensus at $390 mln, inclusive of construction). Core consulting business is actually doing better vs. what we would have expected five to six months ago. The Street numbers (ourselves included) are likely compressed on the lack of visibility on another negative construction quarter (-$24.2 mln EBITDA YTD).

Assuming $15 mln-$20 mln of construction EBITDA is sold at a 5x multiple (note that the business has already been sold; the Street is now waiting for financial details) it should generate roughly $64 mln net of tax. Removal of construction is EBITDA margin accretive, but despite moving up the consulting numbers it’s still negative for absolute EBITDA and EPS. Removing the construction business from our 2019E numbers is NAV-neutral, implying that while our prior estimates may have undermodeled consulting, the advance in the core business margin (at 12.2% YTD) is enough to offset the loss of construction EBITDA but not more.

› Valuation & recommendation:Could we and the Street be too negative on construction in Q3/18E as consulting recovers? Potentially. Do we have a lot of conviction that the construction will generate positive or even neutral EBITDA? For existing investors, the discussion is a moot point as it’s just a matter of when we’ll get a cleaner slate with STN. For investors sharpening the pencils on the investment thesis, pro-forma construction sale 10.0x 2019E EV/EBITDA should sound more appealing, but we already re-rated our numbers for consulting next year. Note as well that STN valuation has peaked marginally above 10.0x EV/EBITDA in 2014 (when oil & gas / midstream market was exploding); expanding beyond that lofty momentum is too aggressive for us at the moment. We rate Stantec shares Sector Perform, $35.00 price target.

Selections› SNC-Lavalin› WSP Global› Finning› Toromont› NOA› Stelco› IBI Group› ATS Automation› Bird Construction

12-mth Stock LastStock Stock ∆ Price ∆ price Year (A) est. est. P/E (A) est. est. Div. Net debt/Symbol Rating Target 10/22 Cap ($mln) Reported Last FY FY1E FY2E FY1 FY2 Last FY FY1 FY2 FY1 FY2 Yield FY1 EBITDA

E&C / Equipment DistributionAecon Group ARE OP $20.00 $16.81 $1,004 12 / 2017 $0.69 $0.77 $1.19 24.5x 16.9xFYE $158 $181 $200 5.6x 5.6x 3.0% 0.3x (incl. converts)

Bird Construction Inc. BDT OP $9.50 $7.10 $302 12 / 2017 $0.27 -$0.12 $0.50 -60.3x 14.3x $27 $7 $46 35.4x 5.8x 5.5% net cash; NMFinning International Inc. FTT OP $39.00 $30.24 $5,084 12 / 2017 $1.31 $1.83 $2.12 16.6x 14.3x $583 $687 $779 8.7x 7.6x 2.6% 1.1xIBI Group Inc. IBG OP $8.50 $8.50 $170 12 / 2017 $0.38 $0.46 $0.55 14.6x 10.0x $40 $37 $44 7.5x 6.4x 0.0% 2.1x (incl. converts)North American Construction Group Ltd.NOA OP $21.00 $15.29 $488 12 / 2017 $0.20 $0.61 $1.43 24.7x 10.5x $62 $97 $157 7.4x 4.6x 0.5% 1.6xRitchie Bros. Auctioneers RBA SP u$39.00 u$36.38 u$3,924 12 / 2017 u$0.78 u$1.15 u$1.50 31.6x 24.3x u$204 u$257 u$298 17.5x 15.1x 2.0% 2.1xSNC-Lavalin SNC OP $69.00 $47.01 $8,252 12 / 2017 $2.33 $2.51 $3.44 4.9x 3.9x $819 $993 $1,183 6.4x 4.7x 2.3% 2.0xStantec Inc. STN SP $35.00 $34.71 $3,953 12 / 2017 $1.67 $1.48 $1.81 23.4x 19.1x $378 $393 $439 11.7x 10.5x 1.6% 1.8x (pro-forma MWH)Stuart Olson SOX SP $6.50 $4.83 $133 12 / 2017 $0.35 $0.43 $0.55 11.3x 8.8x $36 $40 $47 5.4x 4.0x 9.9% 1.2x (incl. converts)Toromont Industries Ltd. TIH OP $70.00 $64.14 $5,204 12 / 2017 $2.20 $3.11 $3.66 20.0x 17.0x $339 $509 $568 10.9x 9.8x 1.5% 1.3xWSP Global WSP OP $74.00 $67.12 $6,965 12 / 2017 $1.97 $2.41 $3.34 20.1x 17.8x $555 $652 $781 12.8x 10.7x 2.2% 2.1xAutoCanada ACQ SP $15.00 $10.37 $284 12 / 2017 $1.53 $1.42 $1.46 7.3x 7.1x $95 $74 $91 8.4x 6.9x 0.5% 1.7xStelco STLC OP $34.50 $20.27 $1,800 12 / 2017 $0.50 $5.80 $3.69 3.5x 5.5x $215 $599 $419 2.3x 3.3x 2.0% net cashATS Automation ATA OP $26.00 $21.50 $2,022 12 / 2017 $0.76 $0.88 $0.97 24.4x 22.2x $154 $168 $177 12.1x 11.5x - net cashMedian 18.3x 14.3x 8.5x 6.6x 2.0%Note: u = USD; Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted

EPS EBITDA (mln)Market EV/EBITDA

Maxim Sytchev Analyst 416-869-6517

— Associates: Adam Staszewski: 416-869-7937

Troy Sun: 416-869-6754


Merchandising & Consumer ProductsSector Analysis

Vishal Shreedhar Analyst 416-869-7930 —

Associate: Ryan Li: 416-869-6767

Parkland Fuel Corporation (PKI: TSX)Acquisition Commentary: Parkland expands into the Caribbean in a big way

› Expansion into the Caribbean; taking a 75% stake in SOL:

On October 10, 2018, PKI announced that it had entered into an agreement to complete a business combination with SOL Investments Limited, the largest independent fuel marketer in the Caribbean. SOL markets/distributes ~4.8 bln litres of fuel annually through the following segments: Retail (526 sites; 2 bln litres), Supply/Distribution (32 import terminals, 7 pipelines, 3 marine berths, 10 charter ships), Commercial/Industrial (1.8 bln litres), and Aviation (600 mln litres). The deal is expected to close in late Q4/18. PKI will acquire 75% of SOL’s shares for US$1.21 bln (Cdn$1.57 bln). The deal will be funded through debt (Cdn$1.1 bln) and equity; the Simpson Group (SOL’s parent) will acquire 12.2 mln common shares in PKI (~9.9% equity ownership in PKI). The Simpson Group intends to be a long-term investor – we understand there is a lock-up for 2 years. In the 12 months to June 2018, SOL generated EBITDA of US$215 mln (Cdn$280 mln); the implied EV/EBITDA multiple is 7.5x (on the 75% equity interest). Management expects the deal to be immediately accretive to distributable cash flow per share. Management expects to achieve synergies amounting to ~20% of acquired EBITDA; the EV/EBITDA multiple (incl. synergies) is 6.2x.

› Favourable view on the deal:We have a favourable view on this acquisition because we believe it will provide Parkland with scale and also aid growth beyond immediate accretion from the combination of the companies – in particular, we see accelerated U.S. growth optionality. Based on Parkland’s prior transactions, we believe that the company should be able to exceed synergy targets, although we have not reflected that outcome in our forecasts. Our experience has shown that PKI sets conservative synergy expectations.

› Maintain thesis:Our recommendation is predicated on the expectation of strong double-digit EBITDA growth supported by organic growth, acquisition integration, and synergy capture. We believe that consensus estimates and management’s guidance could prove to be conservative if execution remains strong. In general, we consider Parkland to be a solid company with a business model that is evolving, shifting towards new business segments and new regions of operation. As a result, over the medium term, we believe that the market will subject PKI to heightened scrutiny as it evaluates the shift in the company’s risk, return and growth profiles. Accordingly, we consider execution to be key.

› Outperform rating; Price target is $52:We value PKI at 9.5x our 2019/20 EBITDA (excl. non-controlling interest in SOL).

Selection› Empire Company


Merchandising & Consumer ProductsSector Analysis

Vishal Shreedhar Analyst 416-869-7930 —Associate: Ryan Li: 416-869-6767

Market Shares Stock Last FDEPS EBITDA Debt/ 12-MthStock Stock Cap. O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total PriceSym. Rating (Mln) (Mln) 10/22 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

General MerchandiseCanadian Tire CTC.a OP 9,871 65.5 150.73 12/2017 10.67 10.76 12.49 14.0 12.1 1,694 1,659 1,813 8.5 7.8 66.01 187.00 187.00Dollarama DOL SP 13,193 331.6 39.78 01/2018 1.52 1.72 1.86 23.2 21.4 826 904 947 16.4 15.6 -0.17 48.00 48.00

Specialty StoresCouche Tard ATD.b OP 34,846 564.9 61.68 04/2018 2.61 3.16 3.35 14.9 14.1 2,980 3,441 3,568 9.3 9.0 14.41 76.00 76.00Parkland Fuel Corporation PKI OP 6,068 134.7 45.06 12/2017 0.69 1.69 2.22 26.7 20.3 418 839 1,106 9.6 7.3 12.50 52.00 52.00

ApparelGildan GIL SP 8,283 212.7 38.94 12/2017 1.72 1.87 2.08 15.9 14.3 586 608 645 11.5 10.8 8.95 46.00 46.00Roots Corporation ROOT OP 232 42.0 5.52 01/2018 0.69 0.60 0.87 9.3 6.3 53 47 65 7.5 5.4 4.60 10.00 10.00

GrocersEmpire Company EMP.a OP 6,364 272.3 23.37 05/2018 1.27 1.41 2.01 16.6 11.6 1,015 1,053 1,255 7.0 5.8 13.87 30.00 30.00Loblaw L SP 24,813 379.4 65.40 12/2017 4.54 4.72 5.24 13.8 12.5 4,096 4,322 4,507 9.0 8.6 32.95 73.00 73.00Metro MRU SP 10,064 243.5 41.33 09/2017 2.19 2.39 2.82 17.3 14.7 966 989 1,021 13.0 12.6 22.62 44.00 44.00

Food ManufacturerSaputo SAP SP 15,385 391.8 39.27 03/2018 1.80 1.82 2.25 21.6 17.5 1,264 1,351 1,582 13.4 11.5 12.48 45.00 45.00

Department StoresHudson's Bay Company HBC SP 2,139 235.0 9.10 01/2018 (1.49) (1.27) (0.99) NA NA 261 376 453 15.4 12.8 7.90 13.00 13.00

Mattress RetailingSleep Country Canada ZZZ OP 1,017 37.4 27.16 12/2017 1.65 1.80 1.93 15.1 14.1 100 108 114 10.3 9.7 7.44 34.00 34.00

Beauty and Personal CareMAV Beauty Brands MAV SP 577 41.3 13.98 12/2017 0.09 0.25 0.62 56.6 22.5 16 28 42 27.7 17.9 1.36 15.00 15.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u=US dollars


Price Volatility to Persist Throughout 2018Copper prices have remained volatile in recent weeks as better-than-expected market data out of China has been offset by modest supply disruptions to date in 2018, although the threat of tariffs continue to remain a concern for several investors.

Our positive long-term bias for base metals remains unchanged driven by a lack of an advanced stage project pipeline and the building of a structural deficit in the coming years for several commodities (namely: copper). Electric vehicles are emerging as the dominant story for long-term copper demand, expected to partially offset the reduced production of internal combustion engine vehicles.

Top picks: › Teck Resources Ltd . (TECK .B: TSX) – With coking coal prices

relatively elevated throughout H1/18, due partly to potential supply disruptions related to the Aurizon dispute and reduced domestic production in China, FCF (free cashflow) margins remain strong for Teck, with 15% FCF yield throughout 2018/2019. With a sanction decision anticipated on the company’s QB2 project later in 2018, more focus is expected to be given to the company’s copper growth profile with a number of catalysts delivered throughout 2018/2019. These include a bankable feasibility study (BFS) on Zafranel by Q4/18, prefeasibility study (PFS) on San Nicolas in H2/19 and BFS on its NuevaUnion project (50/50 JV with Goldcorp Inc. (G: TSX)) in 2019.

› Lundin Mining Corp . (LUN: TSX) – Lundin is anticipating a ~60% reduction in power costs due to increased solar/hydro capacity in the country with power costs expected to lead to a ~5% cost savings in overall costs by 2023. Additionally, with a new mine fleet and mill optimizations operational by mid-2019, operating cost guidance is expected to improve over the next five-year guidance range. LUN continues to trade at an attractive valuation of 3.9x 2019E CF compared with intermediate copper peers at 5.0x.

Selections› Teck Resources› Lundin Mining

Metals & Mining: Base MetalsSector Analysis

Don DeMarco Analyst 416-869-7572 —

Associate: Rabi Nizami: 416-869-7925

Shane Nagle, CFA Analyst 416-869-7936 —

Associate: Lola Aganga: 416-869-6516

Market Shares Stock 12-Month EPS CFPS NetStock Stock Cap O/S Price Price FY0 FY1 FY2 P/E FY0 FY1 FY2 P/CF Asset

Symbol Rating ∆ (Mln) (Mln) 10/22 Target ∆ Analyst FY1 FY2 FY1 FY2 Value P/NAVProducers

Capstone Mining CS SP ↓ 244 399.4 0.61 0.85 ↓ Nagle 0.08u (0.02)u 0.09u n/a 6.7x 0.41u 0.34u 0.29u 1.4x 1.6x 1.07 0.6xCopper Mountain Mining CMMC OP 199 177.4 1.12 1.90 DeMarco 0.48c 0.16c 0.19c 7.1x 6.0x 0.63c 0.49c 0.43c 2.3x 2.6x 2.77 0.4xFirst Quantum Minerals FM SP 8,845 689.4 12.83 18.25 ↓ Nagle 0.15u (0.16)u 0.79u n/a 16.3x 1.20u 1.35u 2.36u 7.4x 4.2x 20.56 0.6xHudbay Minerals HBM SP 1,437 261.3 5.50 9.00 Nagle 0.14u 0.59u 0.23u 7.2x 24.1x 1.67u 2.18u 1.67u 2.0x 2.6x 8.99 0.6xLundin Mining LUN OP 3,916 732.0 5.35 9.50 ↓ Nagle 0.07u 0.59u 0.31u 7.0x 17.1x 0.79u 1.22u 0.75u 3.4x 5.5x 10.98 0.5xSherritt International S OP 282 397.3 0.71 1.50 ↓ DeMarco (0.87)c (0.06)c 0.07c - 9.5x (0.05)c 0.04c 0.16c 16.2x 4.5x 2.15 0.3xTaseko Mines TKO OP 209 227.6 0.92 2.10 DeMarco 0.18c (0.00)c 0.14c - 6.4x 0.66c 0.35c 0.47c 2.6x 2.0x 2.94 0.3xTeck Resources TECKb OP 17,726 574.8 30.84 44.00 ↑ Nagle 1.91c 4.45c 4.84c 6.9x 6.4x 5.93c 8.58c 8.70c 3.6x 3.5x 42.43 0.7xTitan Mining TI OP 133 102.0 1.30 1.60 ↓ Nagle 0.00c (0.15)c (0.16)c n/a n/a 0.00c (0.12)c (0.10)c n/a n/a 1.45 0.9xTrevali Mining TV SP 524 831.2 0.63 1.05 ↓ Nagle 0.00c 0.08c 0.11c 5.8x 5.9x 0.00c 0.18c 0.21c 2.8x 2.3x 0.88 0.7x

DevelopersNevada Copper NCU OP 294 638.5 0.46 1.00 Nagle (0.09)c (0.11)c (0.02)c n/a n/a (0.02)c (0.05)c (0.02)c n/a n/a 1.16 0.4xSolGold SOLG OP 1,153 1,696.2 0.68 0.95 ↑ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.16 0.6x

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; R = Restricted; T = Tender; UR = Under Review u = US dollars; c = Canadian dollars


Expecting range bound gold in 2H18

› Expecting gold to be range bound in 2H18:We see the spot gold price trading in range around the current US$1,200 – 1,250/oz level in 2H18. Our neutral bias to gold is supported by expectations for further U.S. Fed rate hikes, coupled with minimal inflation expected in the U.S., resulting in continued positive real rates. Gold investment is likely to remain relatively soft vs a year ago in this environment from a safe haven demand perspective. However, we believe that gains will be possible from seasonal demand traits, especially in December as we move towards the Chinese New Year, which has proven to be a strong catalyst for the spot gold price over the past several years. In our view, the gold price will remain tightly correlated with U.S. real rates.

