vision - advisors.nbfwm.ca · steve parsons 416-869-6766 ... rupert merer 416-869-8008 ... the most...

VISION —Monthly Economic and Financial Monitor

December 2015

Research Analysts—

Ihor Danyliuk 416-869-7522Head of Research

Caroline Jukes 416-869-8039Administrative Manager

Tanya Bouchard 416-869-7934Supervisory Analyst

Research PublicationsVanda Bright 416-869-7141Manager, Publishing Services

Wayne Chau 416-869-7140Publishing Associate

Information and Distribution Institutional Clients

Giuseppe Saltarelli [email protected]

Retail Branches

Anoochka Gokhool [email protected]

Economics and Strategy Stéfane Marion 514-879-3781Chief Economist and Strategist Paul-André Pinsonnault 514-879-3795Senior Fixed Income EconomistKrishen Rangasamy 514-879-3140Senior EconomistMarc Pinsonneault 514-879-2589Senior EconomistMatthieu Arseneau 514-879-2252Senior EconomistAngelo Katsoras 514-879-6458Geopolitical Associate Analyst

Telecom, Media and GamingAdam Shine 514-879-2302Associate: Peter Stusio 514-879-2564Associate: Luc Troiani 416-869-6585

Energy Agriculture and Energy Services

Greg Colman 416-869-6775Associate: Andrew Jacklin 416-869-7571Assoc.: Westley MacDonald-Nixon 416-507-9568Assoc.: Michael Storry-Robertson 416-507-8007

Junior and Intermediate Oil and Gas

Dan Payne 403-290-5441Brian Milne 403-290-5625Associate: Chris Haughn 403-290-5445Associate: Mark Hirsch 403-441-0928Associate: Tim Sargeant 403-441-0952Associate: Matthew Taylor 403-290-5624

Senior and Intermediate Yield Oil and Gas

Kyle Preston 403-290-5102Associate: John Hunt 403-441-0955Associate: Jason Wai 403-355-6643

Pipelines, Utilities and Energy Infrastructure

Patrick Kenny 403-290-5451Associate: Michael Nguyen 416-869-7566

Financial Services Banking and Insurance

Peter Routledge 416-869-7442Associate: Parham Fini 416-869-6515Associate: Paul Poon 416-507-8006

Diversified Financials

Shubha Khan 416-869-6425Associate: Jaeme Gloyn 416-869-8042

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

Metals and MiningShane Nagle 416-869-7936Associate: Gregory Doyle 416-869-6538Associate: Raj Udayan Ray 416-507-8105

Steve Parsons 416-869-6766Associate: Don DeMarco 416-869-7572

Adam Melnyk 604-643-2864Associate: David Lee 416-869-8045

Real EstateMatt Kornack 416-507-8104Associate: Dawoon Chung 416-507-8102Associate: Ammar Shah 416-869-7476

Trevor Johnson 416-869-8511Associate: Alex Bauer 416-869-7935Associate: Endri Leno 416-869-8047Associate: Kyle Stanley 416-507-8108

Special SituationsLeon Aghazarian 514-879-2574Associate: Connor Sedgewick 514-390-7825Associate: Frédéric Tremblay 514-412-0021

Trevor Johnson 416-869-8511Associate: Alex Bauer 416-869-7935Associate: Endri Leno 416-869-8047Associate: Kyle Stanley 416-507-8108

Chris Bowes 416-869-7375Associate: John Xu 416-507-9115

Sustainability and Clean Tech Rupert Merer 416-869-8008Associate: Steven Hong 416-869-7538Associate: Ryan Wong 416-869-6763

Technology Kris Thompson 416-869-8049Associate: Steven Walt 416-869-7938

Transportation and Industrials Cameron Doerksen 514-879-2579Associate: Umayr Allem 416-869-8577

Technical AnalysisDennis Mark 416-869-7427

ETF Research and Strategy Daniel Straus 416-869-8020Associate: Ling Zhang 416-869-7942Associate: Tiffany Zhang 416-869-8022

Table of Contents—Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02

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

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

Stock Market and Portfolio Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Technical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Sector Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Analysts' Tables Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

NBF Action List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Analyst Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Alphabetical Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

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

For a paper copy of the disclosures, please send a written request (indicating the name and date of the product) to:National Bank Financialc/o Giuseppe Saltarelli1155, Metcalfe Street 5th Floor Montreal (Quebec), CanadaH3B 4S9

VISIONDecember 2015

02

—

Economy

The global economy remains on track to grow in 2015 at the slowest pace in six years . It was always going to be difficult to overcome the rough start to the year, with bad weather wreaking havoc in the US, and China’s rebalancing in full swing . The appreciating US dollar didn’t help either, given the large amounts of USD-denominated debt held outside US borders . But amidst the challenges, there is hope the year will end better than it started for the world economy . Trade volumes seem to be picking up, raising the odds of a decent handoff to 2016 .

America is likely to get a rate hike for Christmas . The Fed will point to a strengthening US economy and solid labour market to support its decision . But there may be a long pause early in the new tightening cycle given the lack of inflation and a likely deceleration of growth next year . In addition to the continuing drag exerted on the economy by the strong dollar, consumption and housing are likely to moderate in synch with a softer labour market after this year’s employment surge . We remain comfortable with our forecast of just 2 .3% for 2016 US GDP growth .

After a difficult start to the year, Canada’s economy is finally growing again . Trade has turned into a major contributor thanks to the US resurgence, while domestic demand is also on the mend after a disappointing first half . Consumers seem to be making the most of rising disposable incomes courtesy of a resilient labour market and low pump prices . However, the rebound comes too late to save 2015 which is set to register the weakest growth in six years . And given the weak potential for growth and likely delays in implementing fiscal stimulus, don’t expect a significant improvement in 2016 policy .

Interest Rates and Currency

We expect the FOMC to deliver a first rate hike in December but only two further rate increases in 2016 . We see the target range for the fed funds rate reaching 0 .75%–1 .0% by the end of the second quarter and left unchanged in the second half of the year as U .S . economic growth softens . For the 10-year Treasury yield, upward pressure in the first half of 2016 will also fade in the second half .

Bank of Canada governor Stephen Poloz sees monetary policy-making as a risk-management exercise requiring flexibility in steering toward an inflation target . We believe that our economic scenario projects a balance of risks that will favour keeping the current policy stance unchanged in 2016 . Finance minister Bill Morneau has updated the federal government’s fiscal projections to show an underlying fiscal position of deficits rather than surpluses extending from fiscal years 2015-16 through 2018-19 . We now see 10-year Canadas trading at around 1 .96% in June 2016, compared to last month’s forecast of 1 .81% .

This year is one to forget for holders of the Canadian dollar . The 2015 average for USDCAD is about 1 .28 (i .e . 78 US cents for a C$) or 15% weaker than last year, the worst annual loss in over four decades . After that rout, things can only get better in our view . Besides an expected Fed-induced weakening of the USD, the loonie could also benefit from commodities which arguably have more upside than downside following this year’s collapse . The C$ could also benefit from investment inflows if foreigners manage to see through the barrage of negative news on Canada, and make the most of a rare opportunity to snap up Canadian assets at a discount . We continue to expect USDCAD to come close to the lower end of the 1 .25-1 .35 trading range by the end of next year the end of next year .

Recommended Asset Mix and Stock Market

After grinding higher through October, global equities paused in November . Stock market volatility has abated, credit market stress has receded and the U .S . dollar is showing less lift .

At this writing the fed funds futures market puts the odds of a rate hike in December at 72%, up from only 26% on October 14 . But is the initial phase of Fed tightening necessarily a threat to an advance of equity markets? We do not think so .

In emerging markets, economic surprises have just turned positive for the first time since the beginning of the year . China’s slowdown seems to be abating, easing the need for further currency devaluation . With the IMF granting reserve currency status to the renminbi, Beijing’s new five-year plan is better positioned to deliver the structural reforms that are much needed to enhance the Chinese economy .

Our asset allocation is slightly modified this month . In our eyes, the value of the USD has now largely discounted anticipations of divergent monetary policies in the coming months . If the Fed’s rate rises are gradual and the European and emerging economies still surprise on the upside a greenback depreciation seems likely . For this reason we are eliminating our leaning to U .S . equities and raising our ante in emerging-market and Canadian equities, which are likely to gain lift in an environment more favourable to commodity prices . Our 12-month targets remain 15,000 for the S&P/TSX and 2,200 for the S&P 500 . Our sector allocation is unchanged this month .

Highlights—

Stéfane Marion Chief Economist and Strategist 514-879-3781

03

—

Highlights—

Benchmark (%)

NBF Recommendation (%)

Change (pp)

EquitiesCanadian Equities 20 23 +3U.S. Equities 20 20 -6Foreign Equities (EAFE) 5 7Emerging markets 5 8 +3

Fixed Income 45 37Cash 5 5Total 100 100NBF Economics and Strategy

NBF Asset Allocation Actual ForecastLevel Q4 2016 (Est.)

INTEREST RATES

3-month US 0.19 0.98 CA 0.48 0.46

10 yrs US 2.23 2.54 CA 1.57 2.08

STOCK MARKET Q4 2016 (Est.)Target

S&P 500 2,089 2,200S&P/TSX 13,425 15,000

S&P/TSX Sectors Weight* Recommendation Change

Energy 18.9 Market Weight

Materials 9.4 Market WeightIndustrials 8.4 Market Weight

Consumer Discretionary 7.1 Underweight

Consumer Staples 4.5 Underweight

Healthcare 2.6 Market WeightFinancials 38.3 Overweight

Information Technology 3.0 Overweight

Telecommunication Services 5.6 Underweight

Utilities 2.2 Underweight

Total 100.0* As of November 26, 2015

NBF Sector Rotation

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The Economy—

VISIONDecember 2015

06

—

World: Trade volumes pick up

The global economy remains on track to grow in 2015 at the slowest pace in six years. It was always going to be difficult to overcome the rough start to the year, with bad weather wreaking havoc in the US, and China’s rebalancing in full swing. The appreciating US dollar didn’t help either, given the large amounts of USD-denominated debt held outside US borders. But amidst the challenges, there is hope the year will end better than it started for the world economy. Trade volumes seem to be picking up, raising the odds of a decent handoff to 2016.

The year 2015 seems to be ending better than it started for the world economy . After seeing the worst two-quarter sequence since the global financial crisis, trade volumes bounced back in Q3 according to latest CPB data . Ditto for industrial output which benefited from growth in both advanced and emerging economies . So much so that the ratio of output to trade, a proxy for global inventories, managed to fall back a bit, an encouraging development for growth going forward .

And momentum seems to have carried over to the final quarter of the year if Markit’s purchasing managers indices for October and November are any guide . According to Markit, factory activity continued to expand in the US, Eurozone and Japan, and that is offsetting continuing woes in several emerging economies . Markit’s index remained in contraction territory in October i .e . below 50 in China, Taiwan, Korea, Malaysia, and Indonesia, while factories were barely in expansion mode in Russia, Vietnam and India .

Much of the consensus-topping data in the G10 in recent weeks has come from the Eurozone . But that’s not say the zone is out of the woods . Growth remains soft as evidenced by the meagre 1 .2% annualized increase in real GDP in the third quarter . And despite the Q3 gains, output remains below levels reached more than seven years ago . Indeed GDP at the end of the third quarter was about 0 .5% below the 2008 peak, or 2 .7% below peak excluding Germany . It’s unclear if growth will accelerate much in the fourth quarter given that the handoff from September was rather weak — industrial production fell sharply in the month .

So, more stimulus can be expected from the European Central Bank in December . While improving lately, credit growth still remains weak for both households and corporations . Household credit was down 0 .4% on a year-on-year basis in September, the fortieth month in negative territory . Part of the reason for the slow growth is the weak economy and still-elevated levels of bad loans .

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1.00

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2007 2008 2009 2010 2011 2012 2013 2014 2015-40-35-30-25-20-15-10-505

1015202530

2007 2008 2009 2010 2011 2012 2013 2014 2015

World: Pick-up in global trade

NBF Economics and Strategy (data via CPB)

Ratio of industrial output to trade volumes(inventory/sales proxy)

Global industrial output and trade volumes

q/q % chg. saar Ratio

Industrial output

Trade volumesQ3

A pick-up in economic activity in Q3…

… helped reduce bloated inventories

Q3

-30-25-20-15-10-505

10152025303540

2014q1 2014q2 2014q3 2014q4 2015q1 2015q2 2015q3 2015q4

World: Data now topping expectationsEconomic surprise index

NBF Economics and Strategy (data via Datastream)

G10

Emerging

9293949596979899

100101102103104105106

2008 2009 2010 2011 2012 2013 2014 2015

Eurozone: Still in recovery modeReal GDP

NBF Economics and Strategy (data via Eurostat)

Germany

Eurozone

Eurozoneex-Germany

Q3

Index=100 in 2008Q1

The Economy—

Krishen Rangasamy Senior Economist 514-879-3140

07

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4550556065707580859095

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1998 2000 2002 2004 2006 2008 2010 2012 201464

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141998 2000 2002 2004 2006 2008 2010 2012 2014

Eurozone: Bad loans still elevated in Italy and Spain


SpainItaly

index

Real home price (L)

Italy continues to struggle with weak

housing market and bad loans …

Bad loans as a share of total

loans (R)

index Reverse axis, %

Real home price (L)

Bad loans as a share of total

loans (R)

Reverse axis, %

… while Spain is starting to see

some improvement

In Italy for example, the share of bad loans in total loans has grown to a record 12% . In Spain too, bad loans remain elevated but they seem to have stabilized somewhat, coinciding with an apparent recovery in the housing market . It will take time for the ECB’s stimulus to work its way through the eurozone . And considering continuing challenges, e .g . poor demographics and weakness in emerging markets (a big customer for the zone), one can expect eurozone growth to remain soft near 1 .5% next year .

After declining in Q2, Japan’s GDP contracted 0 .8% annualized in the third quarter . Weak investment spending more than offset contributions from consumption, causing domestic demand to subtract from growth . That more than offset contributions from trade . The weak economy explains why the annual inflation rate fell to 0 .0% and labour cash earnings printed just 0 .6% year-on-year in September . The Bank of Japan has resisted calls to increase the already sizable stimulus . But if, as we expect, the annual inflation rate strays even further from the central bank’s 2% target, the BoJ will have no alternative other than increase the size of its QE program, something that would weaken the yen .

-14.0-12.0-10.0

-8.0-6.0-4.0-2.00.02.04.06.08.0

2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3

Domestic Demand Trade & other Real GDP growth (q/q chg. saar)

Japan: Second recession under Abe governmentContributions to growth


%

The Economy—

World Economic Outlook

Forecast

2015 2016 2017Advanced countries 1.9 1.9 1.8United States 2.5 2.3 2.0Euroland 1.4 1.4 1.5Japan 0.6 1.0 0.4UK 2.5 2.4 2.2Canada 1.2 1.6 1.7Australia 2.4 2.6 3.1New Zealand 2.2 2.3 2.4Hong Kong 2.5 2.2 2.8Korea 2.7 2.9 3.6Taiwan 2.2 2.4 2.9Singapore 2.2 2.4 3.2

Emerging Asia 6.4 6.4 6.2China 6.8 6.3 6.0India 7.3 7.8 7.5Indonesia 4.7 5.0 5.5Malaysia 4.7 4.6 5.0Philippines 6.0 5.9 6.5Thailand 2.5 3.3 3.6

Latin America -0.3 1.0 2.2Mexico 2.3 2.8 3.1Brazil -3.0 -1.0 2.3Argentina 0.4 0.8 0.0Venezuela -10.0 -3.7 -4.5Colombia 2.5 2.4 3.2

Eastern Europe and CIS -0.1 1.5 2.2Russia -3.8 -0.1 1.0Czech Rep. 3.9 2.6 2.6Poland 3.5 3.5 3.6Turkey 3.0 2.8 3.7

Middle East and N. Africa 2.3 2.5 2.7

Sub-Saharan Africa 3.9 4.0 4.2

Advanced economies 1.9 1.9 1.8Emerging economies 3.9 4.4 4.6World 3.1 3.3 3.4

Source: NBF Economics and Strategy

VISIONDecember 2015

08

—

In China, economic growth seems to have remained soft in the final quarter of the year . Trade, which was a drag on growth in Q3, is not improving much based on October data . Exports fell again on a year-on-year basis . And with exporters requiring fewer imported inputs on the production line, imports are now collapsing at the fastest pace since the 2009 global recession . So, the ripple effects down the supply chain across Asia, which is partly responsible for emerging market woes, should not be surprising . And in light of the soft exports, continued weakness of China’s factory activity (e .g . sub-50 purchasing managers indices), should also be expected . Domestic demand isn’t picking up the slack despite significant stimulus provided by the People’s Bank of China through its several interest rate cuts . But not all is bleak .

The real estate market seems to be stabilizing, likely in response to lower interest rates . There is also hope for a pick-up in overall demand given the uptick in bank credit . While aggregate credit (known as social financing) continues to fall after the crackdown on shadow banking, conventional loans have been rising . So far this year, new bank loans have amounted to roughly 9 .5 trillion yuans, the highest tally on records for the first ten months of the year . With the decline in shadow loans and the rise of bank loans, the latter’s share of social financing has risen to nearly 78%, the highest in over a decade . So, while the drop in overall credit isn’t good news for the economy over the near term, the rising share of bank loans in total credit is a positive development in terms of financial stability and hence sustainability of growth over the longer term . Bank credit growth has room to run especially if the PBoC provides further stimulus, something it can easily do considering weak inflation — the annual inflation rate was just 1 .3% in October according to the CPI . Also positive is the persistence of low energy prices which provide significant relief to an economy that is highly reliant on fossil fuels . Import prices have collapsed in synch with oil and lifted the terms of trade to the highest level in six years .

Even then, China’s growth should be no better than 6 .8% this year, the worst performance in 25 years . The economy will decelerate further over the coming years as rebalancing continues and as a larger share of growth comes from the less productive services sector . But Beijing can help cushion the blow somewhat via necessary reforms, including widening its safety net as to allow household to save less, thereby encouraging consumption spending and hence rebalance the economy faster . The latest five-year plan moves in that direction with the government pledging to increase pension and healthcare coverage and to gradually eliminate restrictions which currently deprive migrant workers from having access to social services in cities where they work . The end of the policy of limiting a family to one child is also welcome given the ageing workforce . All told, expect lower but more sustainable growth in the world’s second largest economy in the years ahead .

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China: Weakest imports since 2009Exports and imports, 12-month cumulative


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2006 2007 2008 2009 2010 2011 2012 2013 2014 20152

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

China: Towards a more stable model of credit allocation


Social financing in first ten months of every year

Trillion yuan

Bank loans

TOTAL

%

Bank loans’ share of Social financing (first 10 months of every year)

0.80

0.84

0.88

0.92

0.96

1.00

1.04

1.08

1.12

1.16

1.20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

China: Best terms of trade since 2009Terms of trade


Q3

The Economy—

09

—

U.S.: A rate hike for Christmas

America is likely to get a rate hike for Christmas. The Fed will point to a strengthening US economy and solid labour market to support its decision. But there may be a long pause early in the new tightening cycle given the lack of inflation and a likely deceleration of growth next year. In addition to the continuing drag exerted on the economy by the strong dollar, consumption and housing are likely to moderate in synch with a softer labour market after this year’s employment surge. We remain comfortable with our forecast of just 2.3% for 2016 US GDP growth.

The Fed is about to make history with a first rate hike in almost a decade . And that despite an output gap which is estimated to be around 3% at the end of the year and a wage inflation rate of just 2% . The start of a new tightening cycle has never occurred with such a combination of large output gap and low wage inflation . So why is the Fed in a hurry to hike? Having warned markets for months that it will raise the fed funds rate before year-end, the Fed now finds itself with one last opportunity, i .e . the December meeting, to save face . The FOMC doesn’t want to further undermine its credibility given that markets don’t seem to believe its forecasts anymore — markets are pricing in far fewer rate hikes than the Fed says it expects over the next couple of years .

To support its decision to hike, the Fed can shrug off the absence of inflation and the still-wide output gap and instead point to the red-hot labour market . After taking a breather in the third quarter, the labour market bounced back in October . The establishment survey not only showed the biggest increase this year for non-farm payrolls, but also the best diffusion of private sector jobs in months, i .e . job gains were broad based . Also encouraging is the fact that state government employment was up again which means public finances are on the right track, i .e . a positive for the implementation of much-needed infrastructure projects . So, construction employment which has taken off in recent months, has room to run . Similarly, the household survey, in addition to showing the largest increase in jobs since January and the lowest unemployment rate in seven and a half years, also put full-time employment at a new record .

Income gains from solid employment are boosting consumption spending . After growing at an annualized pace of over 3% in the last two quarters, real consumption is on track to repeat the feat in Q4 thanks to strong job creation . Low pump prices are also a boon to consumers . Thanks to plunging prices, gasoline now accounts for less than 8% of total retail sales, the lowest since 2003 . That leaves more cash in consumers’ wallets to spend on other things . So, it shouldn’t be surprising that discretionary spending, i .e . retail sales excluding gasoline, groceries and health care products, is now at an all-time high .

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U.S.: Fed starting tightening cycle despite still-large output gapOutput gap and Wage inflation (Dates shown when Fed started tightening cycle)

NBF Economics and Strategy (data via Datastream, Congressional Budget Office)

Output gap (%)

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2012 2013 2014 2015

U.S.: Labour market still strong


Full-time employmentNon farm payrolls

m/m chg. thousands

12-month average

Oct.

millions

Oct.

210220230240250260270280290300310320330340350

7.27.68.08.48.89.29.610.010.410.811.211.612.012.412.8

2004 2006 2008 2010 2012 2014

U.S.: Low pump prices boosting consumptionRetail sales

* Discretionary retail spending = Total retail sales less sales of gasoline, groceries and health care products


US$ bn

Gasoline share of total retail sales (R)

Discretionary* retail spending (L)

%

Oct. 2015

Lowest in 12 years

The Economy—

VISIONDecember 2015

10

—

Also supportive of spending is the enhanced capacity of Americans to take on debt . The financial obligations ratio, i .e . debt burden as a share of personal disposable income remains close to multi-decade lows . The low debt burden, the persistence of low interest rates and improvements in credit scores are all helping increase borrowing . Latest data from the New York Fed show debt rising in Q3 for an eighth time in nine quarters taking the total increase over the period to US$912 bn . Increased borrowing has helped boost spending on big-ticket items such as autos . In the last nine quarters, auto loans represented 25% of the flow of debt despite accounting for just 8% of the total stock of debt . That explains why auto sales have been so strong in the last couple of years — this year’s sales are on track to hit roughly 17 .5 million units, the highest ever .

But not all is rosy . While consumer re-leveraging has worked wonders for the auto industry, its impact on the housing market has been more subdued . That’s partly because banks have significantly tightened lending standards after being burnt by the subprime crisis . More than half of new mortgage originations are going to borrowers with scores 780 and above . As a result, mortgages accounted for only 45% of the flow of debt in the last two years despite making up roughly 70% of the stock of household debt . So, it shouldn’t be surprising that home sales and prices (for both resales and new construction) as well as housing starts, all remain well below the peak reached about a decade ago .

Another factor holding back US growth is trade . Thanks to diverging monetary policies between the Fed and the other major central banks, the trade-weighted US dollar has appreciated a massive 18% in the last 16 months and that is hurting exports while boosting import demand . So much so that the non-petroleum trade deficit has surged to an all-time high this year and dwarfed improvements in the petroleum trade balance, the latter made possible by domestic energy production which has substituted for imports . With exports under stress, factories are taking it on the chin . The ISM manufacturing index was barely in expansion territory at 50 .1 in October, the lowest in two and a half years . While manufacturing production has now recovered all of the lost ground during the recession, that’s largely due to autos whose output has soared to meet strong domestic demand . In contrast factory production excluding autos is still about 5% below pre-recession peak, having stagnated in the last year or so .

Were it not for the USD’s surge, real GDP growth would have been more than 3% this year . Instead, we’ll likely end up close to 2 .5% . While the US economy will continue to expand, growth is set to soften next year . In addition to the continuing drag exerted on the economy by the strong dollar, consumption and housing are likely to moderate in synch with a softer labour market because this year’s employment surge won’t be replicated . We remain comfortable with our forecast of just 2 .3% for 2016 growth .

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

2004 2006 2008 2010 2012 20140

5

10

15

20

25

30

35

40

45

50

55

2004 2006 2008 2010 2012 2014

U.S.: Household re-leveraging a boon to auto industry

US$ trillion

NBF Economics and Strategy (data via New York Fed)

Household debt Share of household debt increase over 2013Q3-2015Q3

2015Q3

$912 bn

0

50

100

Mortgage AutoLoan

CreditCard

StudentLoan

Other

share of stock of debt in last 9 quartersshare of flow of debt in last 9 quarters

%Re-leveraging in the US …

… has worked wonders for the auto industry, but its impact on housing has been subdued …

Mortgage origination by credit score

… in part due to tighter standards for mortgages

660-719

<620620-659

720-779

780+share of new mortgages (%)

-650

-600

-550

-500

-450

-400

-350

-300

-250

-200

-150

-100

-50

0

1995 2000 2005 2010 2015

U.S.: Non-petroleum trade deficit getting largerGoods trade balance, 12-month cumulative


US$ bn

Non-petroleum

Petroleum

40

50

60

70

80

90

100

110

120

130

140

2007 2008 2009 2010 2011 2012 2013 2014 2015

U.S.: Auto plants doing better than other factoriesIndustrial production, manufacturing sector


ex-autos

Index = 100 in December 2007

Autos

Oct.