› Cost creep could remerge with higher oil prices and stable local operating currencies:

In our view, we could see operating costs begin to trend higher in USD terms. This concern is founded on rising oil prices. This could present a cash flow headwind for producers, which is not likely to be offset by weaker FX rates relative to the USD as many currencies are proving relatively stable, especially the CAD.

› Top Picks offer dependable results, strong balance sheets, low capex plans and numerous catalysts:

We believe the companies that are most likely to outperform are those with: (1) management teams with solid track records of executing on guidance, (2) strong balance sheets, (3) encouraging Y/Y guidance with growth in production and/or declining costs, (4) exiting heavy capital spending programs, and (5) a catalyst-packed calendar. On an EV/EBITDA valuation basis we see some names trading at very attractive multiples, and with those that have a history of achieving guidance and showing potential for delivering positive catalysts, we believe these names offer good investment opportunities.

Selections

Gold Producers:

› Atlantic Gold Corp. (AGB:TSXV; ; $2.75 target)

› SSR Mining Inc. (SSRM:TSX; $17.00 target)

› Kirkland Lake (KL: TSX; $34.00 target)

› Wesdome Gold Mines Ltd. (WDO:TSX; $4.50 target)

Gold Developers:

› Bluestone Resources Ltd. (BSR:TSX.V; $2.40 target)

Royalties:

› Sandstorm Gold Ltd. (SSL:TSX; $7.50 target)

Metals & Mining: Precious MetalsSector Analysis

Don DeMarco Analyst 416-869-7572 —

Associate: Rabi Nizami: 416-869-7925

Michael Parkin Analyst 416-869-6766 —

Associates: Jonathan Egilo: 416-507-8177

John Sclodnick: 416-869-8044

Shane Nagle, CFA Analyst 416-869-7936 —

Associate: Lola Aganga: 416-869-6516


Metals & Mining: Precious MetalsSector Analysis

Market Shares Stock 12-Month EPS CFPS NetStock Stock Cap O/S Price Price FY0 FY1 FY2 P/E FY0 FY1 FY2 P/CF Asset

Symbol Rating ∆ (Mln) (Mln) 10/22 Target ∆ Analyst FY1 FY2 FY1 FY2 Value P/NAVSenior Producers (>1 Moz production)

Agnico-Eagle Mines Ltd AEM OP 11,133 234.09 47.56 54.00 ↓ Parkin 1.01u (0.03)u (0.24)u -1192.4x -149.8x 3.61u 2.48u 2.24u 14.6x 16.2x 22.46 2.1xGoldcorp Inc G OP 12,022 869.27 13.83 25.00 ↓ Parkin 0.39u 0.10u 0.33u 103.7x 32.4x 1.23u 1.13u 1.49u 9.3x 7.1x 14.03 1.0xKinross Gold Corp K OP 4,613 1,250.23 3.69 5.50 ↓ Parkin 0.14u 0.13u 0.10u 21.1x 27.4x 0.73u 0.73u 0.68u 3.9x 4.2x 5.70 0.6xYamana Gold Inc YRI OP 3,217 949.01 3.39 5.75 ↓ Parkin 0.09u 0.12u 0.02u 21.6x 135.7x 0.42u 0.62u 0.49u 4.2x 5.3x 3.97 0.9x

Royalty CompaniesFranco-Nevada Corp FNV SP 15,637 185.9 84.10 92.50 ↓ Nagle 0.94u 1.08u 1.14u 60.4x 73.8x 2.65u 2.72u 2.51u 24.0x 26.0x 56.81 1.5xMaverix Metals Inc MMX.V OP 421 155.8 2.70 2.70 Nagle (0.02)u 0.02u (0.01)u 135.0x n/a (0.02)u 0.10u 0.15u 26.7x 18.1x 1.49 1.8xOsisko Gold Royalties Ltd OR OP 1,656 156.2 10.60 13.50 ↓ Nagle 0.33c 0.19c 0.11c 55.5x 97.2x 0.52c 0.40c 0.61c 26.7x 17.5x 9.99 1.1xRoyal Gold Inc RGLD.O SP 5,052 65.2 77.45u 87.50u ↓ Nagle 1.54u 1.52u 1.49u 51.0x 52.0x 4.08u 4.13u 3.96u 14.5x 15.2x 53.39 1.5xSandstorm Gold Ltd SSL OP 978 184.4 5.30 7.50 ↓ Nagle 0.07u 0.05u 0.07u 82.2x 75.7x 0.28u 0.27u 0.25u 15.2x 16.4x 6.43 0.8xWheaton Precious Metals Corp WPM OP 9,958 443.6 22.45 32.00 ↓ Nagle 0.62u 0.63u 0.48u 27.6x 46.8x 1.34u 1.23u 1.03u 14.1x 16.9x 21.68 1.0x

Intermediate Producers (>250 Koz production)Alamos Gold Inc AGI OP 2,284 389.80 5.86 8.75 ↓ Parkin 0.09u 0.05u 0.09u 84.3x 47.6x 0.59u 0.52u 0.59u 8.6x 7.5x 10.78 0.5xB2Gold BTO OP 3,346 967.0 3.46 6.00 ↓ DeMarco 0.10u 0.20u 0.21u 17.4x 16.4x 0.23u 0.47u 0.51u 7.3x 6.8x 2.74 1.3xCenterra Gold Inc CG SP 1,550 291.89 5.31 7.00 ↓ Parkin 0.96u 0.27u 0.22u 15.3x 18.8x 1.75u 1.10u 1.03u 3.7x 3.9x 10.75 0.5xDetour Gold Corp DGC OP 1,926 175.10 11.00 16.00 ↓ Parkin 0.63u 0.40u 0.32u 21.0x 26.6x 1.61u 1.53u 1.47u 5.5x 5.7x 17.47 0.6xEldorado Gold Corp ELD OP 937 794.01 1.18 1.50 Parkin 0.01u (0.02)u (0.06)u n/a n/a 0.08u 0.12u 0.12u 7.5x 7.5x 3.36 0.4xEquinox Gold Corp EQX OP 581 575.28 1.01 2.00 Sclodnick (0.11)u (0.10)u (0.06)u n/a n/a (0.18)u (0.02)u 0.11u n/a 9.1x 2.06 0.5xFirst Majestic Silver Corp FR SP 1,578 193.4 8.16 9.25 ↓ DeMarco 0.08u (0.12)u 0.15u - 54.8x 0.56u 0.41u 0.64u 20.1x 12.8x 7.78 1.0xFortuna Silver Mines Inc FVI SP 866 159.9 5.42 7.50 ↓ DeMarco 0.31u 0.21u 0.23u 26.0x 23.4x 0.56u 0.57u 0.55u 9.6x 9.9x 5.71 0.9xIAMGOLD Corp IMG OP 2,342 466.60 5.02 9.25 ↓ Parkin 0.06u 0.14u 0.12u 27.5x 33.1x 0.63u 0.78u 0.81u 4.9x 4.8x 9.27 0.5xKirkland Lake Gold Corp KL OP 5,897 209.64 28.13 34.00 Parkin 0.67u 1.14u 1.21u 18.8x 17.8x 1.40u 2.08u 2.17u 10.3x 9.9x 17.91 1.6xNew Gold Inc NGD SP 550 578.75 0.95 1.60 ↓ Parkin 0.11u (0.13)u (0.07)u n/a n/a 0.40u 0.47u 0.50u 1.6x 1.4x 2.10 0.5xOceanaGold Corp OGC SP 2,482 617.50 4.02 4.25 ↓ Parkin 0.31u 0.19u 0.08u 21.5x 48.1x 0.62u 0.55u 0.43u 5.6x 7.1x 3.10 1.3xSSR Mining Inc SSRM OP 1,702 119.94 14.19 17.00 Parkin 0.34u 0.22u 0.21u 49.4x 52.7x 1.24u 0.89u 1.20u 12.1x 9.0x 14.77 1.0xTahoe Resources Inc THO SP 1,109 313.31 3.54 4.25 ↓ Parkin 0.27u (0.17)u (0.01)u -15.9x -247.1x 0.72u 0.31u 0.57u 8.6x 4.7x 6.40 0.6x

Junior Producers (<250 Koz production)Alacer Gold Corp ASR SP 652 293.8 2.22 3.75 ↓ DeMarco (0.03)u (0.02)u 0.35u - 6.4x 0.54u 0.26u 0.58u 8.7x 3.8x 3.76 0.6xAtlantic Gold Corp AGB.V OP 388 233.4 1.66 2.75 ↓ DeMarco (0.03)u 0.15u 0.17u 11.0x 10.0x (0.03)u 0.26u 0.26u 6.4x 6.4x 2.45 0.7xGolden Star Resources GSC OP 354 380.8 0.93 1.50 DeMarco 0.10u 0.03u 0.09u 30.0x 10.8x 0.14u 0.08u 0.14u 11.0x 6.9x 1.39 0.7xLeagold Mining LMC OP 481 284.5 1.69 3.50 ↓ DeMarco (0.06)u 0.17u 0.38u 9.9x 4.5x 0.32u 0.36u 0.67u 4.7x 2.5x 2.95 0.6xSemafo Inc. SMF OP 1,029 325.6 3.16 5.00 ↓ DeMarco 0.00u 0.04u 0.27u 80.9x 11.6x 0.33u 0.32u 0.66u 9.7x 4.8x 3.75 0.8xTMAC Resources TMR OP 517 92.0 5.62 8.00 DeMarco (0.28)u (0.12)u 0.32u - 17.6x (0.03)u 0.40u 0.84u 14.0x 6.7x 8.88 0.6xWesdome Corp. WDO OP 533 134.2 3.97 4.50 DeMarco 0.05u 0.14u 0.14u 29.2x 28.9x 0.16u 0.27u 0.23u 14.7x 17.2x 4.33 0.9x

DevelopersAlmaden Minerals Ltd AMM OP 82 112.2 0.73 1.20 ↓ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.59 0.5xBarsele Minerals Corp. BME OP 84 129.52 0.65 1.25 Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.09 0.6xBluestone Resources Inc. BSR OP 89 63.84 1.39 2.40 Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 3.24 0.4xFalco Resources Ltd. FPC OP 59 189.16 0.31 1.15 ↓ Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.57 0.2xLiberty Gold Corp LGD OP 75 205.9 0.37 0.70 Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.32 0.3xLydian International Ltd LYD SP 161 803.1 0.20 0.40 Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.63 0.3xMAG Silver Corp MAG OP 876 85.5 10.24 20.00 ↓ DeMarco (0.08)u (0.03)u (0.05)u - - (0.08)u (0.04)u (0.04)u - - 16.18 0.6xMarathon Gold Corp. MOZ OP 125 150.63 0.83 1.60 Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.35 0.6xOsisko Mining OSK OP R 208.9 3.07 4.10 DeMarco (1.42)u (0.04)u (0.06)u - - (0.02)u (0.00)u (0.03)u - - 3.62 0.8xSabina Gold and Silver Corp. SBB OP 386 262.77 1.47 2.75 ↓ Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2.94 0.5xSilverCrest Metals Inc. SIL.V OP 247 68.7 3.60 4.75 DeMarco (0.12)u (0.08)u (0.05)u - - (0.05)u (0.05)u (0.03)u - - 4.88 0.7xTroilus Gold Corp. TLG OP 34 48.7 0.70 2.80 ↓ Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.79 0.4x

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; R = Restricted; T = Tender; UR = Under Review u = US dollars; c = Canadian dollars

Michael Parkin Analyst 416-869-6766 —Associates: Jonathan Egilo: 416-507-8177 John Sclodnick: 416-869-8044

Don DeMarco Analyst 416-869-7572 —Associate: Rabi Nizami: 416-869-7925

Shane Nagle, CFA Analyst 416-869-7936 —Associates: Lola Aganga: 416-869-6516 Alex Bauer: 416-869-7535


› Crude Oil and Natural Gas Outlook:Global oil prices were relatively flat through October as prompt month WTI traded up to $76/bbl early in the month before retreating back below $70/bbl as US crude inventories increased for the 4th consecutive week. Canadian crude differentials continue to demonstrate extreme volatility, with the WTI-WCS differential widening to over US$45/bbl, as demand has been impacted by higher than usual maintenance at major PADD 2 refineries, which has softened the short-term demand picture by an estimated 980 mbbl/d. Despite our forecast for short to medium-term production growth, high crude inventory, limited egress and slowing rail availability, we do not see the differential outlook getting much worse than what is underway today as we move past current refinery turnarounds which are expected to be completed by mid Q4/18. This presents an opportunity as we believe growth will begin to slow (temporarily) and refinery runs will seasonally improve, resulting in inventory draws, in addition to incremental rail shipments over the next 18 months.

Natural gas prices gradually increased across major North American benchmarks through October, as seasonally low US inventories provide pricing support heading into the higher demand winter months. Given the strong correlation between inventory surplus/deficit positions and natural gas pricing, we expect this year’s projected deficit could be the catalyst to drive AECO gas prices seasonally higher as we head towards the winter withdrawal season and potentially see a ‘winter gas trade’ emerging for some select producers within our coverage.

Top picks: › Encana Corp . (ECA:TSX/NYSE) - With a streamlined portfolio of

core assets set to deliver over 30% production growth year-over-year, Encana is positioned to execute on a profitable growth strategy that looks to provide peer leading value creation through our forecast period, while trading at a discounted valuation relative to its Canadian and U.S. peers. As a result of increased well performance and improving capital efficiencies, we have raised our Permian production forecast through 2020, building our confidence in the company achieving the 25% cash flow CAGR and 10-15% production CAGR detailed in its five-year plan at $55 WTI and $3/mcf NYMEX.

› Enerplus Corp . (ERF:TSX/NYSE) - Underpinned by its high impact Bakken production, Enerplus offers a top quartile growth profile and FCF generation that looks to expose shareholders to future value creation (growth, buybacks, debt repayment, M&A and dividend growth to name a few). Although Enerplus has posted some of the strongest share price performance across our coverage year-to-date (ERF +15% vs. E&P Index -11%), we continue to see compelling relative upside when considering the company’s valuation.