Manufacturingtotal

The Economy—

11

—

Canada: Return to growth

After a difficult start to the year, Canada’s economy is finally growing again. Trade has turned into a major contributor thanks to the US resurgence, while domestic demand is also on the mend after a disappointing first half. Consumers seem to be making the most of rising disposable incomes courtesy of a resilient labour market and low pump prices. However, the rebound comes too late to save 2015 which is set to register the weakest growth in six years. And given the weak potential for growth and likely delays in implementing fiscal stimulus, don’t expect a significant improvement in 2016.

After a difficult start to the year, Canada returned to growth in the third quarter . True, GDP data for Q3 wasn’t yet available at this writing, but our optimism rests on reliable monthly reports on trade, retailing and manufacturing activity which all point to a surge in output . By our estimates, GDP growth may have come close to 3% annualized in the third quarter, not far from the pace set over June-August .

Trade was a major driver of growth in Q3 with exporters benefiting from an improving US economy and a more competitive Canadian dollar . In fact, export volumes managed to grow at the fastest pace since 2014Q2 . Domestic demand also seems to have found some support despite continuing weakness of business investment spending . In fact, monthly retail reports suggest consumption spending growth was again rock solid in the quarter . Savings from low pump prices and the checks sent out to household by Ottawa starting July (expanded Universal child care benefit) seem to have supported spending . Residential construction may also have contributed to growth in Q3 albeit at a slower pace than in the prior quarter given that housing starts tilted heavily towards multiple units, the latter contributing less than singles (per unit) to GDP . Weak imports despite strong demand suggest inventories likely subtracted from growth . All in all, Q3 final sales, i .e . GDP excluding inventories, may well have grown at the fastest pace in a year .

While the return to growth is welcome, the persistence of weak nominal GDP is concerning, the latter likely to be soft for the fourth consecutive quarter in Q3 . Depressed commodity prices continue to weigh on the value of Canadian output which pose problems for public finances at both the federal and provincial levels . It may be too early to call a bottom for commodity prices, but we take encouragement from the apparent stabilization which should reduce the pressure on public coffers and provide relief to producers in the resources sector . Also positive is the fact that the spread i .e . the difference between West Texas Intermediate and Western Canada Select (the price received by our oil exporters) isn’t getting any worse despite the reported glut brought by refinery outages .

-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.50.60.7

-3-2

-1

01

2

3

45

2012 2013 2014 2015

%

NBF Economics and Strategy (data via Statistics Canada)

3-month annualized rate of growth (R)

Canada: Economy has surged in the last three monthsReal GDP at basic prices

%

Monthly change (L)

Aug.

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

-4

-3

-2

-1

0

1

2

3

4

5

6

7

2011 2012 2013 2014 2015

Canada: Trade contributed to growth in the third quarter Real exports and imports versus goods trade contribution to GDP unannualized


%

Trade contribution to GDP (L)

Growth differential between real exports and real imports (R)

%

Q3

-40

-30

-20

-10

0

10

20

30

40

14Q4 15Q1 15Q2 15Q3 15Q4

WTI spread C$ WCS in C$

360400440480520560600640680

-36

-32

-28

-24

-20

-16

-12

-8

2012 2013 2014 2015

Canada: Energy prices seem to be stabilizing

NBF Economics and Strategy (data via Bank of Canada, Datastream)

Quarterly price changes for WTI and WCS oilBank of Canada energy price index and WCS-WTI spread

%

est.

Stabilization of energy prices and spreads …

BoC energyprice index (L)

Spread (R)

Index US$/barrel

Q4 est.

… mean less pain for producers in Q4

The Economy—

VISIONDecember 2015

12

—

Whether or not consumption spending can maintain the pace will depend in part on the labour market . So far this year, Canada has created on average 17K net new jobs/month with about half of that tally coming from the private sector . Employment strength in three of the country’s largest provinces has offset weakness elsewhere . This year’s job gains have come largely from services-producing industries with the January-October average of 24K/month the best since 2007 . Job losses in the goods sector have been largely due to Alberta, Saskatchewan and Newfoundland & Labrador which have all been hit disproportionately by the oil shock, although there has also been significant cuts to construction jobs in Quebec . In contrast, Ontario and BC are the only two provinces with solid employment gains in both goods and services sectors . Such breadth of gains in employment explains in part why those two provinces continue to lead the nation in terms of house price inflation .

There are indeed two housing markets in Canada, i .e . Ontario/BC versus the rest . While the Teranet-National Bank Composite House Price Index showed a healthy overall year-on-year increase of 5 .6% in October (the highest since June 2012), that masks significant regional divergences in home prices . In hot markets such as Vancouver and Victoria (both cities in BC), and Toronto and Hamilton (both in Ontario), annual price gains averaged 9% . In sharp contrast, home prices in the seven remaining metropolitan areas covered by the index — Calgary, Edmonton, Winnipeg, Ottawa-Gatineau, Montreal, Quebec City, Halifax — were close to flat on average . So, a strong argument can be made that the widely anticipated moderation in Canadian real estate has already arrived . The only outliers, for now, are four cities which are in provinces blessed with above-average employment creation and solid immigration levels .

As employment softens next year — because it's unlikely the services sector will be able to maintain the current pace of job creation — we expect domestic demand to take a hit . There will accordingly be a moderation in the national house price inflation and hence a decrease in the contribution of residential construction to GDP, while consumption growth will soften not just through weak labour incomes but also via negative housing wealth effects in several cities which will encourage savings and debt repayment . Business investment spending, which collapsed this year, is unlikely to bounce back given the dull outlook for growth and commodity prices . While the new Liberal government promised some fiscal stimulus, we expect that to be too little too late for 2016 . With domestic demand under pressure, trade will once again be the main driver of the economy next year helped by a competitive Canadian dollar . And with 2016 growth likely to be no better than 1 .6%, expect the Bank of Canada to keep the overnight rate unchanged at a low 0 .50% . The central bank can afford to be patient on rates considering the absence of inflation pressures and an output gap which it says will only be closed by mid-2017 .

-10

-5

0

5

10

15

20

CAN BC ON QC MB NB AB SK PE NS NL

Government Private Self TOTAL

Canada: Ontario and BC lead in employment creation … Average net new jobs created, Jan-Oct 2015


Thousand jobs/month

-10-8-6-4-202468

10121416182022

2002 2004 2006 2008 2010 2012 2014

… and that is contributing to dichotomy in housing marketTeranet-National Bank House price index

NBF Economics and Strategy (data via Teranet-National Bank)

Top 4: Toronto (ON),

Hamilton (ON), Vancouver (BC),

Victoria (BC)

Bottom 7

Composite 11

y/y % chg.

Oct. 2015

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2007 2008 2009 2010 2011 2012 2013 2014 2015

Canada: Inflation remains mildConsumer price index excluding food and energy


y/y % chg.

Oct.

The Economy—

13

—

Q4/Q4(Annual % change)* 2013 2014 2015 2016 2017 ### 2015 2016 2017

Gross domestic product (2009 $) 1.5 2.4 2.5 2.3 2.0 2.2 2.1 1.9Consumption 1.7 2.7 3.1 2.5 2.2 2.7 2.2 2.2Residential construction 9.5 1.8 8.4 5.8 2.9 7.9 5.0 2.0Business investment 3.0 6.2 3.2 3.3 2.0 2.9 3.2 1.4Government expenditures (2.9) (0.6) 0.7 1.0 0.9 1.2 0.9 0.6Exports 2.8 3.4 1.3 0.7 0.4 (0.1) 0.5 0.4Imports 1.1 3.8 5.0 2.0 1.5 3.3 2.2 1.0Change in inventories (bil. $) 61.4 68.0 100.1 80.5 76.5 84.0 78.0 75.0Domestic demand 1.2 2.5 2.9 2.4 2.0 2.6 2.2 1.8

Real disposable income (1.4) 2.7 3.5 2.7 2.5 3.2 2.6 2.5Household employment 1.0 1.6 1.7 1.3 1.4 1.4 1.4 1.3Unemployment rate 7.4 6.2 5.3 4.9 4.8 5.0 4.8 4.8Inflation 1.5 1.6 0.2 1.9 2.1 0.5 2.2 2.0Before-tax profits 2.0 1.7 (0.5) 4.2 4.5 -2.1 4.5 4.5Federal balance (unified budget, bil. $) (680.2) (483.3) (439.0) (414.0) (416.0) ... ... ...Current account (bil. $) (376.8) (389.5) (446.8) (445.2) (452.2) ... ... ...

-304* or as noted

Current Q4 2015 Q4 2016 Q4 201711-23-15 Q4 2015 Q1 2016 Q2 2016 Q3 2016 2015 2016 2017

Fed Fund Target Rate 0.25 0.50 0.75 1.00 1.00 0.50 1.00 2.003 month Treasury bills 0.14 0.36 0.61 0.82 0.82 0.36 0.98 1.82Treasury yield curve 2-Year 0.94 0.98 1.11 1.54 1.44 0.98 1.49 2.21 5-Year 1.70 1.81 1.91 2.18 2.00 1.81 2.15 2.55 10-Year 2.25 2.40 2.45 2.76 2.47 2.40 2.54 2.58

30-Year 3.00 3.14 3.17 3.43 3.13 3.14 3.20 3.17Exchange rates U.S.$/Euro 1.06 1.07 1.05 1.07 1.08 1.07 1.10 1.05 YEN/U.S.$ 123 123 124 125 123 123 125 130

National Bank Financial** end of period

United StatesEconomic Forecast

Financial Forecast**

The Economy—

VISIONDecember 2015

14

—

Q4/Q4(Annual % change)* 2013 2014 2015 2016 2017 2015 2016 2017

Gross domestic product (2007 $) 2.0 2.4 1.2 1.6 1.7 0.9 1.6 1.8Consumption 2.5 2.7 2.1 1.7 1.1 2.1 1.2 1.0Residential construction (0.4) 2.7 3.4 0.5 (0.7) 1.7 (0.0) (1.0)Business investment 2.6 0.2 (7.5) (2.1) 1.7 (9.4) (0.0) 2.5Government expenditures 0.1 (0.3) 0.9 1.0 1.5 1.0 1.1 1.3Exports 2.0 5.4 3.1 4.8 5.2 3.5 4.5 5.7Imports 1.3 1.8 1.0 2.5 3.6 0.2 3.5 3.7Change in inventories (millions $) 12,368 7,530 4,878 4,813 7,693 921 7,303 9,449Domestic demand 1.5 1.6 0.7 1.0 1.1 0.4 1.0 1.0

Real disposable income 2.5 1.5 2.2 1.6 1.8 2.0 1.9 1.8Employment 1.4 0.6 0.8 0.6 0.6 0.6 0.6 0.6Unemployment rate 7.1 6.9 6.8 6.8 6.7 6.9 6.8 6.7Inflation 0.9 1.9 1.2 1.7 1.6 1.5 1.6 1.6Before-tax profits (0.6) 8.8 (11.5) 4.7 5.7 (11.0) 7.7 4.5Current account (bil. $) (56.3) (41.5) (60.9) (48.4) (45.2) .... .... ....

* or as noted

Current Q4 2015 Q4 2016 Q4 201711-23-15 Q4 2015 Q1 2016 Q2 2016 Q3 2016 2015 2016 2017

Overnight rate 0.50 0.50 0.50 0.50 0.50 0.50 0.50 1.003 month T-Bills 0.46 0.40 0.46 0.46 0.46 0.40 0.46 1.02Treasury yield curve 2-Year 0.62 0.68 0.65 0.77 0.82 0.68 1.05 1.68 5-Year 0.93 1.09 1.08 1.32 1.33 1.09 1.57 2.14 10-Year 1.61 1.81 1.78 1.96 1.91 1.81 2.08 2.46 30-Year 2.32 2.50 2.44 2.62 2.57 2.50 2.67 3.00

CAD per USD 1.34 1.34 1.35 1.30 1.28 1.34 1.27 1.35Oil price (WTI), U.S.$ 39 45 48 50 50 45 53 57

National Bank Financial** end of period

CanadaEconomic Forecast

Financial Forecast**

The Economy—

Interest Rates and Bond Markets—

VISIONDecember 2015

16

—

The FOMC’s game plan : Gradual normalization

The Fed has made clear for quite some time that it would like to move its policy rate away from the zero lower bound as soon as conditions allow . But over 2015 to date, the window for liftoff has been kept shut by disappointing U .S . economic indicators earlier in the year followed by market volatility and global events . The minutes of the October 28 FOMC meeting made clear that a weaker-than-expected labour market in August and September was the main reason for the Committee’s decision to further delay the launch of monetary policy normalization . Most participants in the October meeting saw the downside risks arising from economic and financial developments abroad as having diminished, but several observed that uncertainty about the labour market outlook had increased over the summer . Some were concerned that the late-summer slowdown in job creation “might prove more than temporary .” In this light and in the absence of greater confidence about the inflation outlook, the FOMC members generally agreed that prudence was in order and kept the policy rate unchanged . At the same time, they made sure that the post-meeting statement conveyed the message that a rate hike “may well become appropriate” at the December meeting .

The air was cleared when the subsequent employment report for October showed a monthly gain of 271,000 in nonfarm payroll jobs and a 2 .5% gain in average hourly earnings over the previous 12 months, suggesting that last summer’s weakness in job creation was transitory . At this writing the fed funds futures market puts the odds of a rate hike in December at 72%, up from only 26% on October 14 .

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2015q1 2015q2 2015q3 2015q4

U.S. 2-year yield

Odds

Odds of a December rate hikeImplied by the fed funds futures market

NBF Economics and Strategy (data via Bloomberg) 2015-11-20

%

FF Future price 99.785Meeting date 16Nb days in the month 31Expected change 0.25Current target rate 0.123 Probability 0.720

How many jobs need to be added for the FOMC to launch monetary normalization? Given U .S . demography, sustained employment growth of more than 200,000 monthly would push the unemployment rate well below the FOMC’s estimated full-employment threshold (NAIRU) as early as the second or third quarter of 2016 . Nonfarm payroll growth of 115,000 to 130,000 would suffice to keep the unemployment rate unchanged . This leaves us thinking that, provided external shocks do not crimp the economic outlook, nonfarm payroll growth above 160,000 in November would be enough to bring policy-rate liftoff in December .

The Fed has also been quite vocal about its intention to proceed gradually in removing policy accommodation . Fed officials have said on numerous occasions that they would like to start raising the policy rate early to allow a smoother path of rate hikes over time . Waiting too long always raises the odds of having to act more aggressively later .

We share the view that a gradual path of normalization, with many pauses along the way, makes a lot of sense in an environment where GDP is expected to grow only 2 .3% in 2016 and uncertainty remains about downside risks from abroad . Economic liftoff has been hard to achieve in the wake of the financial crisis and 2 .3% is not that far above stall speed if something goes wrong and the U .S . economy starts sputtering . Many commodity prices were still touching new lows recently and others remain soft, suggesting some global weakness . In addition, low commodity prices are a headwind for many emerging economies and resource-exporting developed economies . Some spillover effect on U .S . exports cannot be ruled out .

For the pricing of short-to mid-term bonds, the end point of monetary policy normalization is as important to the bond market as the start date and the pace . In this regard the FOMC minutes provide some hints about process . Staff briefings to committee participants estimated the neutral short-run real interest rate – the rate consistent with full employment and price stability – as currently close to zero . Moreover, if projected slow growth of the working-age population is not offset by productivity growth, the neutral real interest rate can be expected to stay low by historical standards . This outlook argues for a low end point .

In our base case scenario, the unemployment rate will fall from 5 .0% currently to 4 .8% in 2016 and core PCE inflation will accelerate from 1 .3% to 1 .6% . Assuming a neutral real rate still close to zero next year, the Taylor rule would suggest a nominal fed funds rate heading to 1 .5% at year end . This is in line with the 1 .4% median projection of September FOMC participants . In other words, assuming a quarter-point hike in December, the median projection of FOMC participants in September implied four rate hikes in 2016 .

In our own outlook, the FOMC will raise its policy rate only twice in 2016 . We see the target range reaching 0 .75%–1 .0% by the end of the second quarter, then kept unchanged in the second half of the year, compared to the year-end range of 1 .25%–1 .50% suggested by the FOMC . Our forecast reflects a view that U .S . economic growth will soften in the second half of 2016 . We think the strong dollar will


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

17

—

continue to brake the economy next year, while consumption and housing are likely to moderate as job creation softens somewhat .

If we are right about the growth of the U .S . economy (at or slightly below 2 .0% annualized in second-half 2016), the FOMC will struggle with soft growth and with core PCE printing below 2 .0% for the fifth year in a row . Given that anchored inflation expectations are not the only factor flattening the Philips curve – the effectiveness of monetary policy (measured by the effect of low interest rates on unemployment and inflation) has also been reduced by demographic changes – the cooling of growth is likely to prompt the FOMC to take longer pauses in order to reach its inflation objective . The Committee will want to ensure that inflation expectations do not get unmoored on the downside – a development that would make its life even harder in a world of a relatively flat Phillips curve .

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8

3.2

3.6

4.0

4.4

2008 2009 2010 2011 2012 2013 2014 2015


U.S. interest ratesWeekly observations and quarter-end forecasts

%

U.S. 2-year

U.S. 10-year

Interest rate forecast11/10/15 Q4 Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4

F.F. - upper bound 0.25 0.50 0.75 1.00 1.00 1.00 1.25 1.50 1.75 2.00 2-YR 0.92 0.98 1.11 1.54 1.44 1.49 1.57 1.83 1.95 2.21 10-YR 2.26 2.40 2.45 2.76 2.47 2.54 2.49 2.56 2.62 2.58Forward 10-yr rate 2.29 2.36 2.42 2.48 2.53 2.57 2.61 2.64 2.67

Fed funds target

Following the stronger-than-expected October nonfarm payrolls report, we have revised our forecast for the 10-year Treasury yield . We now see it following a somewhat higher path in 2016 . For 2017 our forecast is not much different from last month’s . We expect the economy to gain momentum in the first half of 2016 and then cool somewhat . The implication is that in the first half of the year the 10-year yield could come under upward pressure, fading in the second half . In 2017 we see the U .S . economy growing 2 .0% but with a below-average pace in the second half – again an environment that would not prompt the 10-year Treasury yield to break out on the upside of its trading range of the last two years .

In early 2014, the yield spreads of long corporates to 30-year Treasuries were trending down, consistent with a view of extended economic expansion . This year the market faced first-quarter GDP growth of only 0 .5% annualized, a strong dollar, weak commodity prices and the August stock market correction . In these circumstances it was hardly surprising that corporate spreads came under pressure .

80

120

160

200

240

280

320

360

400

440

480

520

560

600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

A and Baa corporates: Yield spreads to 30-year TreasuriesBasis points

Baa


A

While the S&P 500 has since made up its August losses, corporate spreads have not narrowed proportionately . Our scenario of modest growth and gradual normalization of monetary policy would leave room for further improvement in the stock market . Our target for the S&P 500 is 2200 at year end 2016, a gain of 5% before dividends . That would probably be enough to support some narrowing of long-corporate spreads, from 143 bps to 125 bps for A-rated and from 243 bps to 195 bps for Baa-rated . The situation with high-yields is less clear since an environment of low commodity prices suggests higher default risks .

... and in Canada

Canadian inflation has been somewhat resilient over the past year despite the energy price slump . Headline inflation was unchanged in October at 1 .0%, while core CPI, which excludes eight of the most volatile items, rose 0 .3% on the month, leaving 12-month core inflation at 2 .1% .

But as the Bank of Canada has pointed out on numerous occasions, the transitory effects of past loonie depreciation have roughly offset the deflationary pressure of economic slack so far this year .

In our base case scenario, the Canadian economy grows no more than 1 .6% in 2016 and 1 .7% in 2017 . Consequently the output gap may not close until mid-2018 . Business capital spending, which collapsed in 2015, is unlikely to bounce back strongly next year despite our expectation that oil (WTI crude) will trade at around US$57 by year end 2016 . Moreover we expect domestic demand to be soft as a result of weaker job creation . The fiscal stimulus promised by the new federal government is likely to be felt too late in 2016 to show in the economic results for the year . In 2017 its effect will be greater . As for inflation, the effect of loonie depreciation on import prices has put upward pressure on core goods prices . We note that this effect is now fading . If, as we expect, core services inflation continues to soften in response to slow growth, we see 12-month core inflation slipping below 2% in 2016 and headline inflation averaging 1 .6% .


VISIONDecember 2015

18

—

Bank of Canada governor Stephen Poloz sees monetary policy-making as a risk-management exercise requiring flexibility in steering toward an inflation target . We believe that our economic scenario projects a balance of risks that will favour keeping the current policy stance unchanged in 2016 . Growth of only 1 .6% does not provide much of a cushion if something goes wrong and the economy starts sputtering . This is even more of a concern on this side of the border, where the economy is going through complex adjustments and the vulnerabilities of the financial system remain high .

We reiterate that we see the current 0 .50% overnight rate of Canadian monetary policy as quite accommodative . In these conditions we see a need not for further easing but for patience while the economy continues to adjust to new reality .

Finance minister Bill Morneau has updated the federal government’s fiscal projections with a weaker outlook for oil and a weaker growth path for nominal GDP . The resulting underlying fiscal position is one of deficits rather than surpluses extending from fiscal years 2015-16 through 2018-19 . But even assuming the government delivers on its campaign promises, the federal deficit is likely to peak at less than 1% of GDP . In our fair value model, that would raise the 10-year rate a quarter-point over what it would be otherwise . However, since Mr . Morneau’s projections include some buffer, we think the federal deficit could average a modest 0 .5% of GDP over the coming four-year mandate . That would leave the debt still close to 30% of GDP in 2016-17, maintaining Canada’s favourable position . So international demand is likely to stay relatively strong, somewhat limiting the potential for upward drift of long rates in response to larger borrowing requirements .

1618202224262830323436384042444648

91 93 95 97 99 01 03 05 07 09 11 13 15

Government of Canada bonds held by foreignersBonds held by foreigners as % of bonds held by the general public*

* Excludes bonds held by Bank of Canada and in Government of Canada accounts

%

NBF Economics and Strategy (data from Statistics Canada)

2009M06 2015M09Total bond outstanding: $250.0B $427.4B (+71%)

Foreigners position: $46.2B $166.2B (+259%)

On this point it is interesting to note that in a Bank of Canada Staff Analytical Note (2015-1), the authors’ empirical analysis suggests that $150 billion in flows from abroad from 2009 through 2012 lowered the yield of 10-year Canadas by 100 basis points during that period, mostly by reducing the bond risk premium . In our model, a 1-point increase in the percentage of bonds held by foreigners relative to the total held by the general public would lower the 10-year rate by 6 basis points .

We now see 10-year Canadas trading at around 1 .96% in June 2016, compared to last month’s forecast of 1 .81% .

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8

3.2

3.6

4.0

2008 2009 2010 2011 2012 2013 2014 2015

Canadian interest ratesWeekly observations and quarter-end forecasts

%


Canada 10-year

Canada 2-year

BoC overnight target

Interest rate forecast11/10/15 Q4 Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4

Overnight 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.75 1.00 2-YR 0.61 0.68 0.65 0.77 0.82 1.05 1.12 1.27 1.45 1.68 10-YR 1.62 1.81 1.78 1.96 1.91 2.08 2.12 2.18 2.26 2.46Forward 10-yr rate 1.71 1.76 1.81 1.86 1.91 1.96 2.02 2.07 2.12


19

—


Recommended bond allocationRecommended duration 7.16 vs.7.28 for the benchmark Maintain overweight in corporate bonds and neutral position in provincials

Long30.1%

Short45.3%

Mid24.6%

Federal33.1%

Corporate31.6%

Provinces35.3%

Benchmark Allocation

Short 43.3%, Mid 25.4%, Long 31.3%Federal 36.2%, Provinces 35.3%

Corporations 28.5%

0

1

2

3

4

5

6

7

8

9

10

03 04 05 06 07 08 09 10 11 12 13 14 15

U.S. interest ratesLast observation November 20, 2015

%

NBF Economics and Strategy (data via Bloomberg)

Long corporate

U.S. 10-year

U.S. 2-year

Target fed funds

30-year mortgage

Canadian bond market – total returns


Total Returns 11/20/2015Since Since Since Since

10/23/2015 8/21/2015 5/22/2015 11/21/2014Cash 0.02 0.08 0.28 0.69

CanadaShort -0.17 -0.65 0.66 2.34Mid -0.61 -2.00 1.69 5.08Long -0.48 -4.58 1.36 5.93Universe -0.34 -1.83 1.05 3.74

Provincial -0.16 -3.05 -0.14 4.67Municipal -0.20 -2.97 -0.33 3.66

CorporateAA 0.01 -0.68 0.59 2.93A 0.05 -2.12 -0.47 2.75BBB 0.11 -1.98 -0.26 2.98Universe 0.06 -1.64 -0.09 2.90

Total -0.16 -2.21 0.30 3.77

S&P/TSX -3.58 0.49 -10.27 -8.41

0

1

2

3

4

5

6

7

8

04 05 06 07 08 09 10 11 12 13 14 15

Canadian interest ratesWeekly, last observation November 20, 2015

%Long corporate A

Long provincial

Canada10-yearCanada 2-year

BoC overnight target

NBF Economics and Strategy (data via Bloomberg)

Bond Market - Canada

Close-on11/20/15 10/23/15 8/21/15 5/22/15 11/21/14

Interest Rates90-day (B/A's) 0.83 0.80 0.74 1.00 1.282 years 0.62 0.54 0.33 0.68 1.075 years 0.94 0.85 0.61 1.05 1.5110 years 1.63 1.51 1.27 1.77 2.0130 years 2.33 2.30 2.01 2.36 2.55Spreads90 d - 2 years -21 -27 -41 -32 -212 - 5 years 32 32 27 37 452 - 10 years 101 97 93 109 9410 - 30 years 70 80 74 59 55CurrenciesCAD / USD 1.3348 1.3167 1.3188 1.2280 1.1234EUR / CAD 0.7036 0.6893 0.6659 0.7391 0.7183

Source: NBF Economy and Strategy (data via Bloomberg)

Stock Market and Portfolio Strategy—

VISIONDecember 2015

22

—

The Fed menace?