› Kelt Exploration (KEL:TSX) – Offering some of the greatest exposure to Montney liquids growth in the sector, Kelt compliments low capital efficiency production growth with material on-going facility initiatives to positively impact costs and netbacks through our forecast period. The company has significant visibility towards an augmented and high-efficiency of liquids additions through the successful delineation of its Pipestone block and continued development of its Inga and Pouce Coupe assets, which looks to drive 26% DAPPS growth (vs. peers 5%) on leverage of 0.8x D/CF (vs. peers 2.2x), while trades at 4.7x 2019e EV/DACF (vs. peers 5.4x).

› TORC Oil & Gas (TOG: TSX) – One of the best positioned light oil names, TORC has limited exposure to the pricing challenges that many other Canadian crude producers are facing on account of its ability to sell the majority of its crude into the benchmark at Cromer, where pricing is approximately $5 – 10/bbl stronger than other Western Canadian references. The regional pricing performance combined with a strong balance sheet (2019e D/CF of 0.5x) and attractive valuation of 3.5x 2019 EV/DACF (vs. peers 4.6x) should drive relative outperformance from the stock.

Selections› Encana (ECA)› Enerplus (ERF)› Kelt (KEL)› TORC (TOG)

Oil & GasSector Analysis

Large Cap Oil & GasIntermediate Oil & Gas

Dan Payne Analyst 403-290-5441 —

Associates: Mitch Mastel: 403-441-0952 Andrew Nguyen: 403-290-5445

Travis Wood Analyst 403-290-5102 —

Associates: John Hunt: 403-441-0955

Brad Lenz: 403-441-0928 Alex Reid: 403-290-5627


Oil & GasSector Analysis

Share Share Market NAVStock Stock O/S Price Cap. Yield est. est. est. est. est. est. est. est.Sym. Rating ∆ Analyst (Mln) 10/22 (Mln) (%) 2017A 2018E 2019E 2018E 2019E 2017A 2018E 2019E 2018E 2019E 2017 Target Return ∆

Large Cap HARDCODEARC Resources Ltd. ARX SP Wood 353.5 $13.12 $4,637 5% 6.8x 6.2x 6.1x 0.8x 0.9x $2.07 $2.33 $2.39 5.6x 5.5x $15.06 $16.50 30%Baytex Energy BTE OP Payne 557.8 $2.91 $1,623 0% 5.4x 5.7x 2.8x 3.8x 1.6x $1.47 $1.49 $1.94 2.0x 1.5x $9.97 $7.25 149%Canadian Natural Resources CNQ OP Wood 1213.2 $37.46 $45,447 4% 8.5x 5.4x 4.5x 1.7x 1.0x $6.21 $8.96 $10.03 4.1x 3.7x $42.57 $64.00 74%Cenovus Energy CVE OP Wood 1228.8 $11.27 $13,848 2% 6.4x 7.9x 4.5x 3.4x 1.4x $2.69 $1.80 $3.21 6.3x 3.5x $15.06 $20.00 79%Crescent Point Energy Corp. CPG OP Wood 549.3 $6.70 $3,680 5% 4.1x 3.8x 2.9x 2.2x 1.5x $3.17 $3.39 $4.22 2.0x 1.6x $24.23 $16.00 144%Encana Corporation (US$) ECA OP Wood 940.9 $11.25 $10,585 1% 8.6x 6.0x 4.0x 1.9x 1.0x $1.38 $2.15 $3.18 5.1x 3.5x $19.48 $22.00 96% Enerplus Corporation ERF OP Wood 249.5 $13.83 $3,450 1% 7.5x 4.9x 3.6x 0.4x 0.1x $1.91 $2.97 $3.79 4.7x 3.6x $18.37 $23.00 67% Imperial Oil IMO SP Wood 795.4 $43.83 $34,863 2% 14.2x 11.0x 9.5x 1.1x 0.6x $3.27 $4.23 $4.80 10.2x 9.1x $35.51 $46.00 7% Peyto Exploration & Development Corp. PEY OP Wood 164.9 $11.68 $1,926 6% 5.3x 5.5x 6.1x 2.3x 2.4x $3.48 $3.12 $2.75 3.7x 4.2x $18.60 $13.00 17%PrairieSky Royalty PSK OP Wood 234.2 $22.00 $5,152 4% 17.8x 20.2x 17.2x -0.2x -0.5x $1.23 $1.08 $1.24 20.4x 17.7x $5.76 $31.00 44%Seven Generations VII OP Wood 374.1 $14.40 $5,387 0% 5.1x 3.9x 3.5x 1.1x 0.9x $3.32 $4.80 $5.04 3.0x 2.9x $30.15 $22.00 53%Tourmaline Oil TOU OP Payne 272.1 $19.80 $5,387 2% 5.7x 5.3x 4.7x 1.3x 1.1x $4.47 $4.66 $5.37 4.3x 3.7x $28.62 $32.50 66%Vermilion Energy Inc. VET OP Wood 152.8 $38.25 $5,845 7% 9.1x 7.6x 5.4x 1.8x 1.0x $4.93 $6.40 $8.23 6.5x 4.7x $47.46 $61.00 67% Suncor Energy SU OP Wood 1614.4 $46.45 $74,989 3% 10.1x 6.7x 5.7x 1.1x 0.5x $5.52 $7.10 $8.69 6.5x 5.3x $41.42 $67.00 47% Whitecap Resources WCP OP Wood 416.5 $6.86 $2,857 5% 7.7x 4.9x 4.1x 1.5x 1.1x $1.37 $1.87 $2.17 3.7x 3.2x $15.06 $16.00 138%

Mid CapAdvantage Oil & Gas AAV OP Payne 187.9 $3.26 $613 0% 4.4x 5.6x 4.0x 1.7x 1.2x $0.97 $0.74 $1.07 4.4x 3.1x $10.72 $6.00 84%Birchcliff Energy BIR OP Payne 265.8 $4.51 $1,199 2% 5.2x 5.2x 4.0x 1.8x 1.1x $1.19 $1.18 $1.47 3.8x 3.1x $16.09 $7.25 63%Freehold Royalties FRU OP Wood 118.4 $10.41 $1,232 6% 10.3x 8.5x 6.9x 0.2x -0.4x $1.05 $1.23 $1.44 8.5x 7.2x $9.99 $18.50 84% Kelt Exploration KEL OP Payne 185.9 $6.78 $1,260 0% 12.4x 7.3x 4.7x 1.3x 0.8x $0.61 $1.07 $1.63 6.4x 4.2x $28.62 $12.50 84%MEG Energy MEG SP Hunt 295.7 $10.81 $3,197 0% 8.5x 10.9x 5.8x 10.9x 3.9x $1.23 $1.04 $2.67 10.4x 4.1x $13.00 $12.00 11%NuVista Energy NVA OP Payne 227.9 $6.57 $1,498 0% 6.4x 6.2x 4.6x 1.6x 1.3x $1.15 $1.49 $1.82 4.4x 3.6x $28.62 $12.00 83%Obsidian Energy OBE SP Payne 516.0 $1.02 $526 0% 4.2x 7.4x 3.2x 4.3x 1.6x $0.38 $0.20 $0.48 5.0x 2.1x $2.59 $2.00 96%Paramount Resources Ltd. POU OP Payne 132.2 $11.70 $1,547 0% 9.6x 6.7x 4.3x 2.5x 1.9x $1.89 $2.39 $4.13 4.9x 2.8x $34.36 $21.50 84%Torc Oil & Gas TOG OP Payne 219.6 $5.89 $1,294 4% 6.7x 4.8x 3.5x 1.1x 0.5x $1.10 $1.61 $1.96 3.7x 3.0x $6.20 $11.50 100%Tamarack Valley Energy TVE OP Payne 228.8 $4.11 $940 0% 6.7x 4.3x 3.0x 0.6x 0.2x $0.70 $1.09 $1.42 3.8x 2.9x $4.00 $6.75 64%

Small CapBellatrix Exploration BXE SP Payne 65.8 $1.16 $76 0% 5.2x 6.0x 5.0x 8.3x 5.9x $1.18 $0.88 $1.04 1.3x 1.1x $2.74 $1.50 29%Bonavista Energy BNP SP Wood 258.1 $1.37 $354 3% 3.5x 3.7x 4.6x 2.9x 3.7x $1.15 $1.03 $0.83 1.3x 1.6x $3.43 $1.55 16% Bonterra Energy BNE OP Payne 33.3 $16.52 $550 7% 7.3x 5.4x 4.5x 2.1x 1.6x $3.08 $4.23 $4.86 3.9x 3.4x $25.67 $23.00 46%Cardinal Energy CJ OP Payne 117.7 $4.28 $504 10% 8.5x 6.6x 3.4x 2.5x 1.0x $0.87 $0.89 $1.67 4.8x 2.6x $8.00 $8.00 97%Chinook Energy Inc. CKE SP Payne 223.6 $0.24 $53 0% 11.1x 6.8x 9.0x -0.2x -1.1x $0.02 $0.03 $0.02 7.1x 9.9x $0.93 $0.25 6%Crew Energy CR OP Payne 159.6 $1.38 $220 0% 4.3x 5.0x 4.6x 3.8x 3.4x $0.72 $0.57 $0.64 2.4x 2.2x $11.07 $3.00 117% Gear Energy GXE OP Hunt 220.9 $0.99 $219 0% 5.0x 5.1x 2.5x 1.4x 0.4x $0.21 $0.27 $0.48 3.6x 2.1x $1.73 $2.00 102%Granite Oil GXO R Hunt R R R R R R R R R R R R R R R R RIron Bridge Resources IBR T Hunt 154.8 $0.84 $130 0% 49.8x 15.8x 8.5x 0.3x 0.4x $0.01 $0.05 $0.10 15.7x 8.2x $0.00 $0.85 1%Leucrotta Energy LXE OP Payne 203.8 $1.60 $326 0% 33.5x 17.8x 13.5x -0.2x 0.1x $0.05 $0.09 $0.12 17.7x 13.4x $1.37 $2.50 56%Painted Pony Energy Ltd. PONY SP Payne 161.0 $2.14 $345 0% 5.8x 4.5x 5.8x 3.0x 5.0x $0.75 $0.81 $0.51 2.6x 4.2x $22.85 $2.75 29%Pengrowth Energy PGF SP Hunt 557.0 $0.95 $529 0% 8.5x 10.9x 5.2x 10.7x 3.5x $0.13 $0.11 $0.32 8.5x 3.0x $0.00 $1.15 21% PetroShale PSH OP Hunt 191.8 $1.63 $313 0% 14.0x 6.6x 2.4x 2.3x 0.6x $0.31 $0.40 $0.91 4.1x 1.8x $0.00 $3.75 130% Petrus Resources PRQ OP Hunt 49.5 $0.95 $47 0% 3.8x 4.1x 3.5x 3.8x 3.1x $0.92 $0.74 $0.89 1.3x 1.1x $5.12 $1.40 47% Pinecliff Energy PNE SP Payne 307.1 $0.30 $91 0% 4.4x 12.6x 8.9x 6.4x 3.9x $0.09 $0.03 $0.04 10.5x 6.8x $0.01 $0.40 36%Storm Resources SRX SP Payne 121.6 $2.47 $300 0% 6.0x 4.3x 4.4x 1.1x 1.4x $0.53 $0.73 $0.75 0.0x 0.0x $6.25 $4.00 62%Surge Energy SGY R Payne R R R R R R R R R R R R R R R R RYangarra YGR OP Hunt 86.8 $4.05 $352 0% 7.9x 4.9x 2.6x 1.3x 0.5x $0.63 $1.05 $1.88 3.9x 2.2x $9.50 $8.50 110%

* Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

12-MthPrice

P/CFPSNet Debt/Cash Flow

CFPS - FDEV/DACF

Travis Wood Analyst 403-290-5102 —Associates:John Hunt: 403-441-0955 Brad Lenz: 403-441-0928 Alex Reid: 403-290-5627

Dan Payne Analyst 403-290-5441 —Associates:Mitch Mastel: 403-441-0952Andrew Nguyen: 403-290-5445


Pipelines, Utilities & Energy InfrastructureSector Analysis

Patrick Kenny, CFA Analyst 403-290-5451 —

Associates: Amber Brown: 403-290-5624 Dave Nielsen: 403-355-6643

After a modest +2.4% performance in 2017 (TSX: +6%; TSX Energy Index: -10%), thus far in 2018 the Pipelines, Utilities & Energy midstream sector is down 7% vs TSX Composite Index which is up 1.3%. Our NBF Economics and Strategy group is forecasting a 10-year GCAN rate of ~3.1% for 2019, up ~50 bps from current levels of ~2.5%. Meanwhile, as a partial offset, credit spreads have continued to tighten over the past year, currently hovering around ~180 bps, down ~5 bps relative to the same period last year and sitting ~50 bps below the historical average of ~230 bps. Of note, for every 50 bps increase to our long-term GCAN 10-year rate assumption of 3.0%, our valuations decline ~8% on average.

On the commodity price front, at ~US$69/bbl, WTI is up ~36% over 2017 levels, while our 2018e AECO gas price of ~$1.75/mcf calls for a ~27% drop year-over-year. Luckily, third-party midstream assets are primarily focused on processing liquids-rich gas production, while our 2018 NGL frac spread assumption of ~US$31/bbl moves up ~36% from our prior forecast, suggesting an upward bias to Street estimates for those companies with material NGL frac spread exposure – namely PPL, IPL and TWM. On the Alberta power front, our $57.50/MWh forecast for 2018-2020 remains intact (vs. ~$22/MWh in 2017), reaffirming our bullish stance on CPX.

Longer-term, the WCSB remains on pace to grow oil production to 4.8 mmbpd by 2022e (+0.6 mmbpd from 2017) – driven by oil sands projects recently commissioned (volume ramp-up) and under construction. We estimate operational pipeline utilization of ~110% for 2018e, suggesting ~500 mbpd of rail transportation

required to clear the market, pointing towards a wider heavy oil differential persisting over the next few years. The current WTI-WCS heavy oil differential of US$45/bbl suggests continued tailwinds for crude oil marketing / midstream businesses within GEI, PPL, KEY and ENB.

Meanwhile, with Congress passing the U.S. Government’s tax reform bill in late December 2017, the corporate tax rate has been officially reduced to 21% (from 35%). As such, this has a negative impact to near-term cash flows of U.S. rate-regulated utilities as it effectively reduces the revenue requirement for these businesses (without an equally offsetting reduction to cash taxes given prior tax shield). We calculate an approximate 10% impact to near-term U.S. utility EBITDA, largely affecting EMA, FTS, ALA, VNR, and H.

Although several near-term headwinds currently face the sector, including rising interest rates, FX fluctuations and weak AECO gas prices – we continue to see relatively steady AFFO per share growth (and dividend growth) through 2020. Overall, our Outperform-rated names for 2018 are Gibson (GEI), Inter Pipeline (IPL), Keyera (KEY), Pembina (PPL), Tidewater (TWM), Capital Power (CPX), and Enbridge (ENB).