After grinding higher through October, global equities paused in November . Stock market volatility has abated, credit market stress has receded and the U .S . dollar is showing less lift . For some pundits, this period of consolidation may be just a calm before the storm of investor reaction to the Federal Reserve’s December 16 interest-rate decision . At this writing the fed funds futures market puts the odds of a rate hike in December at 72%, up from only 26% on October 14 . But is the initial phase of Fed tightening necessarily a threat to an advance of equity markets? We do not think so .

MSCI composite index: Price performance


Month to dateQuarter to

date Year to dateMSCI AC World 0.3 7.8 1.6MSCI World 0.3 8.2 2.3MSCI USA 0.5 8.7 1.5MSCI Canada -0.9 0.6 -8.5MSCI Europe -0.6 6.6 3.9MSCI Pacific ex Japan -0.8 5.0 -5.0MSCI Japan 2.9 14.1 12.5MSCI EM -0.6 4.7 -4.7MSCI EM EMEA -1.2 3.2 -0.5MSCI EM Latin America 1.8 4.7 -4.4MSCI EM Asia -0.8 5.1 -5.6

11/24/2015

In our view, the U .S . economy is in good enough shape to handle a modest withdrawal of monetary stimulus . After all, the jobless rate is down to 5%, full-time employment is back to pre-recession peak, household formation is picking up, consumer credit is growing, motor vehicle sales recently hit an all-time high, and core inflation seems to be forming a bottom . It is becoming harder and harder to dismiss the rationale for a rate hike . It needn’t spook global financial markets, if the Fed tightens only very gradually and the rest of the global economy shows improvement . In our outlook, the FOMC will raise its policy rate in December and then only twice in 2016 . We see the target range reaching 0 .75%–1 .0% by the end of the second quarter and staying there in the second

half of the year . In this scenario, the 10-year Treasury yield is unlikely to rise much more than 50 basis points, to about 2 .8% . We doubt that would be enough to derail the outlook for the global economy and profits .

Rate hike, lower dollar

Much of the fear currently imbedded in the markets is centred on the U .S . dollar . The surge of the greenback in 2015, by precipitating a drop in commodity prices and inflation expectations, has resulted in a wave of downward earnings revisions (chart) .

-16

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4

8

12

16

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24

2007 2008 2009 2010 2011 2012 2013 2014 2015 74767880828486889092949698

100102104106

2014q4 2015q1 2015q2 2015q3 2015q4

World: Disinflationary forces not good for earningsEarnings expectations for 2015

(local currency)Indexes of U.S. dollar vs. currencies of

advanced and “OITP”* economies

2014 q4 = 100

Broad

Canada

U.S.

Germany

France

China

U.K.

Japan

% y/y Advanced

OITP

* OITP: Other Important Trading Partners (broad index: 26 currencies, OITP plus advanced)NBF Economics and Strategy (data via Datastream)

The story for 2016 goes that a Fed rate hike can only promote further USD strength – not good news . Fortunately, history suggests otherwise . As the chart below shows, the beginning of Fed tightening in 1994 and 2004 coincided with depreciation, not appreciation, of the USD . This should come as no great surprise . Markets being forward-looking, the initial hikes had been largely discounted . Investors began to look elsewhere for opportunities after the first Fed moves .


Matthieu Arseneau Senior Economist 514-879-2252

Stéfane Marion Chief Economist and Strategist 514-879-3781

23

—

012345678

9296100104108112116120124128

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

2-yr(left)

U.S.: Perspective on effect of monetary policy on USDUSD index vs. short-term interest rates


%

USD(right)

Fed funds(left)

Index

?

But are there worthwhile alternatives to the USD at a time when other central banks are still pledging more quantitative easing? Again, some of that QE is already priced in . The question then becomes: to what degree will those central banks deliver on their promises? Much will depend on the economic back-drop and the extent to which incoming data exceed expectations . As the chart below shows, economic surprises in the Eurozone and in emerging markets have turned positive in recent weeks . Although the effect on the Eurozone economy of the November terrorist attacks in Paris may take a few more weeks of indicators to assess fully, upside surprises could limit the scope of the monetary stimulus campaign recently advertised by the European Central Bank for 2016 . Our view is that the euro could actually appreciate in the coming months .

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10

20

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2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4

World: Indicators now topping expectationsEconomic surprise index


Eurozone

Emerging

Emerging markets could also bring respite to USD appreciation . Economic surprises have just turned positive for the first time since the beginning of the year . China’s slowdown seems to be abating, easing the need for further currency devaluation . With the IMF granting reserve currency status to the renminbi, Beijing’s new five-year plan is better positioned to deliver the structural reforms that are much needed to enhance the Chinese economy .

41.9

37.4

0

9.411.3

41.7

30.9

10.98.3 8.1

0

5

10

15

20

25

30

35

40

45

USD Euro Yuan Yen Sterling

Before yuan inclusion After yuan inclusion

World: Yuan has third largest weight in SDR basket Weights in new SDR basket

NBF Economics and Strategy (data via IMF)

%

China’s new five-year plan

While the full details of China’s 13th five-year plan (2016-2020) will not be officially released until March, more than enough information has been disclosed to allow us to assess certain of China’s main economic and political objectives and challenges . The latest plan is an ambitious multi-pronged push to spur growth . Its main objectives are the following1:

Acceptance that China is entering a period of more moderate economic growth as it shifts to a more service-oriented economy . Beijing sees a growth rate of about 6 .5% as necessary to attain its goal of doubling GDP and per-capita income between 2010 and 2020 .

Termination of the country’s longstanding policy of limiting most families to one child, a move intended to offset the drag of population aging on growth of potential GDP .

Efforts to gradually eliminate restrictions that deprive millions of migrant workers of access to many social services in the cities where they work .

An increase in pension and healthcare coverage, essential for encouraging consumers to save less and spend more . China’s current savings rate is 30%, compared to about 5% for the U .S .

Increased efforts to integrate with global financial markets by, among other means, securing a much greater role for the renminbi in the global economy .


1 For more details, please refer to our November 12 Geopolitical Briefing: “China’s new five-year plan: An ambitious multi-pronged push to support a slowing economy .”

VISIONDecember 2015

24

—

A significant push for greater economic integration with other Asian countries .

In our view, these objectives taken together imply the most significant structural change to the Chinese economy since its accession to the World Trade Organization in 2001 . The importance of China’s effort to integrate with global financial markets can hardly be overstated . Without access to foreign capital to finance a more generous social safety net, China would struggle in its objective to simultaneously reduce the domestic savings rate and boost consumption . Thus China is about to become a larger issuer in global bond markets . In November the People’s Bank of China proceeded with Beijing’s first-ever debt offering in international markets . According to the Financial Times, investors bought 5 billion renminbi in one-year bills in a deal that was more than six times oversubscribed . Following this success, China’s finance ministry is expected to start preparing to issue longer-term renminbi bonds in London . As the chart below shows, Beijing’s room to increase its leverage is quite large .

02468

10121416182022242628

2005 2006 2007 2008 2009 2010 2011 2012 2013

China – public

China: Room to expand leverageRatio of external debt to GNI

NBF Economics and Strategy (data via http://data.worldbank.org/indicator/DT.DOD.DECT.CD)

%

Developing economies

China – total

In sum, a slow Fed tightening campaign coupled with better economic news in the rest of the world and increased issuance of Chinese debt in global markets could limit USD upside in 2016 . If we are right, the greenback is likely to struggle against emerging-market currencies in the months ahead .

120

124

128

132

136

140

144

148

152

156

2002 2004 2006 2008 2010 2012 2014

USD: Losing steam against EM currenciesIndex of USD vs. “Other Important Trading Partners”


Index

Upside for commodities

USD weakening would of course be good news for commodity prices . The current negative correlation between monthly changes in the broad dollar index and the price of WTI remains one of the strongest ever seen (chart) .

-1.0-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.5

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

150

130

1101009080

70

60

50

40

30

122120118116114112110108106104102100989694

922006 2007 2008 2009 2010 2011 2012 2013 2014 2015

World: USD appreciation precipitated the oil price slump

* Broad dollar index (26 currencies)NBF Economics and Strategy (data via Datastream)

Correlation of monthly changes in USD* and WTI USD and price of oil (WTI)

US$/barrel (log scale)

12-month movingcorrelation

Current

Periodaverage

WTI(left)

USD (right)

Index (log scale)

By our estimate, a 5% depreciation of the greenback coupled with a reduction of oil oversupply (the current assumption of the Energy Information Administration) could push WTI to $57 by the end of next year . As the table below shows, that is well above the $50 currently forecast by the forward curve .

97.097.598.098.599.099.5

100.0100.5101.0101.5102.0

200

1007050

30

20

10

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

World: Perspective on oil price vs. demand/supply ratio

NBF Economics and Strategy (data via EIA)

Price of oil (R)

Ratio US$ (log scale)

Demand / supply (L)

$57


25

—

Commodity price expectations


Current forward pricesCopper Gold Crude oil Natural gas

Current price 278 1072 42 2.06Prices

Current quarter (Q) 219 1106 44 2.33Q+1 205 1070 46 2.37Q+2 206 1071 48 2.47Q+3 207 1073 49 2.54Q+4 207 1074 50 2.78

Change (Q/Q)Current quarter (Q) -21.1% 3.2% 6.0% 13.3%

Q+1 -6.5% -3.2% 3.2% 1.7%Q+2 0.4% 0.1% 4.5% 4.2%Q+3 0.4% 0.1% 2.6% 2.8%Q+4 0.4% 0.1% 2.2% 9.4%

11/26/2015

Such an outcome would of course also have a profound impact on S&P/TSX earnings revisions, which at this point are overwhelmingly negative .

-20

-15

-10

-5

0

5

1/10/2012 1/10/2013 1/10/2014 1/10/2015

One-month

three-month

MSCI World AC: Change in 12-month forward earnings

%


As the table below shows, earnings expectations for the Energy and Materials sectors have been cut more than 27% in the past three months . We may be near a point where some light will finally appear at the end of tunnel .

Canada : change in 12-month forward earnings


1-monthchange

3-monthchange

10 year historical average

3 month diffusion

10 year historical average

S&P TSX -2.5 -6.8 -0.7 32% 43%ENERGY -4.3 -27.4 -2.4 24% 40%MATERIALS -11.8 -28.4 -1.6 37% 42%INDUSTRIALS -1.9 -2.9 -0.5 33% 42%CONS. DISC. -2.3 -2.2 -0.6 42% 45%CONS. STAP. -0.4 -0.3 -0.3 22% 45%HEALTH CARE -8.9 -8.7 0.3 0% 44%FINANCIALS -0.6 -0.7 -0.3 34% 46%BANKS -0.1 -0.3 -0.1 30% 48%IT -0.6 -5.7 -1.2 30% 51%TELECOM 0.3 0.3 -0.1 50% 45%UTILITIES -2.6 -4.4 -0.5 36% 42%11/24/2015

Asset allocation

Our asset allocation is slightly modified this month . We are maintaining our recommendation to over-weight equities relative to our benchmark but are revising our regional allocation . In our eyes, the value of the USD has now largely discounted anticipations of divergent monetary policies in the coming months . If the Fed’s rate rises are gradual and the European and emerging economies still surprise on the upside, a greenback depreciation seems likely . For this reason we are eliminating our leaning to U .S . equities and raising our ante in emerging-market and Canadian equities, which are likely to gain lift in an environment more favourable to commodity prices . Our 12-month targets remain 15,000 for the S&P/TSX and 2,200 for the S&P 500 .

Sector rotation

Our sector allocation is unchanged this month .