Selections› Enbridge › Inter Pipeline › Pembina › Capital Power › Gibson › Keyera › Superior Plus › Tidewater

Units Unit Market NetStock Stock Risk O/S Price Cap. est. est. est. est. est. est. Debt/ Price CombinedSym. Rating Rating (Mln) 10/22 (Mln) 2017 2018e 2019e 2018e 2019e 2017 2018e 2019e 2018e 2019e 19e EBITDA Target Return Return

Pipeline & MidstreamAltaGas ALA SP AA 272.9 $21.24 $5,797 $2.12 $2.19 $2.19 10.3% 10.3% $1.91 $1.68 $2.60 12.3x 8.0x 6.6x 26.00 22.4% 32.7%Enbridge Inc. ENB OP AA 2022.1 $42.88 $86,707 $2.39 $2.68 $2.95 6.3% 6.9% $3.66 $4.36 $4.11 12.0x 11.3x 5.2x 57.00 32.9% 39.8%Enbridge Income Fund ENF T AA 784.6 $32.03 $25,130 $2.04 $2.24 $2.46 7.0% 7.7% $2.55 $3.27 $3.28 9.9x 10.0x 4.4x 32.50 1.5% 9.2%Gibson Energy GEI OP AA 146.6 $22.70 $3,328 $1.32 $1.32 $1.32 5.8% 5.8% $1.02 $1.78 $1.78 12.9x 12.9x 3.7x 23.00 1.3% 7.1%Inter Pipeline IPL OP AA 393.4 $22.49 $8,847 $1.63 $1.69 $1.75 7.5% 7.8% $2.57 $2.58 $2.55 10.3x 9.9x 4.7x 31.00 37.8% 45.6%Keyera KEY OP AA 210.3 $34.91 $7,342 $1.64 $1.74 $1.85 5.0% 5.3% $2.80 $3.12 $3.18 12.3x 11.8x 2.9x 45.00 28.9% 34.2%Kinder Morgan KML SP AA 115.5 $16.35 $1,888 $0.38 $0.65 $0.65 4.0% 4.0% $0.93 $0.90 $1.34 18.6x 12.5x 0.1x 17.00 4.0% 8.0%Pembina Pipelines PPL OP AA 504.0 $44.83 $22,594 $2.04 $2.24 $2.35 5.0% 5.2% $3.23 $4.37 $4.37 9.8x 10.4x 3.7x 56.00 24.9% 30.2%Superior Plus SPB OP AA 174.8 $12.32 $2,154 $0.72 $0.72 $0.72 5.8% 5.8% $1.22 $1.43 $1.57 8.6x 7.8x 3.2x 15.00 21.8% 27.6%Tidewater Midstream TWM OP AA 327.5 $1.32 $432 $0.04 $0.04 $0.04 3.0% 3.2% $0.14 $0.16 $0.22 8.5x 6.1x 2.9x 2.25 70.5% 73.6%TransCanada Corp. TRP SP A 911.6 $53.43 $48,709 $2.50 $2.76 $3.04 5.2% 5.7% $4.55 $4.21 $4.75 12.8x 11.3x 6.2x 65.00 21.7% 27.3%Valener Inc. VNR SP A 39.1 $19.10 $747 $1.12 $1.16 $1.21 6.1% 6.3% $1.44 $1.33 $1.38 17.1x 14.7x 2.0x 22.00 15.2% 21.5%Veresen Inc. VSN #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A 12.7x #N/A #N/A #N/A #N/APower Producers & UtilitiesATCO Ltd. ACO SP A 114.7 $36.85 $4,225 $1.31 $1.51 $1.62 4.1% 4.4% $4.61 $3.71 $4.04 11.1x 10.6x 4.5x 44.00 19.4% 23.8%Canadian Utilities CU SP A 273.0 $30.35 $8,286 $1.43 $1.57 $1.65 5.2% 5.4% $4.67 $3.65 $2.69 10.7x 9.4x 3.9x 36.00 18.6% 24.1%Capital Power CPX OP AA 103.5 $28.64 $2,963 $1.62 $1.73 $1.85 6.0% 6.5% $3.34 $3.88 $5.04 7.4x 5.7x 3.4x 33.00 15.2% 21.7%Emera Inc. EMA SP A 235.4 $39.23 $9,233 $2.13 $2.28 $2.37 5.8% 6.1% $2.26 $3.32 $3.59 14.2x 11.4x 6.1x 43.00 9.6% 15.7%Fortis Inc. FTS SP A 427.5 $42.61 $18,214 $1.63 $1.73 $1.83 4.0% 4.3% $3.60 $3.33 $3.78 13.1x 11.2x 6.7x 45.00 5.6% 9.9%Hydro One Ltd. H SP A 664.3 $19.44 $12,915 $0.87 $0.91 $0.97 4.7% 5.0% $1.55 $1.53 $1.60 12.8x 12.3x 6.5x 23.00 18.3% 23.3%TransAlta TA SP AA 287.3 $7.20 $2,069 $0.16 $0.16 $0.16 2.2% 2.2% $1.26 $1.08 $1.17 7.0x 6.4x 3.3x 9.00 25.0% 27.2%

Risk Ratings: BA = Below Average; A = Average; AA = Above Average; S = Speculative Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

12-MthDistributions per Share Distr. CF per Share - FDCash Yield P/Distr. CF


Real EstateSector Analysis

› Looking for names to buy in the recent sell-off:Some quality names are on sale; market not consistently rewarding/punishing stronger/weaker balance sheets. Given the sharp pullback over the last month, we believe this is likely a “buy the dip” opportunity in some of the cheaper, but higher quality names in the space (e.g., CRT, HR) where we think you can pocket attractive yields, with comparable FFO/u growth and lower leverage. We think these names offer a relatively simple way to earn higher total returns without having to get too speculative in your thinking. Finally, we note that while units are pricing in growth largely as expected (i.e., higher future growth attracts a higher multiple), we believe the market is not pricing in the leverage impact efficiently across the group, i.e., we would expect names with higher Debt/EBITDA ratios to generally garner lower levered P/FFO multiples: this is not the case today. This leaves us to conclude that equities might not be adequately reflecting risk associated with leverage as interest rates potentially rise.

› What we are thinking about . . .We think “buying the dip” still works after this sharp drawdown, but we will be honest, this is based more on recent trends than a steadfast fundamental view. The S&P/TSX Real Estate GICS (STRLST) pulled back approximately –6% over the last month, with the GOC10Y yield rising roughly +15 bps. The pullback was rough: during the 2013 “Taper Tantrum”, the STRLST declined –18% over a 4-month period, but the GOC10Y yield rose way more, over +90 bp. In essence, this pullback has been sharper on a lower rise in rates over a shorter period. We still think buying this particularly sharp dip probably works here because 1) the GOC10Y has struggled to stay above 2.5% despite having tried to get there a couple of times this year; and 2) since 2016, the GOC10Y and the STRLST have actually been positively correlated (though with some deviations when yields rise quickly i.e., the market shoots the real estate sector first when yields rise unexpectedly, then thinks about the potential stronger future growth implied by higher bond yields later).

Since our fundamental conviction is a little lower, we suggest protecting yourself by focusing on less risky stories that deliver consistent results: HR, CRT fit the mold. Our bias would still remain overall with more “value” focused names: those that are trading at higher implied cap rates and lower leverage. We think there are names that are relatively easy stories to understand, that provide manageable, steady growth with an attractive yield that do not require you to speculate much about the medium / long-term.

CRT is one of the few retail REITs not pursuing a development agenda (despite having sites that would have redevelopment potential). With long-term leases, “locked in” organic growth and a solid investment grade covenant from their primary tenant, we suspect that CRT’s FFO/u growth can continue to be at the top end of the pack, even with average or lower same-property NOI growth, because it is not having to fund lower cap rate development that grinds on bottom line growth.

H&R’s core business consists largely of longer-term leases with strong covenant tenancies. These provide a stable NOI stream augmented by its torque-ier but still modestly sized US multi-family and development businesses. Even the latter provide higher yields on investments than typically attainable for similar risk profiles in Canada.

Finally, diversified names still remain unloved by the market, but we believe FFO/u will turn: it is worth taking a look at CUF. The diversified group has not been spared much; HR, AX and CUF unit prices having struggled to take off of late. That being said, the stocks are now all poised to show improved FFO/u growth. CUF remains a top pick for us based on its total return (almost +50%), but unlike HR and CRT, it is difficult to call CUF “cheap and boring”. CUF is cheap, but there is work to be done. After our recent investor tour, we are incrementally positive on the REITs operating performance outlook (particularly in its retail portfolio where leasing of formerly vacant Target space was tangible and the quality of tenants has started to drive better mall-wide sales figures).

Tal Woolley Analyst 416-507-8009 —

Associate: Salman Chattha: 416-507-8102

Matt Kornack Analyst 416-507-8104 —

Associate: Hussam Maqbool: 416-507-8108


Real EstateSector Analysis

Unit FD FFO Net

REIT Stock Market Price (A) est. est. Current (A) est. est. P/FFO Asset Total

Sym. Rating Cap Analyst 10/22 2017 2018 2019 2017A 2018e 2019e Annualized 2017 2018 2019 2017A 2018E 2019E Value Target Return (1)

RetailRioCan REIT REI.un OP ↔ $7,805 Kornack $24.11 1.41 1.44 1.44 5.8% 6.0% 6.0% 6.0% 1.63 1.66 1.71 14.8x 14.5x 14.1x $27.00 28.00 22.1% ↔Choice Properties REIT CHP.un SP ↔ $8,007 Woolley $12.00 0.73 0.76 0.79 6.1% 6.4% 6.6% 6.2% 1.07 1.04 1.07 11.2x 11.5x 11.2x $12.90 13.00 14.7% ↔Crombie REIT CRR.un OP ↔ $1,955 Woolley $12.97 0.89 0.89 0.89 6.9% 6.9% 6.9% 6.9% 1.20 1.18 1.23 10.8x 11.0x 10.5x $15.85 15.00 22.5% ↔CT REIT CRT.un OP ↔ $2,667 Woolley $12.47 0.70 0.73 0.77 5.6% 5.8% 6.2% 5.8% 1.12 1.17 1.25 11.1x 10.7x 10.0x $14.40 14.50 22.1% ↔First Capital Realty FCR SP ↔ $4,904 Kornack $19.25 0.86 0.86 0.86 4.5% 4.5% 4.5% 4.5% 1.16 1.21 1.26 16.5x 15.9x 15.3x $20.95 21.00 13.6% ↔SmartCentres REIT SRU.un SP ↔ $4,799 Woolley $30.17 1.71 1.78 1.88 5.7% 5.9% 6.2% 6.0% 2.19 2.26 2.35 13.8x 13.3x 12.8x $32.00 32.00 11.9% ↔Automotive Properties REIT APR.un SP $320 Woolley $10.11 0.80 0.80 0.80 8.0% 8.0% 8.0% 8.0% 0.97 1.00 0.98 10.4x 10.1x 10.3x $11.00 11.00 18.7%Office & Diversified

Allied Properties REIT AP.un OP ↔ $4,411 Kornack $42.00 1.53 1.56 1.56 3.6% 3.7% 3.7% 3.7% 2.13 2.15 2.25 19.7x 19.5x 18.7x $41.50 47.00 15.6% ↔Artis REIT AX.un SP ↔ $1,755 Kornack $11.41 1.08 1.08 1.08 9.5% 9.5% 9.5% 9.5% 1.42 1.28 1.31 8.0x 8.9x 8.7x $13.75 13.00 23.4% BTB REIT BTB.un SP ↔ $262 Kornack $4.72 0.42 0.42 0.42 8.9% 8.9% 8.9% 8.9% 0.44 0.44 0.46 10.7x 10.7x 10.3x $4.70 4.75 9.5% ↔Cominar REIT CUF.un OP ↔ $2,043 Kornack $11.23 1.36 0.79 0.72 12.1% 7.0% 6.4% 6.4% 1.38 1.20 1.26 8.1x 9.3x 8.9x $15.75 16.00 49.5% ↔DREAM Office REIT D.un SP ↔ $1,539 Kornack $23.53 1.31 1.00 1.00 5.6% 4.2% 4.2% 4.2% 1.97 1.64 1.77 11.9x 14.3x 13.3x $23.40 24.00 6.2% ↔H&R REIT HR.un OP ↔ $5,891 Kornack $19.53 1.38 1.38 1.38 7.1% 7.1% 7.1% 7.1% 1.79 1.70 1.80 10.9x 11.5x 10.9x $24.90 25.00 35.1% ↔NorthWest H.P. REIT NWH.un SP ↔ $1,316 Woolley $10.94 0.80 0.80 0.80 7.3% 7.3% 7.3% 7.3% 0.87 0.80 0.85 12.6x 13.7x 12.9x $11.50 11.50 12.4% ↔Slate Office REIT SOT.un SP ↔ $585 Kornack $7.79 0.75 0.75 0.75 9.6% 9.6% 9.6% 9.6% 0.82 0.82 0.90 9.5x 9.5x 8.7x $8.45 8.00 12.3% ↔IndustrialDREAM Industrial REIT DIR.un OP ↔ $1,069 Kornack $9.80 0.70 0.70 0.70 7.1% 7.1% 7.1% 7.1% 0.91 0.86 0.90 10.8x 11.4x 10.9x $10.95 11.25 21.9% ↔Summit Industrial SMU.un SP ↔ $770 Kornack $9.05 0.50 0.51 0.62 5.6% 5.6% 6.8% 5.7% 0.57 0.56 0.61 16.0x 16.1x 14.8x $8.20 9.00 5.1% ↔WPT Industrial REIT WIR'U-T OP ↔ $562u Kornack $12.62u 0.76u 0.76u 0.76u 6.0% 6.0% 6.0% 6.0% 0.90u 0.91u 0.99u 14.0x 13.8x 12.7x $13.55u 15.00u 24.9% ↔HotelsAmerican Hotel Income Properties HOT.un OP ↔ $667 Woolley $8.55 0.65 0.65 0.65 9.9% 9.9% 9.9% 9.8% 0.84 0.88 0.96 10.2x 9.7x 8.9x $11.80 10.00 24.5% ↔Multi-ResBoardwalk REIT BEI.un SP ↔ $2,519 Kornack $49.55 2.25 1.00 1.00 4.5% 2.0% 2.0% 2.0% 2.11 2.33 2.64 23.5x 21.2x 18.7x $48.75 51.00 4.9% ↔CAP REIT CAR.un SP ↔ $6,742 Kornack $46.82 1.27 1.32 1.33 2.7% 2.8% 2.8% 2.8% 1.83 2.05 2.15 25.6x 22.9x 21.7x $40.70 45.00 -1.1% ↔InterRent REIT IIP.un SP ↔ $1,344 Kornack $12.21 0.25 0.27 0.27 2.0% 2.2% 2.2% 2.2% 0.42 0.44 0.48 28.7x 27.8x 25.6x $10.65 11.50 -3.6% ↔Pure Multi-family REIT RUFu.V OP ↔ $661u Kornack $6.49u 0.38u 0.38u 0.38u 5.8% 5.8% 5.8% 5.8% 0.33u 0.38u 0.40u 19.6x 17.2x 16.4x $7.25u 7.25u 17.5% ↔Killam Apartment REIT KMP.un OP ↔ $1,412 Kornack $15.90 0.62 0.64 0.64 3.9% 4.0% 4.0% 4.0% 0.90 0.93 0.99 17.7x 17.0x 16.1x $15.90 17.00 10.9% ↔InternationalDREAM Global REIT DRG.un OP ↔ $2,622 Kornack $13.69 0.80 0.80 0.80 5.8% 5.8% 5.8% 5.8% 0.94 1.03 1.11 14.5x 13.2x 12.3x $14.15 15.50 19.1% ↔Inovalis REIT INO.un SP ↔ $293 Kornack $10.20 0.83 0.83 0.83 8.1% 8.1% 8.1% 8.1% 0.80 0.83 0.83 12.8x 12.3x 12.2x $11.00 11.00 15.9% ↔Seniors Housing Invesque IVQu SP ↔ $409u Woolley $7.76u 0.74u 0.74u 0.74u 9.5% 9.5% 9.5% 9.5% 0.85u 0.98u 0.99u 9.1x 7.9x 7.8x $8.70u 8.75u 22.3% ↔Self Storage

StorageVault Canada SVI.V OP ↔ $956 Woolley $2.70 0.01 0.01 0.01 0.4% 0.4% 0.4% 0.4% 0.05 0.08 0.10 54.1x 33.0x 27.2x $2.40 3.25 20.7% ↔Asset Management

Tricon Capital Group TCN OP ↔ $1,417 Woolley $10.61 0.26 0.28 0.29 2.5% 2.6% 2.7% 2.7% 1.10u(2) 1.27u(2) 0.73u(2) 7.4x(3) 6.4x(3) 11.1x(3) $13.00 13.00 25.2% ↔

Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; RES=Restricted u = US Dollars(1) Total return = price return + 12 months rolling forward distribution return.(2) Figures represent Diluted EPS(3) Figures represent P/E ratio

12-Mth

Total

Cash YieldMatt Kornack, Tal Woolley Distributions per Unit

Tal Woolley Analyst 416-507-8009 —Associate: Salman Chattha: 416-507-8102

Matt Kornack Analyst 416-507-8104 —Associate: Hussam Maqbool: 416-507-8108

Selections› Allied Properties REIT - (AP.un: TSX; $47.00 target)

› American Hotel Income Properties REIT (HOT.un: TSX, $10.00 target)

› Cominar REIT - (CUF.un: TSX; $16.00 target)

› Crombie REIT - (CRR.un: TSX; $15.00 target)

› CT REIT - (CRT.un: TSX; $14.50 target)

› Dream Industrial REIT - (DIR.un: TSX; $11.25 target)

› Dream Global REIT - (DRG.un: TSX; $15.50 target)

› H&R REIT - (HR.un: TSX; $25.00 target)

› RioCan - (REI.un: TSX; $28.00 target)

› StorageVault Canada - (SVI: TSX.V; $3.25 target)

› WPT Industrial REIT - (WIR.u: TSX; $17.00 target)


Special SituationsSector Analysis

Leon Aghazarian, M .Sc . Analyst 514-879-2574 —

Associate: Zachary Evershed, cfa: 514-412-0021

As Q3 earnings slowly begins, we take this opportunity to highlight two names in our coverage universe: we increased our target and raised our rating to Outperform on MTY Food Group Inc . (MTY: TSX) following a Q3/18 beat, and we hosted management of CanWel Building Materials Group Ltd . (CWX: TSX) in Montreal and Toronto .

› MTY’s Q3/18 results: operating leverage leads to a significant beat:

MTY posted Q3 revenues of $91.2 million (NBF: $90.8 mln). EBITDA of $39.6 million handily beat our estimates (NBF: $34.5 mln; Street: $34.9 mln) on the back of higher margins (43.4% vs. NBF 38.0%) stemming from higher quality revenues (higher royalties stream), continued cost control and a better than forecasted margin contribution from IRG. EPS was $0.88 (NBF: $0.64). Overall SSSG was 0.1% while Canada was +1.2% with strength across most Provinces whereas SSSG was down 0.3% in the U.S.

With SSSG expected to remain flat, but given solid FCF (+$100 million 2019e), strong balance sheet with leverage at 1.9x and available credit of up to $500 million, we see M&A as the main catalyst. Management has indicated a healthy number of targets as it remains confident that consolidation will occur in the foodservice industry. Our $70 target (was $62) is based on 13x (was 12x) 2019e EBITDA, and we raised MTY to Outperform on the back of a significant beat, continued earnings momentum and sizeable M&A looking increasing likely.

› CWX lumber reversal impact priced in, dividend yield now 11 .0%:

The main question investors had for management was how the precipitous decline in lumber prices from May's average price of US$605/thousand board feet to the current ~US$320 would affect CanWel's profitability. While there is no doubt that margins will be impacted in Q3/18 as CanWel unloads high priced inventory (it generally holds three to four weeks of inventory), we believe that prices will stabilize higher than their current level as:

1) Housing starts in the United States exhibit recovering strength with 1.28 million starts in August (up 9.4% y/y), while Canadian starts remain essentially flat, and;

2) We believe buying activity in the lumber space took a pause over the past months as prices were in freefall and that lumber is now underbought; when the consensus perception is that the market has bottomed, we expect a snapback as pent-up demand is unleashed.

With the stock at $5.10, CanWel's $0.56 dividend represents an attractive 11.0% yield, though a valid concern among investors is the high payout ratio. Management reiterated, however, that they are on track to hit their target of 80-90% in FY2018, and we calculate a payout ratio in 2018e of 85.5%, comfortably in the mid-range of management's guidance. With the payout ratio at its lowest in six years and a steady dividend payment track record of 23 straight quarters, we view the dividend yield of 11% as safe. Our $7.50 target is based on 9x 2019e EBITDA.

Selections› MTY› Park Lawn› Stella-Jones› Premium Brands› CanWel

Market Shares Stock Last 12-MthStock Stock Cap O/S Price Year (A) est. est. P/E (A) est. est. Div. Net Debt/ Price

Symbol Rating ∆ (Mln) (Mln) 10/22 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 yield FY2 EBITDA Target ∆

Boyd Group Income Fund BYD_u OP 2,416.6 19.7 122.86 12/2017 3.15 3.40 5.00 36.1 24.6 145.6 176.1 207.2 14.9 12.4 0.4% 0.8 130.00CanWel Building Materials CWX OP 396.2 77.7 5.10 12/2017 0.46 0.45 0.53 11.4 9.6 63.2 76.2 83.8 9.8 8.9 11.0% 2.5 7.50Cascades CAS OP 1,012.6 94.6 10.70 12/2017 0.72 1.04 1.48 10.3 7.2 393.0 504.7 589.2 5.4 4.6 1.5% 2.7 16.00

Domtar Corporation UFS SP 2,851.3 62.9 45.33 12/2017 2.60 3.91 4.81 11.6 9.4 569.0 677.3 739.8 5.5 5.0 3.8% 1.2 48.00Dorel Industries DIIb SP 707.8 32.4 21.82 12/2017 1.39 1.35 2.16 16.1 10.1 172.8 156.0 173.9 6.7 5.8 7.1% 2.9 26.50GDI Integrated Facility Services GDI OP 386.5 21.2 18.20 12/2017 0.57 0.79 1.20 23.1 15.2 50.2 56.6 63.4 8.6 7.4 0.0% 1.8 21.50Goodfood Market Corp FOOD OP 150.6 48.9 3.08 08/2017 (0.08) (0.17) 0.14 NA 22.3 (3.6) (7.9) 11.2 NA 11.5 0.0% -1.9 3.75

Hardwoods Distribution HDI OP 284.0 21.4 13.26 12/2017 1.39 1.62 1.88 8.2 7.1 56.2 57.0 63.6 7.3 6.5 2.4% 1.2 23.00IPL Plastics IPLP OP 670.8 54.1 12.41 12/2017 0.69 0.55 0.56 17.2 17.1 80.1 85.3 93.6 7.9 6.9 0.0% 1.8 16.00KP Tissue KPT SP 72.8 9.3 7.83 12/2017 0.29 0.05 0.35 152.3 22.4 144.2 110.1 131.2 8.2 6.9 9.2% 3.6 7.00

Lassonde Industries LASa SP 1,654.4 7.0 236.75 12/2017 11.41 12.39 14.27 19.1 16.6 177.9 180.1 204.3 10.2 9.0 1.0% 2.0 260.00MTY Food Group MTY OP 1,724.5 25.2 68.54 11/2017 2.33 2.56 3.04 26.8 22.5 93.7 126.2 142.4 15.9 14.1 0.9% 1.7 70.00

New Look Vision Group BCI OP 499.1 15.5 32.25 12/2017 1.29 1.17 1.26 27.5 25.7 42.1 55.8 58.0 11.6 10.9 1.9% 2.8 38.00Park Lawn Corporation PLC OP 555.9 23.2 23.98 12/2017 0.64 0.77 1.22 31.2 19.6 16.6 35.4 55.5 17.3 10.8 1.9% 1.0 32.00Premium Brands Holdings PBH OP 3,041.5 32.9 92.50 12/2017 2.93 3.89 5.47 23.8 16.9 190.2 284.8 352.7 14.0 11.3 2.1% 2.4 130.00Recipe Unlimited Corporation CARA OP 1,779.3 64.8 27.45 12/2017 1.88 1.80 1.85 15.3 14.8 191.0 226.5 244.3 10.0 9.3 1.6% 2.1 36.00Richelieu Hardware RCH OP 1,541.7 58.3 26.43 11/2017 1.15 1.22 1.39 21.7 19.0 103.0 109.6 119.5 14.0 12.8 0.9% -0.1 35.00Savaria Corporation SIS SP 807.7 45.7 17.66 12/2017 0.48 0.59 0.84 29.7 21.0 31.4 44.5 61.8 19.7 13.9 2.4% -0.2 21.00Stella-Jones SJ OP 2,965.5 69.3 42.77 12/2017 2.42 2.19 2.81 19.6 15.2 240.6 257.7 310.0 13.8 11.4 1.1% 1.2 55.00Uni-Sélect UNS OP 902.0 42.2 21.36 12/2017 1.25 1.23 1.49 17.4 14.3 117.5 122.9 138.1 8.8 7.3 1.7% 3.3 26.50

Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=RestrictedNote: Dorel data is in USD except stock prices and target prices. KP Tissue: Financial data reflects Kruger Products L.P. (in which KP Tissue has a 16% interest).

EV/EBITDAEBITDA (mln)FDEPS


Sustainability & Clean TechSector Analysis

The IPP sector has been soft lately with concerns for rising rates, political risk and low production . However, we believe that these headwinds are not representative of the long-term cash flows and investors should be able to find value within our coverage universe . Over the coming twelve months the IPP sector should exhibit outperformance as players fulfil their contracts and find avenues for growth outside of Ontario .

Recent Highlights:

› Boralex Inc . (BLX: TSX; Outperform; $23.50 target):

BLX is a renewable power producer that specializes in wind farms with market exposure to France, Canada and the United States. In recent times, BLX has sold off; however, our belief is that this sell-off represents a short-term mentality that does not take into account long-term trends for wind generation in France and established precedents for contract strength in Ontario. Additionally, BLX’s installed capacity should increase beyond its construction pipeline of 2,064 MW by end of 2020E, with continued progress on its organic growth pipeline in Canada and Europe. We believe it should continue to outperform the peer group with the addition of new and high return development projects. Q3 reporting should add increased visibility on BLX’s growth potential.

› Innergex Renewable Energy Inc . (INE: TSX; Outperform; $17.50 target):

Innergex Renewable Energy Inc is a Canadian renewable power producer that’s develops, operates and owns renewable hydroelectric, wind power and solar photovoltaic (PV) projects across Canada, the United States, France and Iceland. INE recently announced its plan to acquire a 260 MWDC PV solar project located in Brown County, Ohio from joint developers, Open Road Renewables, LLC and MAP Renewable Energy LLC, which should prove to be accretive. INE also closed the acquisition of a 50% stake in Energia Llaima (Chile) on July 3rd and acquired the 140 MW Duqueco project (Chile) on July 5th. The acquisitions add some moving parts to Q3 and could produce about $5 mln of EBITDA (NBF est). This could be offset by weakness in French wind and dry conditions in B.C. (>$9 mln revenue headwind). However, INE has demonstrated its LTA estimates over time and while it is still early, Q3 seems to be off to a good start. We believe that INE can show growth in the coming years and is currently trading at a significant discount to most peers.

› Pinnacle Renewable Holdings Inc . (PL; TSX; Outperform; $20.00 target):

PL is a manufacturer and distributor of industrial wood pellets, which are used by utilities and large-scale power generators as fuel to produce renewable baseload power. PL operates seven wood pellet production facilities that primarily process forest product residuals sourced from sustainably certified forests. The firm recently acquired a 70% stake in a 270 ktpa wood pellet facility in Alabama that we believe was priced at an attractive multiple of 5.5x EV/EBITDA. The acquisition, with PLs operational expertise, strong demand from Asia, and an order backlog of around $5.1 billion add credence to PL’s goal of growing production at ~20%/yr with high-return investments.