VISIONDecember 2015

26

—


NBF Fundamental Sector Rotation - December 2015

Name (Sector/Industry) Recommendation S&P/TSX weight

Energy Market Weight 18.9%Energy Equipment & Services Market Weight 0.7%Oil, Gas & Consumable Fuels Market Weight 18.2%

Materials Market Weight 9.4%Chemicals Underweight 2.8%Containers & Packaging Market Weight 0.4%Metals & Mining * Market Weight 1.7%Gold Market Weight 4.0%Paper & Forest Products Overweight 0.6%

Industrials Market Weight 8.4%Capital Goods Overweight 1.7%Commercial & Professional Services Underweight 0.8%Transportation Market Weight 6.0%

Consumer Discretionary Underweight 7.1%Automobiles & Components Underweight 1.6%Consumer Durables & Apparel Overweight 0.7%Consumer Services Underweight 0.9%Media Market Weight 2.3%Retailing Underweight 1.5%

Consumer Staples Underweight 4.5%Food & Staples Retailing Underweight 3.8%Food, Beverage & Tobacco Underweight 0.7%

Health Care Market Weight 2.6%Health Care Equipment & Services Market Weight 0.2%Pharmaceuticals, Biotechnology & Life Sciences Market Weight 2.4%

Financials Overweight 38.3%Banks Overweight 23.5%Diversified Financials Market Weight 1.6%Insurance Overweight 7.8%Real Estate Market Weight 5.4%

Information Technology Overweight 3.0%Software & Services Overweight 2.5%Technology Hardware & Equipment Market Weight 0.5%

Telecommunication Services Underweight 5.6%Utilities Underweight 2.2%

* Metals & Mining excluding the Gold Sub-Industry.

27

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-13

.9%

9.4% 13

.2%

19.4

%27

.4%

15.0

%

-150%

-100%

-50%

0%

50%

100%

150%

Q1-99 Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16

S&P 500 Quarterly Operating Earnings Growth (YoY)

Realized Forecast (Bottom-up estimates)

n.a.

Actual Q4 2016 (Est.) Actual Q4 2016 (Est.)Index Level Nov-26-15 Target Index Level Nov-26-15 Target S&P/TSX 13,425 15,000 S&P 500 2,089 2,200

Assumptions Q4 2016 (Est.) Assumptions Q4 2016 (Est.) Level: Earnings * 782 870 Level: Earnings * 117 122

Dividend 430 478 Dividend 44 46PE Trailing (implied) 17.2 17.2 PE Trailing (implied) 17.8 18.0

Q4 2016 (Est.) Q4 2016 (Est.) Treasury Bills (91 days) 0.48 0.46 Treasury Bills (91 days) 0.19 0.98 10-year Bond Yield 1.57 2.08 10-year Bond Yield 2.23 2.54* Before extraordinary items, source Thomson * S&P operating earnings, bottom up.NBF Economics and Strategy

NBF Market Forecast NBF Market ForecastCanada United States

VISIONDecember 2015

28

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Local Currency (MSCI Indices are in US$) Canadian Dollar Correlation *

Close on with S&P 50011-26-2015 M-T-D Y-T-D 1-Yr 3-Yr Y-T-D 1-Yr 3-Yr

North America - MSCI Index 2118 0.4% 0.1% -0.9% 43.0% 14.9% 17.2% 91.1% 1.00 United States - S&P 500 2089 0.5% 1.5% 0.8% 48.5% 16.5% 19.3% 98.5% 1.00 Canada - TSE 300 13425 -0.8% -8.3% -10.7% 10.2% -8.3% -10.7% 10.2% 0.84Europe - MSCI Index 1569 -1.6% -2.4% -6.9% 13.4% 12.0% 10.2% 51.5% 0.56 United Kingdom - FTSE 100 6393 0.5% -2.6% -5.0% 10.5% 8.4% 7.7% 39.3% 0.56 Germany - DAX 30 11321 4.3% 15.5% 14.2% 55.3% 16.3% 14.5% 69.9% 0.92 France - CAC 40 4946 1.0% 15.8% 13.1% 41.3% 16.6% 13.5% 54.6% 0.90 Switzerland - SMI 8968 0.3% -0.2% -1.0% 34.2% 11.2% 9.8% 62.6% 0.95 Italy - Milan Comit 30 240 0.7% 17.6% 12.2% 41.2% 18.5% 12.6% 54.6% 0.90 Netherlands - Amsterdam Exchanges 472 2.2% 11.3% 11.4% 42.7% 12.1% 11.8% 56.2% 0.91Pacific - MSCI Index 2338 0.5% 1.4% -1.4% 15.9% 16.4% 16.7% 54.9% 0.59 Japan - Nikkei 225 19944 4.5% 14.3% 14.7% 112.4% 28.4% 30.3% 90.2% 0.90 Australia - All ordinaries 5260 -0.5% -2.4% -2.2% 18.4% -1.0% -2.1% 9.4% 0.82 Hong Kong - Hang Seng 22489 -0.7% -4.7% -6.7% 2.9% 9.4% 10.5% 37.5% 0.57World - MSCI Index 1704 -0.1% -0.3% -2.5% 30.8% 14.4% 15.4% 74.8% 0.96World Ex. U.S.A. - MSCI Index 1739 -1.0% -2.9% -6.9% 11.1% 11.5% 10.2% 48.5% 0.56EAFE - MSCI Index 1756 -0.9% -1.1% -5.0% 14.3% 13.6% 12.4% 52.8% 0.61Emerging markets (free) - MSCI Index 838 -1.2% -12.4% -17.2% -15.8% 0.6% -2.0% 12.5% -0.23

* Correlation of monthly returns (3 years).

Global Stock Market Performance Summary

Returns Returns

S&P 500 Sectoral Earnings- Consensus*2015-11-25

Weight Index 5 year PEG RevisionS&P 500 Level 3-m D 12-m D 2015 2016 12-m 2015 2016 12-m Growth Ratio Index**

% forward forward Forecast

S&P 500 100 2089 7.65 0.77 0.45 7.57 7.21 17.78 16.53 16.56 10.57 2.30 -3.41

Energy 7.05 500 11.66 -19.87 -58.60 0.93 -9.59 28.02 27.76 27.80 -8.66 neg. -21.14

Materials 2.85 286 9.27 -9.36 -6.55 11.67 10.55 17.60 15.76 15.83 8.25 1.50 -9.20

Industrials 10.13 477 9.87 -3.16 3.88 4.36 4.55 16.55 15.86 15.93 8.97 3.50 -3.19

Consumer Discretionary 13.19 648 10.87 15.34 11.62 14.70 14.64 21.20 18.48 18.62 21.95 1.27 -0.57

Consumer Staples 9.59 509 5.71 1.80 -0.21 5.52 6.15 20.60 19.52 19.43 7.39 3.16 -2.67

Healthcare 14.72 830 1.60 3.85 11.13 9.21 9.30 17.35 15.89 16.00 11.30 1.72 -0.95

Financials 16.50 329 5.99 0.46 14.37 7.60 8.12 14.80 13.75 13.83 10.07 1.70 -2.84

Information Technology 20.83 737 11.85 5.09 6.05 7.22 7.46 17.68 16.49 16.32 13.46 2.19 -3.24

Telecom Services 2.30 146 1.42 -9.34 9.64 3.49 3.96 12.51 12.09 12.13 7.45 3.06 -0.45

Utilities 2.84 215 -0.33 -6.53 -0.04 3.71 3.40 15.68 15.12 15.17 4.37 4.46 -0.12* Source I/B/E/S** Three-month change in the 12-month forward earnings

Variation EPS Growth P/E

Technical Analysis—

VISIONDecember 2015

30

—

The overriding theme in this market is the large number of negative divergences that makes this market an increasingly risky environment . In this edition of Vision we highlight the charts of the S&P 500, S&P/TSX and the DAX to illustrate the increasing lagging action of markets relative to the S&P 500 . We also highlight the Dow Transportation Average, the Russell 2000 and the weekly new highs on the NYSE to further illustrate the negative divergences in this market . From these charts we can only conclude that the tide is going out on the equity markets .

S&P/TSX Composite

The S&P/TSX chart is showing an absolute as well as relative weak performance trend . A peak was struck 15 months ago and at the moment the index is below the important October 2014 benchmark low . Since May 2015 this index has spent most of its time below its 50-day average as it trends lower . Several support levels failed to stem the tide of the bears with important levels at 13,600 to 13,700 breaking down . Chart support at 13,000 is being challenged with better than even odds of a failure translating into further downside risk . On breakdown at 13,000, the risk is 1,000 points as meaningful chart support does not come into play until the TSX approaches 12,000 .

S&P 500

While the S&P 500 lingers near its highs most other markets and market measures are well below their respective highs . Upside momentum is fading as the rising trend falters and the market cannot make new rally highs on the reaction after the trend line break . The number of S&P 500 stocks above their 200-day was close to 80% earlier this year . The rebound over the past month could only get this number back to approximately 56% and has quickly faded to 39% . Important overhead resistance is established around 2,140 and will not likely be surmounted in the near future . Initial chart support at 2,040 appears to be failing along with the uptrend . The widely unconfirmed rebound is starting to weigh on this index .

DJ Transportation Average

The action in the Dow Transportation Average is classic Dow Theory non-confirmation . A peak was reached in the Dow Transports in November 2014 and the Dow Industrials peaked in May 2015 . Now the interplay on the downside sees successively lower highs on the Dow Transports as it broke its first top at 8,600 and is working on a second much bigger top at 7,700 . A big uptrend on the Dow and Dow Transports since the 2009 bottom will take a big top to reverse it to the downside . A break of 7,700 on the Dow Transports will be important .


Dennis Mark, cfa 416-869-7427 dennis .mark@nbc .ca

Daily [.GSPTSE List 1 of 242] .GSPTSE 2010-11-17 - 2016-02-18 (TOR)Cndl, .GSPTSE, Trade Price, 2015-11-16, 13,080.69, 13,180.80, 13,078.82, 13,157.28, +81.86, (+0.63%), SMA, .GSPTSE, Trade Price(Last), 50, 2015-11-16, 13,578.00, SMA, .GSPTSE, Trade Price(Last), 200, 2015-11-16, 14,492.23

PriceCAD

Auto

11,000

11,200

11,400

11,600

11,800

12,000

12,200

12,400

12,600

12,800

13,000

13,200

13,400

13,600

13,800

14,000

14,200

14,400

14,600

14,800

15,000

15,200

15,400

13,157.28

13,578.00

14,492.23

Vol, .GSPTSE, Trade Price, 2015-11-16, 21.826MVolumeAuto21.826M

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 J FQ4 10 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 16

Source: Reuters

S&P 500 Daily [.SPX List 1 of 506] .SPX 2013-11-18 - 2015-12-23 (NYC)

Cndl, .SPX, Trade Price, 2015-11-16, 2,022.08, 2,033.84, 2,019.39, 2,028.09, N/A, N/A, SMA, .SPX, Trade Price(Last), 50, 2015-11-16, 2,009.82, SMA, .SPX, Trade Price(Last), 200, 2015-11-16, 2,064.25PriceUSD

Auto1,6401,660

1,680

1,700

1,720

1,740

1,760

1,780

1,800

1,820

1,840

1,860

1,880

1,900

1,920

1,940

1,960

1,980

2,000

2,020

2,040

2,060

2,080

2,100

2,009.82

2,028.09

2,064.25

Vol, .SPX, Trade Price, 2011-11-22, 0.00VolumeAuto

0.00

18 02 16 02 16 03 18 03 17 01 16 01 16 02 16 01 16 01 18 02 16 01 16 03 17 01 16 02 16 02 17 02 16 01 16 01 18 01 16 01 16 03 17 01 16 01 16 02 16 01 16Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15

Source: Reuters

While the S&P 500 lingers near its highs most other markets and market measures are well below their respective highs. Upside momentum is fading as the rising trend falters and the market cannot make new rally highs on the reaction after the trend line break. The number of S&P 500 stocks above their 200-day was close to 80% earlier this year. The rebound over the past month could only get this number back to approximately 56% and has quickly faded to 39%. Important overhead resistance is established around 2,140 and will not likely be surmounted in the near future. Initial chart support at 2,040 appears to be failing along with the uptrend. The widely unconfirmed rebound is starting to weigh on this index.