Selections› Boralex › Innergex › Pinnacle

Rupert Merer, P . Eng, CFA Analyst 416-869-8008

— Associates: Hassaan Khan: 416-869-7538 Adnan Waheed: 416-869-6763

Market Shares Stock LastStock Stock Cap O/S Price Year (A) est. est. (A) est. est. P/S Book Debt/ PriceSym. Rating (Mln) (Mln) 10/22 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Energy TechnologyAdvantage Lithium AAL OP 82.4 135 0.61 12/2017 (0.17) (0.04) (0.03) nmf nmf 0.00 0.00 0.00 na na 0.40 0.00 1.70Algonquin Power AQN SP 4811.7u 475 10.12u 12/2017 0.58u 0.70u 0.62u 18.2 20.4 3.95u 3.56u 3.56u 3.6 3.6 5.82u 0.49 10.50u Atlantic Power AT-US SP 256.3u 117 2.20u 12/2017 (0.34)u (0.09)u (0.07)u nmf nmf 3.74u 2.46u 2.98u 1.1 0.9 1.69u 1.02 2.40uBoralex BLX OP 1562.8 88 17.75 12/2017 0.31 (0.15) 0.44 nmf 50.3 5.40 6.21 6.67 3.6 3.3 9.85 0.73 23.50 Brookfield Infrastructure BIP-UN OP 15739.4u 399 39.40u 12/2017 0.13u 1.29u 0.71u 38.1 69.2 5.35u 6.53u 8.13u 7.5 6.1 34.15u 0.42 45.50uBrookfield Renewable Energy BEP-US SP 9130.3u 313 29.21u 12/2017 0.00u 0.00u 0.00u na na 5.49u 6.18u 6.64u 5.9 5.5 47.13u 0.00 31.50u Cobalt 27 Capital KBLT OP 433.8 83 5.21 04/2017 0.00 0.86 (0.00) 7.5 nmf nmf nmf nmf nmf nmf 7.99 0.00 15.00DIRTT Environmental Solutions DRT OP 517.3 84 6.14 12/2017 (0.05) 0.20 0.35 38.3 21.7 3.48 3.96 4.56 1.9 1.7 2.11 0.08 7.50Etrion Corp ETX SP 90.2u 334 0.27u 12/2017 (0.06)u (0.02)u 0.04u nmf 8.1 0.07u 0.05u 0.11u 6.6 3.1 (0.03)u 0.93 0.35NanoXplore GRA OP 129.7 93 1.39 12/2017 (-0.06) (-.01) 0.05 nmf 34.8 0.10 0.50 0.80 3.5 2.2 0.15 0.17 2.65Innergex INE OP 1605.7 133 12.05 12/2017 0.22 (0.09) 0.07 nmf nmf 3.66 4.30 5.03 3.5 3.0 4.48 0.85 17.50 Lithium Americas LAC OP 470.3 91 5.18 12/2017 (0.10) (0.11) (0.30) nmf nmf 0.00 0.05 0.04 nmf nmf 3.60 0.00 11.00Mason Graphite LLG OP 108.8 129 0.84 06/2017 (0.06) (0.03) (0.06) nmf nmf 0.00 0.00 0.01 na nmf 0.30 0.20 2.75Nemaska Lithium NMX OP 639.1 852 0.75 06/2017 (0.00) (0.03) (0.03) nmf nmf 0.00 0.00 0.00 na na 0.35 0.00 1.70Northland Power NPI OP 3708.8 177 20.93 12/2017 0.92 1.49 1.39 17.6 18.8 7.77 8.95 9.19 2.9 2.8 4.42 0.83 25.00 Pattern Energy PEGI OP 1853.5u 98 18.94u 12/2017 (0.20)u 1.53u 0.13u 15.5 nmf 4.61u 5.27u 5.73u 4.5 4.1 36.42u 0.54 24.00uPinnacle Renewable PL OP 513.3 33 15.60 12/2017 (0.96) (0.10) 0.99 nmf 19.7 42.54 10.40 13.76 1.9 1.4 5.72 0.51 20.00Sigma Lithium SGMA OP 144.0 67 2.15 12/2017 (0.02) (0.04) 0.04 nmf 66.7 0.00 0.00 0.21 na 13.0 0.21 0.00 4.50SRG Graphite SRG OP 76.3 71 1.07 12/2017 0.00 (0.04) (0.04) nmf nmf 0.00 0.00 0.00 na na 0.09 0.00 2.35TransAlta Renewables RNW SP 2721.5 250 10.88 12/2017 (0.01) 0.03 1.12 nmf 12.1 1.04 1.84 1.83 7.4 7.4 8.36 0.29 12.00 5N Plus VNP OP 253.8 85 3.00 12/2017 0.13u 0.19u 0.25u 20.0 14.9 2.62u 2.79u 3.04u 1.3 1.2 1.13u 0.23 4.25

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US dollar1 FD EPS are pro-forma numbers from continuing operations and exludes goodwill amortization, restructuring and one-time charges.

12-MthFDEPSP/E

Sales per share


TechnologySector Analysis

Richard Tse Analyst 416-869-6690 —

Associates: Andrew McGee: 416-869-8049 John Shao: 416-869-7938

While Technology has outperformed YTD (TSX Info Tech Index up ~11% YTD vs. ~-7% for the TSX), we’ve no doubt entered a precarious time this Fall with the TSX Info Tech subsector pulling back 11% since September 26, 2018. Investors following Vision will know we’ve been calling for caution for the group, particularly the high growth / value names, where we’ve been recommending investors wait for opportunistic pullbacks to add positions with a long-term view in mind. On that note, we’ve also been recommending investors take a barbell approach and with an eye on defensive recurring cash flow legacy names like CGI and OpenText where we see relative value. That’s not to say we don’t like high growth names like Kinaxis and Shopify. We just think the risk profile of those names has increased and investors will need a longer-term view to capture their full potential value. Overall, our recommendations are largely unchanged with Outperform ratings on Altus, CGI, Kinaxis, Maxar, Open Text, Shopify and Solium .

› CGI Group:CGI has positioned itself well over the past 18-24 months to harvest recent investments to drive organic growth. In addition, CGI has de-levered considerably – providing ample capital to pursue the M&A component of its growth strategy where we see the potential for transformational deals. We continue to see growth momentum (organic and potentially acquisitions) with margin expansion care of a higher mix of IP/digital revenue. If that weren’t enough, we believe CGI’s high-recurring revenue base provides some defensive attributes within our coverage universe.

› Kinaxis:Kinaxis remains one of the most compelling names in our coverage group despite the lofty short-term valuation. We like the name for investors who have a multi-year time horizon. We believe momentum in Asia and Europe is continuing with outsized strength in verticals like Pharma and Auto. If that wasn’t enough, we see the Company’s partner channels scaling with increasingly more resources dedicated to the Kinaxis. We believe the runway for Kinaxis continues to be long with the Company in the very early days of growth.

› OpenText:OpenText’s growth engine has not changed over the many years we’ve covered this name. We continue to believe EMC’s ECD division has a lower relative risk profile beyond the integration period and potential synergies from other acquisitions are still not priced into the stock. Add to that, scaling free cash flow means and an enhanced credit facility provides ample capacity for more M&A. More importantly, we see a foundation building for organic growth which has been elusive for OpenText. In our view, that represents an inexpensive option on the name.

› Shopify:Shopify remains a leading technology platform for e-Commerce. Our view is the fundamentals remain unchanged. Overall, we see a considerable runway of growth that’s underscored by a push internationally and a potential scaling in enterprise. We see: outsized relative growth for Shopify over the next three to five years; 2) we believe Shopify is the technology (platform) leader in enabling e-Commerce vendors; 3) we’re still early in the e-Commerce growth cycle; and, 4) we believe Shopify could be a potential takeout candidate.

Selections› CGI› Kinaxis› OpenText › Shopify

Market Shares Stock Last FDEPS Debt/ 12-MthStock Stock Cap O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total PriceSym. Rating (Mln) (Mln) 10/22 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Absolute Software Corp. ABT SP 322 40.0 8.05 2018 0.08u 0.10u 0.11u NMF NMF 9.2u 13.3u 14.4u 15.9 14.7 (1.41u) 0% 7.50Altus Group Limited AIF OP 1,127 39.0 28.88 2017 1.13 1.53 1.92 18.8 15.1 82.2 87.9 107.2 14.4 11.8 9.53 58% 43.00CGI Group Inc. GIB.A OP 22,747 287.5 79.11 2017 3.65 4.18 4.60 18.9 17.2 1963.8 2096.0 2208.8 11.7 11.1 23.40 21% 100.00Constellation Software Inc. CSU SP 18,938 21.2 893.66 2017 21.85 26.45 30.46 25.8 22.4 643.8 750.2 871.3 19.2 16.6 28.51 44% 1000.00EXFO Inc. EXFO SP 163u 54.8 2.97u 2018 0.04u 0.20u 0.29u 14.6 10.4 17.2u 23.9u 30.4u 7.0 5.5 3.25u 10% 3.75u Kinaxis Inc. KXS OP 2,316 25.7 90.05 2017 1.14u 1.02u 1.41u NMF NMF 40.1u 43.0u 54.5u 43.1 34.1 6.36u 0% 100.00Maxar Technologies Ltd. MAXR OP 1,781u 57.2 31.14u 2017 4.16u 4.88u 5.05u 6.4 6.2 378.7u 737.5u 817.6u 6.5 5.8 37.13u 59% 60.00uMediagrif Interactive Inc. MDF SP 163 14.8 10.96 2018 0.57 0.64 0.77 17.2 14.3 23.2 21.4 24.1 8.3 7.4 8.97 17% 12.00Open Text Corporation OTEX OP 9,176u 268.6 34.16u 2018 2.56u 2.80u 3.16u 12.2 10.8 991.5u 1,107.6u 1,220.4u 10.0 9.1 13.83u 41% 50.00uReal Matters Inc. REAL SP 384 91.7 4.19 2017 0.03u 0.05u 0.04u NMF NMF 9.4u 3.4u 12.0u NMF 18.9 2.01u 0% 6.00Shopify Inc. SHOP OP 13,529u 106.0 127.66u 2017 0.16u 0.20u 0.82u NMF NMF 23.4u 24.6u 94.3u NMF NMF 15.63u 0% 180.00uSierra Wireless Inc. SWIR SP 658u 35.9 18.31u 2017 1.05u 0.97u 1.32u 18.9 13.9 53.4u 54.9u 71.1u 10.6 8.2 12.46u 0% 20.00uSolium Capital Inc. SUM OP 587 56.0 10.48 2017 0.09u 0.06u 0.22u NMF 36.3 12.2u 11.1u 23.3u 32.2 15.4 2.70u 0% 14.00Baylin Technologies Inc. BYL OP 156 39.9 3.92 2017 (0.06) 0.09 0.26 44.1 15.0 5.0 14.6 24.6 12.8 7.6 1.41 29% 6.00 Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US dollar* Covered by Andrew McGee

EBITDA (Mln)


Telecom & MediaSector Analysis

Adam Shine, cfa Analyst 514-879-2302 —

Associates: Ahmed Abdullah: 514-879-2564 Luc Troiani, CFA: 416-869-6585

Cineplex Inc .

› Lighter than expected H1 giving way to much strong H2:

When we initially upgraded CGX early in 2018, we thought the stock had over 20% potential capital appreciation this year to complement its monthly-paid dividend which increases annually and sits around 5%. Admittedly, we thought the shares could get above $35 heading into the summer. It took a little longer than anticipated, but better than expected North American box office trends in H2 are helping to steadily raise our estimates and target which still have potential upside. The Q1 box office faced a difficult comp and was down 6% in Canada. An easier comp in Q2 paved the way for growth of 10% which was lower than expected as the latter half of the period underperformed and conspired to return the stock below $30. Expectations at the start of the year suggested that the Q3 box office might hover around flat with Q4 coming in negative by mid- to high-single digits. Results are proving much better than anticipated, with Q3 box office receipts in Canada up 7% by our calculations and Q4 expectations turning increasingly optimistic that growth may actually materialize. Box Office Pro recently reported that North American receipts in October are up almost 55% in its first three weeks on the strength of better performances from Venom, A Star Is Born, and Halloween, with year-to-date growth at 10.6%. We

currently forecast CGX’s Q4 box office revenues to be down 1%, with Box Office Pro offering a range of estimates from -2.7% to +2.4%. The latter could be exceeded, but if it’s just matched (i.e., +2.4% vs. our -1.0% presently), then this would add $1 to our current $36 target which is based on the average of our 2019E/2020E NAV metrics (implied EV/EBITDA 10.7x 2018E, 10.1x 2019E & 9.4x 2020E). Over coming months, we’ll have occasion to push out our valuation to our 2020E NAV which now points to $37.50. As we look for CGX to continue outperforming in 2018 amidst choppy markets, we acknowledge heading into next year that the 2019 box office skews disproportionately to Q4 while facing record monthly results this year in February, April, June, and likely October (2017 holds record monthly results for March, September, and December). Meanwhile, despite diversification efforts, including media, gaming, and The Rec Room, Playdium & Topgolf, the stock continues to be mostly driven by box office dynamics.

Selections› Transcontinental› Spin Master› Quebecor› BCE

Market Shares Stock Last FDEPS EBITDA ($mln) ND/ 12-MthStock Stock Cap. O/S Price Year (A) est. est. P/E (A) est. est. Book Total PriceSym. Rating (Mln) (Mln) 10/22 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Broadcasting & Entertainment Cineplex Inc. CGX OP 2,227 63.3 35.17 12/2017 1.07 1.47 1.59 23.9 22.1 235.9 268.5 286.0 10.5 9.9 11.05 0.45 36.00

Corus Entertainment Inc. CJR.b SP 1,045 212.0 4.93 08/2018 1.14 1.05 0.96 4.7 5.1 575.6 538.2 507.8 5.4 5.4 7.18 0.55 5.50

DHX Media DHX SP 270 134.3 2.01 06/2018 (0.08) (0.01) (0.01) NM NM 97.5 81.9 86.1 9.1 8.1 2.35 0.70 1.50Spin Master TOY OP 5,059 101.7 49.75 12/2017 1.70 1.88 2.08 20.3 18.3 292.2 325.3 356.9 11.4 9.9 5.25 0.00 65.00Stingray Digital RAY.a OP 620 74.1 8.36 03/2018 0.50 0.76 0.79 11.1 10.5 41.5 109.3 112.5 8.9 8.3 4.08 0.57 11.00TVA Group Inc. TVA.b SP 83 43.2 1.91 12/2017 0.50 0.18 0.31 10.5 6.3 66.4 47.5 56.5 3.2 2.8 5.73 0.17 3.00Printing & PublishingThomson Reuters TRI OP 43,706 710.1 61.55 12/2017 0.90 0.63 1.40 18.7 74.5 1585.0 1276.5 1376.2 18.1 17.6 16.40 0.38 67.00

Transcontinental Inc. TCL.a OP 1,859 87.8 21.16 10/2017 2.76 2.70 2.73 7.8 7.8 396.7 441.0 522.3 6.1 5.6 18.24 0.48 30.00Advertising & MarketingAimia Inc. AIM SP 608 152.3 3.99 12/2017 0.40 0.95 0.94 4.2 4.2 287.6 218.4 233.0 4.9 4.1 NM -1.07 4.25Yellow Pages Y SP 223 28.1 7.94 12/2017 0.29 1.72 2.37 4.6 3.3 183.1 198.6 178.9 2.2 1.9 NM 0.59 12.00TelecommunicationsBCE Inc. BCE OP 47,639 898.0 53.05 12/2017 3.42 3.50 3.63 15.2 14.6 9282.0 9568.3 9854.0 7.9 7.6 18.26 0.42 60.00Cogeco Communications Inc. CCA OP 3,404 49.6 68.69 08/2017 6.08 5.85 6.72 11.7 10.2 1005.0 1095.0 1182.5 5.8 5.5 45.23 0.63 79.00Quebecor Inc. QBR.b OP 6,246 233.5 26.75 12/2017 1.26 1.73 1.78 15.4 15.0 1628.2 1704.7 1795.2 7.2 7.0 -1.80 1.05 31.00Rogers Communications Inc. RCI.b SP 34,842 514.8 67.68 12/2017 3.52 4.28 4.52 15.8 15.0 5502.0 5971.7 6240.9 8.4 7.9 15.12 0.50 71.00

Shaw Communications SJR.b SP 12,781 504.0 25.36 08/2017 1.11 1.14 1.33 22.3 19.1 1892.0 2071.7 2190.6 8.3 7.9 11.59 0.41 27.00Telus Corp. T OP 27,073 595.0 45.50 12/2017 2.63 2.67 2.82 17.1 16.1 4910.0 5073.4 5289.4 7.9 7.5 16.39 0.59 51.00

Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted TRI & TOY estimates are in US$, rest is CAD$. RAY FY1 estimates & multiples are PF.

EV/EBITDA


Transportation & Industrial ProductsSector Analysis

We maintain our Outperform rating on TFI International (TFII: TSX) and increased our target to $50 .00 from $49 .00 following Q3 results that were ahead of forecast . Our positive view is supported by the following:

› End market indicators point to ongoing positive market trends:

Notwithstanding some investor concerns that the trucking industry is at a cyclical peak, the end market indicators for trucking we track in both Canada and the U.S. point to ongoing positive market trends. We believe that a shortage of drivers as well as the recently introduced ELD mandate in the U.S. (coming to Canada in 2020) should be supportive of trucking pricing for a sustained period.