Source: Reuters

Daily [.DJT List 1 of 21] .DJT 2013-11-18 - 2015-12-22 (EST)

Vol, .DJT, Trade Price, 2015-11-16, 5.136MVolumeAuto5.136M

Cndl, .DJT, Trade Price, 2015-11-16, 8,005.76, 8,027.11, 7,943.81, 7,953.01, -57.26, (-0.71%), SMA, .DJT, Trade Price(Last), 50, 2015-11-16, 8,071.24, SMA, .DJT, Trade Price(Last), 200, 2015-11-16, 8,422.03PriceUSD

Auto6,4006,500

6,600

6,700

6,800

6,900

7,000

7,100

7,200

7,300

7,400

7,500

7,600

7,700

7,800

7,900

8,000

8,100

8,200

8,300

8,400

8,500

8,600

8,700

8,800

8,900

9,000

9,1009,200

7,953.01

8,071.24

8,422.03


Source: Reuters

31

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Russell 2000

A multi-year trend line break on the Russell index and a failing rebound is a negative change in character that likely spells the end of the bull market . The Russell chart broke an initial top at 1,205 as well as a rising trend line . Chart support at 1,080 will be important for this index to hold . Failing here suggests that Russell completed top and reverses a trend to the downside . Also notable is the weak and deteriorating relative performance of Russell to the S&P suggesting that the underpinnings of this whole market is suspect . The ratio of Russell to S&P is poised to break down to six-year lows .

Daily .RUT 2010-11-17 - 2016-02-18 (EST)

Vol, .RUT, Trade Price, 2011-11-22, 0.0000VolumeAuto

0.0000

Cndl, .RUT, Trade Price, 2015-11-16, 1,146.3722, 1,149.3379, 1,141.6782, 1,141.7583, -4.7908, (-0.42%), SMA, .RUT, Trade Price(Last), 50, 2015-11-16, 1,154.7521, SMA, .RUT, Trade Price(Last), 200, 2015-11-16, 1,215.3477PriceUSD

Auto

630

660

690

720

750

780

810

840

870

900

930

960

990

1,020

1,050

1,080

1,110

1,140

1,170

1,200

1,230

1,260

1,141.75831,154.7521

1,215.3477

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 J FQ4 10 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 16

Daily .DAXXDAX 2013-11-18 - 2015-12-22 (FFT)

Vol, .DAXXDAX, Trade Price, Insufficient DataVolumeAuto

Cndl, .DAXXDAX, Trade Price, 2015-11-16, 10,499.830, 10,763.650, 10,481.830, 10,690.520, +13.210, (+0.12%), SMA, .DAXXDAX, Trade Price(Last), 50, 2015-11-16, 10,272.115, SMA, .DAXXDAX, Trade Price(Last), 200, 2015-11-16, 11,072.940PriceEUR

Auto

8,400

8,600

8,800

9,000

9,200

9,400

9,600

9,800

10,000

10,200

10,400

10,600

10,800

11,000

11,200

11,400

11,600

11,800

12,000

12,200

10,690.520

10,272.115

11,072.940


Source: Reuters

DAX

International markets have generally lagged the S&P 500 especially on this latest rebound to one degree or another with the DAX among the best of them . The DAX has kept pace and in some instances outperformed the S&P . Over the past several months this trend is changing as the DAX strength is starting to falter . The correction since March 2015 broke below both moving averages and established a downtrend . A series of lower highs reflects a weakening trend that indicates that this is yet another negative divergence in the making .

NYSE Weekly new 52-week highs

This market has created more negative divergences than it has over the past decade if not more . The recent rebound from its August correction lows only served to reinforce and create more negative divergences . The accompanying chart of the number of weekly 52-week highs on the NYSE is an example of these negative divergences . As the Dow rallied new highs contracted for the past two years indicating declining support . Most notable is the very weak expansion of new highs off the August low . Another perspective on breadth is looking at the number of advancing stocks to declining stocks as the market rallies . Tracking the action on approximately 1,900 common stocks on the NYSE shows a very weak breadth profile . The rebound from the August lows has produced a net advance of +213 advancing common stocks on cumulative breadth, a very weak recovery .

Source: Reuters

Source: NBF

Sector Analysis—In this section, commentaries and stock closing prices are based on the information available up to November 16, 2015 . Information in this section is based on NBF analysis and estimates and ThomsonOne .

VISIONDecember 2015

34

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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 . DACF is calculated by taking the cash flow from operations and adding in the financing costs .

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

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) .

CNAV = Contingent NAV

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) .

35

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Company Symbol AdditionDate

AdditionPrice

CurrentPrice

AdditionTarget Price

CurrentTarget Price

Est.Total

ReturnRating

MarketCap.

(Mln C$)Analyst

American Hotel Income Properties REIT LP HOT.UN 04/16/2014 C$10.21 C$10.26 C$12.50 C$12.50 30.60% Outperform 353 Trevor Johnson

Callidus Capital Corp. CBL 4/6/2015 C$17.44 C$10.63 C$30.00 C$18.00 72.60% Outperform 535 Shubha Khan

Element Financial Corp. EFN 09/25/2014 C$13.41 C$17.68 C$19.00 C$24.00 35.70% Outperform 6821 Shubha Khan

Gibson Energy Inc. GEI 8/7/2015 C$18.26 C$15.96 C$31.00 C$28.00 82.30% Outperform 1930 Patrick Kenny

Innergex Renewable Energy Inc. INE 9/11/2015 C$9.98 C$10.71 C$14.00 C$14.00 36.50% Outperform 1105 Rupert Merer

Milestone Apartments REIT MST.UN 01/15/2015 C$12.21 C$15.50 C$14.25 C$18.50 23.60% Outperform 1175 Matt Kornack

PrairieSky Royalty Ltd. PSK 5/6/2015 C$32.51 C$25.10 C$36.00 C$30.00 24.70% Outperform 3765 Kyle Preston

Quebecor Inc. QBR.B 12/16/2014 C$31.14 C$32.43 C$38.00 C$41.00 26.70% Outperform 3979 Adam Shine

Sandvine Corporation SVC 06/08/2015 C$3.93 C$2.53 C$5.00 C$4.00 58.10% Outperform 379 Kris Thompson

Spartan Energy Corp. SPE 3/31/2015 C$2.83 C$2.38 C$3.50 C$3.25 36.60% Outperform 629 Brian Milne

Tamarack Valley Energy Ltd. TVE 09/26/2014 C$6.51 C$2.93 C$9.00 C$4.75 62.10% Outperform 293 Dan Payne

Tourmaline Oil Corp. TOU 08/07/2014 C$50.43 C$26.35 C$68.00 C$42.50 61.30% Outperform 5818 Dan Payne

Vermilion Energy Inc. VET 06/10/2015 C$54.9820 C$40.05 C$65.00 C$56.00 46.30% Outperform 4406 Kyle Preston

Whitecap Resources Inc. WCP 11/21/2012 C$12.22 C$11.22 C$15.50 C$17.00 58.20% Outperform 3354 Brian MilneOvernight US Exchange rate: 1.3332. Exchange rate and last prices as of 2015/11/13.

The NBF Action List highlights our Analysts’ most compelling investment ideas .

In developing The NBF Action List, we’ve followed these guidelines:

A short list of Names: We’ve kept the number of securities on the Action List small, allowing only 10% of an Analyst’s coverage on the list at any time . This means many Analysts can only have a single name on the Action List .

We do not require that an Analyst always have a name on The Action List. This way we can ensure that only the most compelling ideas are presented .

The Decision Making Resides with our Equity Analysts: Our Action List is not managed by a committee: instead, the decision is solely our Equity Analysts - those individuals who know the names better than anyone .

Strong Opinions - Either Bullish or Bearish: Recognizing that identifying stocks that should be sold can be as valuable to an Investor as names that should be bought, we’ve allowed Analysts to include names on the Action List they strongly believe should be sold .

There are No Market Cap or Liquidity Requirements: Some of the best returns can come from small and mid-cap stocks . As such, we want to ensure they are included on The Action List when appropriate .

Restricted Stocks: Stocks placed under restriction while on The NBF Action List will remain on the list, but with the rating changed to Restricted and target price and estimated total return removed in accordance with compliance requirements .

NBF Action ListSector Analysis

—

VISIONDecember 2015

36

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Agriculture

A broad based agri-complex decline. This past month, the agri-complex was down across the board with wheat, soybeans, canola and corn trading down 2 .5%, 6 .1%, 1% and 5 .5%, respectively . This year has proved challenging for most of the components of the agri-complex, with only canola showing positive year-to-date price performance, up 3 .9% . Favourable weather conditions in South America so far this season and expectations for a large harvest in the United States have been a few of the key reasons driving the expectations for ample supply . While global stocks-to-use levels remain elevated, we forecast a 2015 forecast production decline of 0 .6% that when combined with rising global consumption (forecast +1% in 2015) should improve pricing dynamics over the medium term . We believe this evolving backdrop favours AGT Food and Ingredients Inc . (AGT:TSX; Outperform, $37 .00 Target), which this past quarter managed to grow pulse & grain processing tonnage 24% q/q powered by improving demand from export markets . Further, solid execution in the ingredients division drove a margin beat . Despite being the best performing agriculture stock under coverage this past month (+9 .4%) as the market digested strong quarterly results, we believe the valuation stills looks compelling at just 8 .3x 2016 EBITDA .

Arianne Phosphate Inc. (DAN:TSX.V; Outperform, $1.75 Target) was the second best performing stock under agriculture coverage. The regulatory review process for DAN’s Lac-á-Paul project reached an important milestone as the commission issued a positive endorsement with no major objections to moving the mining project forward . This is a big step toward the objective of receiving a ministerial decree later this year, on what is a mine that we estimate could possess upwards of a 42-year useful life, and one of the key reasons why the stock was up 5 .8% this month .

Selections

AGT Food and Ingredients (AGT:TSX; Outperform, $37 .00 Target)

Agriculture and Energy ServicesSector Analysis

— Greg Colman

Analyst 416-869-6775 —

Associates: Andrew Jacklin: 416-869-7571 Westley MacDonald-Nixon: 416-507-9568 Michael Storry-Robertson: 416-507-8007

Shares Shares O/S O/S Stock Last Market Est. Est. Est. Est. 12-Mth

Stock Stock Risk (Mln) (Mln) Price Year Cap Cash Cash Price/ NAV NAVPS PriceSym. Rating Rating f.d. (f.d.,f.f.) 11/16 Reported (Mln) EV (Mln) per Sh. Cash (Mln) (f.d.,f.f.) P/NAV P/NAVPS EV/NAV Target

Arianne Phosphate Inc. DAN-V OP AA 95.2 395.80 0.87$ 12/2013 84.72$ 98.31$ -$ -$ nmf 705.68$ 1.78$ 0.0x 0.5x 0.1x 1.75$ ##### 725.68 0.23 Dec-12 23.38 9.38Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

Shares Stock Last Net Y1 Net 12-MthStock Stock Risk O/S Price Year (A) est. est. (A) est. est. Debt Debt/ PriceSym. Rating Rating (Mln) 11/16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (mln) EBITDA Target

Ag Growth International Inc. AFN-T SP AA 14.3 30.00$ 12/2014 0.23$ (0.12)$ 2.94$ -256.3x 10.2x 78.23$ 70.46$ 88.70$ 3.2x 5.0x 323.39$ 4.6x 37.00$ AGT Food and Ingredients Inc. AGT-T OP AA 23.3 32.00$ 12/2014 0.95$ 0.41$ 2.34$ 77.7x 13.7x 87.00$ 96.49$ 129.85$ 2.9x 4.0x 335.66$ 3.5x 37.00$ Cervus Equipment Corporation CVL-T SP AA 15.6 13.89$ 12/2014 1.16$ (1.74)$ 0.87$ -8.0x 16.0x 50.81$ 48.16$ 52.88$ 4.2x 4.6x 157.92$ 3.3x 12.50$ Input Capital Corp INP-V SP AA 88.1 1.93$ 03/2014 nmf (0.10)$ (0.01)$ n/a n/a nmf 0.43$ 5.58$ nmf 37.9x (26.87)$ nmf 2.75$

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

P/E EV/EBITDAFDEPS EBITDA (mln)

37

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Agriculture and Energy ServicesSector Analysis

— Greg Colman

Analyst 416-869-6775 —

Associates: Andrew Jacklin: 416-869-7571 Westley MacDonald-Nixon: 416-507-9568 Michael Storry-Robertson: 416-507-8007

Energy Services

Our top performer for the period is Lonestar West Inc. (LSI:TSX.V; Outperform, $2.25 Target). After bottoming at $0 .75/ share in mid-October, shares rallied 15% this past month for a year-to-date performance of -60%, partially closing the gap against the STENRE which was down 15% for the period and 37% on the year . Trading at just 0 .6x book value, we argue that the market is largely overlooking LSI’s positive attributes, including relatively resilient margins (average 12% TTM EBITDA margin), H1/15 sales that were actually up low double digits (+14%) over last year and the fact that 60% of LSI’s business is tied to utilities and general contracting, creating a natural offset to the activity declines experienced on the oil and gas side of the business . Further, with an asset base that is highly mobile (i .e ., hydro vac trucks), LSI has the unique ability to relocate vehicles in search of new business, which helps to reduce sales volatility . Over time, we expect LSI’s valuation gap to narrow relative to peer Badger Daylighting Ltd . (BAD:TSX; not covered), which trades at 3 .7x BV/ share, as concerns surrounding leverage are reduced as LSI uses its free cash flow to shore up the balance sheet .