› U .S . ATA freight tonnage index up y/y: According to the American Trucking Associations, the seasonally adjusted for-hire truck tonnage index was down 1.8% in August on a sequential basis. On a y/y basis the truck tonnage index increased by 4.5%. Overall indicators were favourable for the month and the ATA expects continued growth of volumes.

› CASS freight index also up significantly; truck pricing up strongly :

The CASS Freight Expenditures index, a measure of North American freight expenditures, increased 16.7% y/y in August. At current levels, the index is near the record highs of June 2014. August’s increase signals that capacity is tight, demand is strong, and

shippers are willing to pay up for services to get goods picked up and delivered in modes throughout the transportation industry. CASS is also seeing some indications of trucking company pricing power with the Truckload Linehaul Price Index up 11.1% in August, which is the strongest percentage increase in the history of this index (since 2005) and the Intermodal Index continued its upward trend, rising 11.4% in August.

› U .S . trucking rates still positive: According to DAT, dry van spot rates in the U.S. were up 9.1% y/y in September with flatbed rates up 13% and reefer rates up 12%. DAT also reports that contract rates for dry vans were up 18.9% y/y in September. Strong economic conditions and tight truck capacity combined with the recently introduced ELD mandate are expected to continue to boost spot rates in 2018.

› Canadian truck and P&C pricing up y/y: The Statistics Canada For-hire Motor Carrier Freight Services Price Index increased 10.1% in Q2/18 over Q2/17 and increased 3.2% over Q1/18. In Q2/18, General freight trucking increased 11.0% y/y and increased 3.5% q/q. The Couriers and Messengers Services Price Index remained flat in August 2018 versus the prior month and increased 6.4% on a y/y basis.

› Relative valuation remains attractive: TFII trades at a discount to its weighted average peer group on a P/E basis.

Selections› Bombardier › CP Rail › Exchange Income

Shares Stock Market Last Cash EPS FDFCFPS 12-MthStock Stock O/S Price Cap Year (A) est. est. P/E (A) est. est. P/CFPS PriceSym. Rating (Mln) 10-22 (Mln) Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Target

Air Canada* AC OP 273 24.17 6,598 12/2017 4.11 1.88 2.67 12.9x 9.0x 3.89 1.55 1.92 15.6x 12.6x nmf 29.00 Bombardier Inc. BBD.b OP 2553 3.73 9,522 12/2017 u0.03 u0.06 u0.08 nmf nmf -u0.39 -u0.08 u0.21 nmf 17.9x 255% 6.00BRP Inc. DOO OP 100 54.33 5,430 01/2018 2.27 3.06 3.63 17.8x 15.0x 2.67 2.29 3.96 23.8x 13.7x 166% 71.00CAE Inc. CAE OP 269 24.58 6,619 03/2018 1.11 1.21 1.36 20.3x 18.0x 0.95 0.87 1.38 28.3x 17.8x 26% 29.00Canadian National Rail CNR SP 739 111.52 82,424 12/2017 4.99 5.47 6.22 20.4x 17.9x 7.28 7.73 8.78 14.4x 12.7x 40% 118.00Canadian Pacific Rail CP OP 143 265.16 37,971 12/2017 11.39 13.91 15.97 19.1x 16.6x 14.91 18.14 21.51 14.6x 12.3x 56% 303.00 Cargojet Inc. CJT SP 14 83.05 1,122 12/2017 1.93 2.22 3.64 37.5x 22.8x 5.80 7.98 10.23 10.4x 8.1x 73% 73.00Chorus Aviation Inc.* CHR OP 139 6.85 950 12/2017 0.93 0.92 1.27 7.4x 5.4x (2.37) (1.00) (0.10) nmf nmf 82% 10.00Exchange Income Corporation EIF OP 32 30.55 991 12/2017 2.47 2.80 3.44 10.9x 8.9x 91.95 125.91 161.87 nmf nmf 58% 44.00Héroux-Devtek Inc. HRX OP 36 12.88 469 03/2018 0.67 0.59 0.81 21.7x 15.8x 1.17 1.45 1.76 8.9x 7.3x 8% 18.00NFI Group Inc. NFI OP 62 44.30 2,751 12/2017 u3.03 u2.86 u3.10 11.8x 10.9x u1.90 u1.94 u3.27 17.5x 10.3x 44% 59.00 Transat A.T. Inc. TRZ SP 37 6.71 251 10/2017 0.77 -0.71 -0.76 nmf nmf 2.49 0.84 (0.29) 7.9x nmf - 9.50TFI International Inc. TFII OP 91 44.11 4,003 12/2017 2.08 3.44 3.90 12.8x 11.3x 0.66 2.97 4.46 14.8x 9.9x 51% 50.00 WestJet Airlines* WJA UP 114 19.32 2,203 12/2017 2.42 0.74 1.64 26.1x 11.8x 0.65 (0.25) (1.40) nmf nmf 44% 17.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted*based on EBITDAR (includes leases)

Net Debt / Cap

u = US dollars

Cameron Doerksen, CFA Analyst 514-879-2579

— Associate: Albert Matousek, mba: 514-390-7825


Alphabetical Listing

5N Plus VNP 48Absolute Software Corp. ABT 49Advantage Lithium AAL 48Advantage Oil & Gas AAV 43Aecon Group ARE 36Ag Growth International Inc. AFN 34Agnico-Eagle Mines Ltd AEM 41AGT Food and Ingredients Inc. AGT 34Aimia Inc. AIM 50Air Canada AC 51Akumin AKU.u 35Alacer Gold Corp ASR 41Alamos Gold Inc AGI 41Alaris Royalty Corp. AD 32Algonquin Power AQN 48Allied Properties REIT AP.un 46Almaden Minerals Ltd AMM 41AltaGas ALA 44Altus Group Limited AIF 49American Hotel Income Properties HOT.un 46ARC Resources Ltd. ARX 43Artis REIT AX.un 46ATCO Ltd. ACO 44Atlantic Gold Corp AGB.V 41Atlantic Power AT-US 48ATS Automation ATA 36AutoCanada ACQ 36Automotive Properties REIT APR.un 46B2Gold BTO 41Bank of Montreal BMO 30Bank of Nova Scotia BNS 30Barsele Minerals Corp. BME 41Baylin Technologies Inc. BYL 49Baytex Energy BTE 43BCE Inc. BCE 50Bellatrix Exploration BXE 43Birchcliff Energy BIR 43Bird Construction Inc. BDT 36Black Diamond Group Ltd. BDI 33Bluestone Resources Inc. BSR 41Boardwalk REIT BEI.un 46Bombardier Inc. BBD.b 51Bonavista Energy BNP 43Bonterra Energy BNE 43Boralex BLX 48Boyd Group Income Fund BYD_u 47Brookfield Infrastructure BIP-UN 48Brookfield Renewable Energy BEP-US 48BRP Inc. DOO 51BTB REIT BTB.un 46CAE Inc. CAE 51Calfrac Well Services Ltd. CFW 33Callidus Capital Corp. CBL 32Canadian National Rail CNR 51Canadian Natural Resources CNQ 43Canadian Pacific Rail CP 51Canadian Tire CTC.a 38Canadian Utilities CU 44Canadian Western Bank CWB 30CanWel Building Materials CWX 47CAP REIT CAR.un 46Capital Power CPX 44Capstone Mining CS 39Cardinal Energy CJ 43Cargojet Inc. CJT 51Cascades CAS 47Cenovus Energy CVE 43Centerra Gold Inc CG 41Cervus Equipment Corporation CERV 34CES Energy Solutions Corp. CEU 33CGI Group Inc. GIB.A 49Chemtrade Logistics Income Fund CHE_u 35Chinook Energy Inc. CKE 43Choice Properties REIT CHP.un 46Chorus Aviation Inc. CHR 51CIBC CM 30Cineplex Inc. CGX 50Cobalt 27 Capital KBLT 48Cogeco Communications Inc. CCA 50Cominar REIT CUF.un 46Constellation Software Inc. CSU 49Copper Mountain Mining CMMC 39Corus Entertainment Inc. CJR.b 50Couche Tard ATD.b 38Crescent Point Energy Corp. CPG 43

Crew Energy CR 43CRH Medical CRH 35Crius Energy Trust KWH.UN 35Crombie REIT CRR.un 46CT REIT CRT.un 46Detour Gold Corp DGC 41DHX Media DHX 50DIRTT Environmental Solutions DRT 48Dollarama DOL 38Domtar Corporation UFS 47Dorel Industries DIIb 47DREAM Global REIT DRG.un 46DREAM Industrial REIT DIR.un 46DREAM Office REIT D.un 46ECN Capital ECN 32Eldorado Gold Corp ELD 41Element Fleet Management EFN 32Emera Inc. EMA 44Empire Company EMP.a 38Enbridge Inc. ENB 44Enbridge Income Fund ENF 44Encana Corporation (US$) ECA 43Enerflex Ltd. EFX 33Enerplus Corporation ERF 43Equinox Gold Corp EQX 41Equitable Group EQB 32Etrion Corp ETX 48Exchange Income Corporation EIF 51EXFO Inc. EXFO 49Fairfax Financial Holdings FFH 32Falco Resources Ltd. FPC 41Fiera Capital Corp. FSZ 32Finning International Inc. FTT 36First Capital Realty FCR 46First Majestic Silver Corp FR 41First National Financial FN 32First Quantum Minerals FM 39Fortis Inc. FTS 44Fortuna Silver Mines Inc FVI 41Franco-Nevada Corp FNV 41Freehold Royalties FRU 43GDI Integrated Facility Services GDI 47Gear Energy GXE 43Genworth MI Canada MIC 32Gibson Energy GEI 44Gildan GIL 38Goldcorp Inc G 41Golden Star Resources GSC 41Goodfood Market Corp FOOD 47Granite Oil GXO 43Great-West Lifeco GWO 30H&R REIT HR.un 46Hardwoods Distribution HDI 47Héroux-Devtek Inc. HRX 51High Arctic Energy Services Inc. HWO 33Home Capital Group HCG 32Horizon North Logistics Inc. HNL 33Hudbay Minerals HBM 39Hudson's Bay Company HBC 38Hydro One Ltd. H 44IAMGOLD Corp IMG 41IBI Group Inc. IBG 36Imperial Oil IMO 43IMV Inc. IMV 35Industrial Alliance IAG 30Innergex INE 48Inovalis REIT INO.un 46Intact Financial Corp. IFC 32Inter Pipeline IPL 44InterRent REIT IIP.un 46Invesque IVQu 46IPL Plastics IPLP 47Iron Bridge Resources IBR 43Jamieson Wellness JWEL 35Just Energy Group JE 35K-Bro Linen KBL 35Kelt Exploration KEL 43Keyera KEY 44Killam Apartment REIT KMP.un 46Kinaxis Inc. KXS 49Kinder Morgan KML 44Kinross Gold Corp K 41Kirkland Lake Gold Corp KL 41Knight Therapeutics GUD 35KP Tissue KPT 47

Lassonde Industries LASa 47Laurentian Bank LB 30Leagold Mining LMC 41Leucrotta Energy LXE 43Liberty Gold Corp LGD 41Lithium Americas LAC 48Loblaw L 38Lundin Mining LUN 39Lydian International Ltd LYD 41MAG Silver Corp MAG 41Manulife Financial MFC 30Marathon Gold Corp. MOZ 41Mason Graphite LLG 48MAV Beauty Brands MAV 38Maverix Metals Inc MMX.V 41Maxar Technologies Ltd. MAXR 49MCAN Mortgage Corp. MKP 32Mediagrif Interactive Inc. MDF 49Medical Facilities Corp. DR 35MEG Energy MEG 43Metro MRU 38Morneau Shepell MSI 32MTY Food Group MTY 47Mullen Group Ltd. MTL 33NanoXplore GRA 48National Bank NA 30National Energy Services Reunited NESR 33Nemaska Lithium NMX 48Nevada Copper NCU 39New Gold Inc NGD 41New Look Vision Group BCI 47NFI Group Inc. NFI 51North American Construction Group Ltd. NOA 36Northland Power NPI 48NorthWest H.P. REIT NWH.un 46NuVista Energy NVA 43Obsidian Energy OBE 43OceanaGold Corp OGC 41Open Text Corporation OTEX 49Osisko Gold Royalties Ltd OR 41Osisko Mining OSK 41Painted Pony Energy Ltd. PONY 43Paramount Resources Ltd. POU 43Park Lawn Corporation PLC 47Parkland Fuel Corporation PKI 38Pason Systems Corp. PSI 33Pattern Energy PEGI 48Pembina Pipelines PPL 44Pengrowth Energy PGF 43People Corporation PEO 32PetroShale PSH 43Petrus Resources PRQ 43Peyto Exploration & Development Corp. PEY 43Pinecliff Energy PNE 43Pinnacle Renewable PL 48PrairieSky Royalty PSK 43Premium Brands Holdings PBH 47ProMetic Life Sciences PLI 35Pure Multi-family REIT RUFu.V 46Quebecor Inc. QBR.b 50Real Matters Inc. REAL 49Recipe Unlimited Corporation CARA 47Richelieu Hardware RCH 47RioCan REIT REI.un 46Ritchie Bros. Auctioneers RBA 36Rocky Mountain Dealerships Inc. RME 34Rogers Communications Inc. RCI.b 50Rogers Sugar RSI 35Roots Corporation ROOT 38Royal Bank of Canada RY 30Royal Gold Inc RGLD.O 41Sabina Gold and Silver Corp. SBB 41Sandstorm Gold Ltd SSL 41Saputo SAP 38Savaria Corporation SIS 47Secure Energy Services Inc. SES 33Semafo Inc. SMF 41Seven Generations VII 43Shaw Communications SJR.b 50Shawcor Ltd. SCL 33Sherritt International S 39Shopify Inc. SHOP 49Sierra Wireless Inc. SWIR 49Sigma Lithium SGMA 48SilverCrest Metals Inc. SIL.V 41

Slate Office REIT SOT.un 46Sleep Country Canada ZZZ 38SmartCentres REIT SRU.un 46SNC-Lavalin SNC 36SolGold SOLG 39Solium Capital Inc. SUM 49Spin Master TOY 50SRG Graphite SRG 48SSR Mining Inc SSRM 41Stantec Inc. STN 36Stelco STLC 36Stella-Jones SJ 47STEP Energy Services Ltd. STEP 33Stingray Digital RAY.a 50StorageVault Canada SVI.V 46Storm Resources SRX 43Street Capital Group SCB 32Stuart Olson SOX 36Summit Industrial SMU.un 46Sun Life Financial SLF 30Suncor Energy SU 43Superior Plus SPB 44Surge Energy SGY 43Tahoe Resources Inc THO 41Tamarack Valley Energy TVE 43Taseko Mines TKO 39Teck Resources TECKb 39Telus Corp. T 50Tervita Corp TEV 33TFI International Inc. TFII 51Theratechnologies TH 35Thomson Reuters TRI 50Tidewater Midstream TWM 44Timbercreek Financial TF 32Titan Mining TI 39TMAC Resources TMR 41TMX Group X 32Torc Oil & Gas TOG 43Toromont Industries Ltd. TIH 36Toronto-Dominion Bank TD 30Tourmaline Oil TOU 43TransAlta TA 44TransAlta Renewables RNW 48Transat A.T. Inc. TRZ 51TransCanada Corp. TRP 44Transcontinental Inc. TCL.a 50Trevali Mining TV 39Trican Well Services TCW 33Tricon Capital Group TCN 46Trinidad Drilling Ltd. TDG 33Troilus Gold Corp. TLG 41TSO3 TOS 35TVA Group Inc. TVA.b 50Uni-Sélect UNS 47Valener Inc. VNR 44Veresen Inc. VSN 44Vermilion Energy Inc. VET 43Wesdome Corp. WDO 41WestJet Airlines WJA 51Wheaton Precious Metals Corp WPM 41Whitecap Resources WCP 43WPT Industrial REIT WIR'U-T 46WSP Global WSP 36Yamana Gold Inc YRI 41Yangarra YGR 43Yellow Pages Y 50

Branches

International

NBF Securities UK(Regulated by The Financial Services Authority) 71 Fenchurch Street, 11th floor London, England EC3M 4HD Tel.: 44-207-680-9370 Tel.: 44-207-488-9379

New York65 East 55th Street, 31st Floor New York, NY 10022 Tel.: 212-632-8610

National Bank of Canada Financial Inc .

New York65 East 55th Street, 34th Floor New York, NY 10022 Tel.: 212-546-7500

Member of

› Montreal Exchange› Toronto Stock Exchange› Winnipeg Commodities Exchange› Securities Industry Association› CNQ› Investment Dealers Association of

Canada› Canadian Investor Protection Fund› Securities Investor Protection

Corporation

Ancaster • 911, Golf Links Road, Suite 201, Ancaster, ON, L9K 1H9 • 905-648-3813Baie-Comeau • 337, boulevard Lasalle, Baie-Comeau, QC, G4Z 2Z1 • 418-296-8838 Barrie • 126 Collier Street, Barrie, ON, L4M 1H4 • 705-719-1190Beauce • 11505, 1re Avenue est, Bureau 100, St-Georges, QC, G5Y 7X3 • 418-227-0121Berthierville • 779, rue Notre-Dame, Berthierville, QC, J0K 1A0 • 450-836-2727Bin-Scarth • 24 Binscarth Rd, Toronto, ON, M4W 1Y1 • 416-929-6432Brampton • 10520 Torbram Road (at Sandalwood Parkway), Brampton, ON, L6R 2S3 • 905-456-1515Brandon • 633-C, 18th Street, Brandon, MB, R7A 5B3 • 204-571-3200Calgary • 239 8th Ave., SW, Suite 100, Calgary, AB, T2P 1B9 • 403-476-0398Calgary - Southport • 10655 Southport Road SW, Suite 1100, Southland Tower, Calgary,AB, T2W 4Y1 • 403-301-4859Charlottetown • 300-119 Queen Street, Charlottetown, PEI, C1A 4B3 • 902-628-2106Chatham • 380 St. Clair, Street, Chatham, ON, N7L 3K2 • 519-351-7645Chicoutimi • 1180, boulevard Talbot, Suite 201, Chicoutimi, QC, G7H 4B6 • 418-549-8888Collingwood • 108 Hurontario Street, Collingwood, ON, L9Y 2L8 • 705-446-0255DIX30 • 9160, boulevard Leduc, Bureau 710, Brossard, QC, J4Y 0E3 • 450-462-2552Drumheller • 356 Centre Street, PO Box 2176, Drumheller, AB, T0J 0Y0 • 403-823-6857Drummondville • 595, boulevard Saint-Joseph, Bureau 200, Drummondville, QC, J2C 2B6 • 819-477-5024Duncan • 2763 Beverly Street, Suite 206, Duncan, BC, V9L 6X2 • 250-715-3050Edmonton • 10175 – 101 Street NW, Suite 1800, Edmonton, AB, T5J 0H3 • 780-412-6600Edmonton-North • 10088-102 Avenue, Suite 903, TD Tower, Edmonton, AB, T5J 2Z1 • 780-421-4455Eglinton • 295 Eglinton Avenue East, Delaware Square, Mississauga, ON, L4Z 3K6 • 905-507-4883 Gatineau • 920, St-Joseph, Bureau 100, Hull-Gatineau, QC, J8Z 1S9 • 819-770-5337Granby • 150, rue St-Jacques, Bureau 202, Granby, QC, J2G 8V6 • 450-378-0442GTA North • 9130 Leslie Street, suite 200, Richmond Hill, ON, L4B 0B9 • 416-756-4016Halifax • Purdy's Wharf Tower II, 1969 Upper Water Street, Suite 1601, Halifax, NS, B3J 3R7 • 902-496-7700Halifax-Spring Garden • 400-5657 Spring Garden Road, Parklane Terraces, Halifax, NS, B3J 3R4 • 902-425-1283Joliette • 40, rue Gauthier Sud, Bureau 3500, Joliette, QC, J6E 4J4 • 450-760-9595Kelowna • Suite 500 - 1632 Dickson Avenue, Kelowna, BC, V1Y 7T2 • 250-717-5510Lac-Mégantic • 3956, rue Laval, suite 100, QC, G6B 2W9 • 819-583-6035Laval • 2500, boulevard Daniel Johnson, Bureau 610, Laval, QC, H7T 2P6 • 450-686-5700Lethbridge • 404, 6th Street South, Lethbridge, AB, T1J 2C9 • 403-388-1900Lévis • 1550, boulevard Alphonse-Desjardins, Bureau 110, Lévis, QC, G6V 0G8 • 418-838-0456 London • 256 Pall Mall Street, Suite 201, London, ON, N6A 5P6 • 519-439-6228London-City Centre • 802-380 Wellington Street, London, ON, N6A 5B5 • 519-646-5711Metcalfe • 1155, rue Metcalfe, Suite 1450, Montréal, QC, H3B 2V6 • 514-879-4825Mississauga • 350, Burnhamthorpe road West, Suite 603, Mississauga, ON, L5B 3J1 • 905-272-2799Moncton • 735 Main Street, Suite 300, Moncton, NB, E1C 1E5 • 506-857-9926Mont Saint-Hilaire • 436, boulevard Sir-Wilfrid-Laurier, Suite 100, Mont Saint-Hilaire, QC, J3H 3N9 • 450-467-4770Mont-Laurier • 906, Albiny-Paquette, Mont-Laurier, QC, J9L 1L4 • 819-623-6002Montréal International • 1, Place Ville-Marie, Bureau 1700, Montréal, QC, H3B 2C1 • 514-879-5576Montréal L'Acadie • 9001, boulevard de l’Acadie, Bureau 802, Montréal, QC, H4N 3H5 • 514-389-5506Nanaimo • 75 Commercial Street, Nanaimo, BC, V9R 5G3 • 250-754-1111North Bay • 680 Cassells Street, Suite 101, North Bay, ON, P1B 4A2 • 705-476-6360

Oak Bay • #220 - 2186 Oak Bay Avenue, Victoria, BC, V8R 1G3 • 250-953-8400Oakville • 305 Church Street, Oakville, ON, L6J 7T2 • 905-849-3558 Oshawa • 575 Thornton Road North, Oshawa, ON, L1J 8L5 • 905-433-0210Ottawa • 50 O'Connor Street, Suite 1602, Ottawa, ON, K1P 6L2 • 613-236-0103Outremont • 1160, boulevard Laurier Ouest, App. 1, Outremont, QC, H2V 2L5 • 514-276-3532

Owen Sound • 920 1st Avenue West, Suite 401, Owen Sound, ON, N4K 4K5 • 519-439-3382Peterborough • 201 George Street North, suite 401, Peterborough, ON, K9J 3G7 • 705-740-1110Plessisville • 1719, rue St-Calixte, Plessisville, QC, G6L 1R2 • 819-362-6000Kirkland • 16,766 Route Transcanadienne, bureau 503, Kirkland, QC, H9H 4M7 • 514-426-2522PVM Montréal • 1, Place Ville-Marie, Bureau 1700, Montréal, QC, H3B 2C1 • 514-879-5200Québec • 500, Grande-Allée Est, Bureau 400, Québec, Qc, G1R 2J7 • 418-649-2525Québec - Sainte-Foy • Place de la Cité, 2600, boulevard Laurier, Bureau 700, Québec, QC, G1V 4W2 • 418-654-2323Red Deer • 4719 48th Avenue, Suite 200, Red Deer, AB, T4N 3T1 • 403-348-2600Regina • 1770-1881 Scarth Street, 17th Floor, McCallum Hill Centre - Tower II, Regina, SK, S4P 4K9 • 306-781-0500Repentigny • 534, rue Notre-Dame, Bureau 201, Repentigny, QC, J6A 2T8 • 450-582-7001Richmond • 135-8010 Saba Road, Richmond, BC, V6Y 4B2 • 604-658-8050Richmond Hill • 500 Highway 7 East, Gr. Floor, Richmond Hill, ON, L4B 1J1 • 905-477-2002Rimouski • 127, boulevard René-Lepage Est, Bureau 100, Rimouski, QC, G5L 1P1 • 418-721-6767Rivière-du-Loup • 10, rue Beaubien, Rivière-du-Loup, QC, G5R 1H7 • 418-867-7900 Rouyn-Noranda • 104, 8e rue, Rouyn-Noranda, QC, J9X 2A6 • 819-762-4347Saint John • 72 Prince William Street, Saint John, NB, E2L 2B1 • 506-642-1740Sainte-Marie-de-Beauce • 249, Du Collège, Bureau 100, Ste-Marie, QC, G6E 3Y1 • 418-387-8155Saint-Félicien • 1120, boulevard Sacré-Cœur, Saint-Félicien, QC, G8K 1P7 • 418-679-2684Saint-Hyacinthe • 1355, rue Daniel-Johnson Ouest, bureau 4100, Saint-Hyacinthe, QC, J2S 8W7 • 450-774-5354Saint-Jean-sur-Richelieu • 395, boul. du Séminaire Nord, Suite 201, Saint-Jean-sur-Richelieu, QC, J3B 8C5 • 450-349-7777Saint-Jérôme • 265, rue St-George, Suite 100, Saint-Jérôme, QC, J7Z 5A1 • 450-569-8383Saskatoon - 8th St. • 1220 8th Street East, Saskatoon, SK, S7H 0S6 • 306-657-3465Sept-Îles • 805, boulevard Laure, Suite 200, Sept-Îles, QC, G4R 1Y6 • 418-962-9154Shawinigan • 602, avenue de Grand-Mère, 2e étage, Shawinigan, QC, G9T 2H5 • 819-538-8628Sherbrooke • 1802, rue King Ouest, Suite 200, Sherbrooke, QC, J1J 0A2 • 819-566-7212Sidney • 2537, Beacon Avenue, Suite 205, Sidney, BC, V8L 1Y3 • 250-657-2200Sorel • 26, Pl. Charles-de-Montmagny, Suite 100, Sorel, QC, J3P 7E3 • 450-743-8474 St. Catharines • 40 King Street, St. Catharines, ON, L2R 3H4 • 905-641-1221Sudbury • 10 Elm Street, Suite 501, Sudbury, ON, P3C 1S8 • 705-671-1160Thedford Mines • 222, boulevard Frontenac Ouest, bureau 107, Thedford Mines, QC, G6G 6N7 • 418-338-6183Thunder Bay • Hydro BLG 34 Cumberland Street North, 7th Fl., Thunder Bay, ON, P7A 4L3 • 807-683-1777Toronto 1 • Exchange Tower, 130 King Street West, Suite 3200, Toronto, ON, M5X 1J9 • 416-869-3707 Toronto Downtown • 121 King Street West, Toronto, ON, M5H 3T9 • 416-864-7791Toronto Midtown • 22 St. Clair Ave East, suite 1202, Toronto, ON, M4T 2S5 • 416-507-8870Trois-Rivières • 7200, rue Marion, Trois-Rivières, QC, G9A 0A5 • 819-379-0000Val d'Or • 840, 3e avenue, Val d'Or, QC, J9P 1T1 • 819-824-3687Valleyfield • 1356, boulevard Monseigneur-Langlois, Valleyfield, QC, J6S 1E3 • 450-370-4656Vancouver - PB1859 • 1076 Alberni Street, Suite 201, Vancouver, BC, V6A 1A3 • 778-783-6420Vancouver 1 • 475 Howe Street, Suite 3000, Vancouver, BC, V6C 2B3 • 604-623-6777 Vernon • 3100-30th Avenue, Suite 101, Vernon, BC, V1T 2C2 • 250-260-4580Victoria • 700-737 Yates Street, Victoria, BC, V8W 1L6 • 250-953-8400Victoria - Fort • 1480 Fort Street, Victoria, BC, V8S 1Z5 • 250-475-3698Victoriaville • 650, boulevard Jutras Est, Bureau 150, Victoriaville, QC, G6S 1E1 • 819-758-3191

Waterloo • 180 King Street South, Suite 701, Waterloo, ON, N2J 1P8 • 519-742-9991White Rock • 2121 160th Street, Surrey, BC, V3Z 9N6 • 604-541-4925Windsor • 1 Riverside Drive West,Suite 600, Windsor, ON, N9A 5K3 • 519-258-5810Winnipeg • 200 Waterfront Drive, Suite 400, Winnipeg, MB, R3B 3P1 • 204-925-2250Yorkton • 89 Broadway Street West, Yorkton, SK, S3N 0L9 • 306-782-6450

MontrealNational Bank Financial

Sun Life Building1155 Metcalfe StreetMontreal, QC H3B 4S9514-879-2222

TorontoNational Bank Financial

The Exchange Tower130 King Street West4th Floor PodiumToronto, ON M5X 1J9416-869-3707

Canada (Toll-Free)

1-800-361-88381-800-361-9522

United States (Toll-Free)

1-800-678-7155

National Bank Financial (NBF) is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on Canadian stock exchanges.

The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. The Firm may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive a remuneration for its services. The Firm and/or its officers, directors, representatives, associates, may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. To U.S. residents: With respect to the distribution of this report in the United States, National Bank of Canada Financial Inc. (NBCFI) is regulated by the Financial Industry Regulatory Authority (FINRA) and a member of the Securities Investor Protection Corporation (SIPC). This report has been prepared in whole or in part by, research analysts employed by non-US affiliates of NBCFI that are not registered as broker/dealers in the US. These non-US research analysts are not registered as associated persons of NBCFI and are not licensed or qualified as research analysts with FINRA or any other US regulatory authority and, accordingly, may not be subject (among other things) to FINRA restrictions regarding communications by a research analyst with the subject company, public appearances by research analysts and trading securities held a research analyst account.

All of the views expressed in this research report accurately reflect the research analysts’ personal views regarding any and all of the subject securities or issuers. No part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. The analyst responsible for the production of this report certifies that the views expressed herein reflect his or her accurate personal and technical judgment at the moment of publication. Because the views of analysts may differ, members of the National Bank Financial Group may have or may in the future issue reports that are inconsistent with this report, or that reach conclusions different from those in this report. To make further inquiry related to this report, United States residents should contact their NBCFI registered representative.

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Corporate Offices

2018

/11

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