As a result of this extended and potentially deepening downturn, we continue to advocate defensive names with strong balance sheets, a contracted revenue base and full-cycle business models. All our covered companies are down on a year-to-date basis, but we believe that valuations have detracted from fundamentals in certain instances . High Arctic Energy Services Inc . (HWO:TSX; Outperform, $6 .00 Target), up 8% for the period and down only 5 .5% this year (vs . WTI -31%), has developed a strong platform for drilling services in the fast growing energy market in Papua New Guinea and trades at an attractive valuation of 3 .2x 2016 EBITDA (vs . peers 4 .4x) . We argue this valuation is not reflective of a company whose assets are largely contracted through 2016, providing a favourable backdrop for EBITDA which we forecast growing 21% in 2015 and 10% in 2016 . Management has a consistent track-record for dividend increases and as the estimated payout ratio declines to only 38% in 2016 we believe further increases could be on the horizon .

Selections

Canadian Energy Services (CEU:TSX; Outperform, $7 .50 Target), High Arctic Energy Services (HWO:TSX; Outperform, $6 .00 Target), Lonestar West Inc . (LSI:TSX .V; Outperform, $2 .25 Target), Secure Energy Services (SES:TSX; Outperform, $13 .50 Target) and Xtreme Drilling and Coil Services (XDC:TSX; Outperform, $3 .75 Target)

Shares StockStock Stock Risk O/S PriceSym. Rating Rating (Mln) 11/16 2014e 2015e 2016e 2014e 2015e 2014e 2015e 2016e 2014e 2015e Target Return

Black Diamond Group Ltd. BDI OP AA 41.1 6.95 141.31 93.02 109.39 5.7 16.6 3.96 5.03 4.47 1.3 1.8 14.00 101% Calfrac Well Services Ltd. CFW SP AA 95.9 2.11 361.35 30.70 56.19 2.6 -1.7 2.37 35.07 19.71 1.8 28.6 3.75 78% Canadian Energy Services & Tech CEU OP AA 217.8 5.15 178.82 105.46 108.36 2.7 2.7 13.41 13.16 8.33 2.1 3.6 7.50 46% Canyon Services Group Inc. FRC SP AA 68.9 4.17 121.67 25.36 63.02 1.8 1.7 3.14 15.72 7.33 n/m n/m 6.75 62%Cathedral Energy Services Ltd. CET SP AA 36.3 0.76 35.10 8.56 16.91 3.6 -3.1 2.97 10.20 5.12 1.5 4.2 2.00 163%Essential Energy Services Ltd. ESN OP AA 125.8 0.58 67.60 22.61 29.15 1.5 4.8 1.92 4.78 4.06 0.8 1.6 1.00 72% High Arctic Energy Services Inc. HWO OP AA 54.9 3.84 49.30 62.49 63.67 7.1 7.5 3.59 2.90 2.60 n/m n/m 6.00 56% Horizon North Logistics Inc. HNL OP AA 132.6 2.29 92.87 66.98 77.50 10.7 257.3 4.40 5.17 4.73 1.7 0.6 3.60 57% Lonestar West LSI OP AA 29.2 0.95 6.60 7.08 11.69 3.4 1.3 10.34 5.46 8.53 3.5 3.4 2.25 137%Mullen Group Ltd. MTL SP AA 91.7 16.48 286.41 236.81 280.89 17.4 52.5 7.12 9.60 8.21 1.3 2.6 20.00 21%Newalta Corp. NAL SP AA 56.3 4.92 128.90 56.65 82.74 nmf nmf 4.34 10.41 7.46 2.7 5.5 9.00 83% Pason Systems Corp. PSI SP AA 83.4 20.09 269.70 92.94 143.28 -1.9 -1.2 nm nm nm n/m n/m 22.00 10%PHX Energy Services Corp. PHX SP AA 41.5 2.46 80.82 10.34 25.19 4.9 -6.0 2.67 18.29 7.44 1.3 5.9 3.50 42%Savanna Energy Services Corp. SVY OP S 90.3 1.17 157.89 91.66 98.72 n/m n/m 3.02 4.03 4.02 2.2 3.1 3.00 156%Secure Energy Services Inc. SES OP AA 136.4 8.27 210.39 121.72 155.92 2.2 2.2 13.08 11.48 9.04 2.0 2.2 13.50 63% Shawcor Ltd. SCL OP AA 64.8 28.99 336.70 258.92 354.76 25.3 20.8 8.05 10.59 7.28 0.9 0.8 37.00 28%Student Transportation Inc. STB OP BA 82.1 5.41 87.89 102.26 n/a n/m n/m 10.92 9.04 n/a 3.0 2.8 7.75 43%Trican Well Services TCW OP S 148.9 0.90 260.68 -9.56 89.87 33.1 n/m 3.33 -44.60 5.68 2.7 n/m 3.25 261%Trinidad Drilling Ltd. TDG OP AA 222.1 2.03 252.05 172.55 168.97 3.3 3.2 3.02 4.03 6.39 1.8 3.3 4.50 122% Xtreme Drilling and Coil Services Corp. XDC OP AA 81.8 2.04 76.89 61.62 72.24 1.5 0.8 3.83 4.21 3.08 1.5 1.5 3.75 84%

Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

EBITDA (mlm) EV/EBITDAP/E

12-Mth PriceNet Debt / EBITDA

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

VISIONDecember 2015

38

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Oil and GasSector Analysis

—

Dan Payne Analyst 403-290-5441 —

Associates: Chris Haughn: 403-290-5445 Mark Hirsch: 403-441-0928 Tim Sargeant: 403-441-0952

Matthew Taylor: 403-290-5624

Brian Milne Analyst 403-290-5625 —

Associates: Chris Haughn: 403-290-5445 Mark Hirsch: 403-441-0928 Tim Sargeant: 403-441-0952

Matthew Taylor: 403-290-5624

Kyle Preston, CFA, CMA Analyst 403-290-5102 —

Associates: John Hunt: 403-441-0955 Jason Wai: 403-355-6643

Junior and Intermediate Oil and Gas

Senior and Intermediate Yield Oil and Gas

Crude – Oil prices headed lower during November, as North American inventories continue to build, with U .S . mid-month crude stocks 29% above year ago levels, despite a ramp-up in refinery runs following the turnaround season . Exacerbating the storage issues, the Financial Times reported that more than 100 mmbbls (~one day of global oil supply) of crude oil and heavy fuels are being held on super tankers at sea, which is at least double the levels earlier in the year, indicating that it’s going to be decidedly more challenging to achieve the required drawdowns if there is an import surge over the last couple of months of the year . Additionally, despite the U .S . oil rig count falling ~65% since the highs reached in October 2014, non-OPEC supply, supported by increasing rig efficiencies, has proved to be remarkably resilient and as such, isn’t falling fast enough; however, it should be noted that production typically lags the rig count by several months . On the demand side, energy consulting firm PIRA’s four-week rolling demand, adjusted for weather and exports, now shows that U .S . demand slipped 220,000

b/d below year-ago levels, which is a big reversal from the year-over-year demand increases witnessed over the first eight months of the year . Accordingly, we expect to see the continued weakness in crude persist into 2016 . For the week ending Nov . 6, 2015, total U .S . crude and product inventories were 20 .4% above last year’s levels, and 16 .1% above the five-year average .

At the time of writing, Canadian heavy oil differentials remained relatively in line with November settlements, as the monthly blended WCS index traded marginally tighter at (US$15 .00), while the Edmonton sweet differential traded marginally wider at (US$2 .75) . For calendar 2016, WTI was trading at US$45 .95, down ~10% from last month .

Natural Gas – Natural gas prices also continue to face headwinds, as the market remains focused on forecasts for a warmer than average El Niño winter . Contributing to the weakness, the EIA‘s (Energy Information Administration) reported build for Nov . 6 of 49 Bcf officially established a new record-high inventory of 3 .978 Tcf (10% above last year and 5% above the five-year average), while early expectations for the subsequent two weeks are calling for additional builds that would take storage above 4 .04 Tcf, implying that gas markets are heading into an unseasonably warm winter with record oversupply . However, there may be room for optimism in gas markets, as U .S . dry gas production is still down materially (0 .6 Bcf/d, as per Bentek and 0 .8 Bcf/d, as per SpringRock) from October levels, and likely to receive continued support from the U .S . gas rig count, which is down near its recent lows . Additionally, more nuclear units remain offline than a year ago, adding as much as 0 .7 Bcf/d of short-term gas demand, while higher coal prices have also helped contribute to very robust gas demand from the power sector so far this month (+4 Bcf/d versus last year according to Bentek) . In Canada, the ongoing maintenance on the TransCanada Alberta NGTL system, which negatively impacted producer volumes year to date, is expected to last through to the end of 2015; however, by 2017 the company expects that the system will be able to accommodate ~4 .0 Bcf/d of incremental firm transportation services .

At the time of writing, the calendar 2016 AECO forward strip was trading at Cdn$2 .497/GJ, while Nymex was at US$2 .640/MMBtu, implying a basis differential of (US$0 .66/MMBtu) .

NBF Energy Selections

Seniors: Canadian Natural Resources (CNQ)

Intermediate Yield: Prairie Sky Royalty (PSK), Vermilion Energy (VET) and Whitecap Resources (WCP)

Junior Yield: Cardinal Energy (CJ) and TORC Oil & Gas (TOG)

Intermediate Non-Yield/Juniors: Advantage Oil & Gas (AAV), Raging River (RRX), Spartan Energy (SPE), Tourmaline Oil (TOU) and Tamarack Valley (TVE)

39

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Oil and GasSector Analysis

—Dan Payne Share Share Market NAV

Stock Stock Risk O/S Price Cap. est. est. est. est. est.Sym. Rating D Rating (Mln) 11/16 (Mln) 2014 2015 2016 2015e 2016e 2014 2015 2016 2015e 2016e 2014e Target Return D

Junior Oil & GasBellatrix Exploration BXE OP AA 192.0 $2.38 $457 6.2x 7.6x 6.4x 6.4x 5.5x $1.46 $0.58 $0.72 4.1x 3.3x $2.50 $2.75 16% Birchcliff Energy BIR OP AA 152.3 $5.88 $896 5.7x 8.1x 7.0x 3.7x 3.4x $1.97 $1.14 $1.31 5.2x 4.5x $4.40 $8.25 40% Blackbird Energy BBI OP S 354.1 $0.18 $62 nm -8.5x 12.9x nm -0.4x -$0.01 -$0.02 $0.01 nm 13.5x $0.30 $0.60 243%Bonterra Energy BNE OP AA 33.1 $20.93 $694 8.1x 7.8x 7.3x 3.2x 3.1x $6.50 $3.45 $3.45 6.1x 6.1x $16.10 $30.00 52%Cardinal Energy CJ OP AA 65.1 $10.65 $693 8.2x 8.0x 8.4x 1.3x 1.3x $2.12 $1.69 $1.41 6.3x 7.5x $14.80 $15.00 49%Chinook Energy Inc. CKE OP AA 215.2 $0.51 $110 4.4x 8.2x 8.6x -3.1x -0.2x $0.22 $0.04 $0.06 11.8x 8.8x $0.70 $1.00 96%Kelt Exploration KEL OP AA 168.6 $4.42 $745 9.1x 13.3x 8.4x 3.0x 1.9x $0.93 $0.42 $0.63 10.5x 7.0x $4.19 $8.00 81% Leucrotta Energy LXE OP AA 165.2 $0.91 $150 20.1x 332.5x 12.3x -30.0x -4.3x $0.12 $0.01 $0.07 64.6x 13.5x $0.80 $1.40 54%Long Run Exploration LRE R R R R R R R R R R R R R R R R R RMarquee Energy MQL OP AA 120.3 $0.47 $57 3.1x 3.6x 4.1x 1.8x 2.4x $0.33 $0.20 $0.19 2.3x 2.5x $0.80 $0.80 70%NuVista Energy NVA OP AA 153.3 $4.19 $642 9.6x 6.5x 6.9x 1.8x 2.3x $0.81 $0.84 $0.78 5.0x 5.4x $3.93 $6.75 61% Painted Pony Petroleum PPY SP AA 100.0 $4.30 $430 8.7x 13.4x 8.4x 2.2x 3.4x $0.97 $0.34 $0.66 12.8x 6.5x $5.80 $5.50 28% Perpetual Energy PMT SP AA 153.2 $0.48 $74 4.5x 6.8x 6.8x 39.9x 19.7x $0.52 $0.03 $0.07 14.0x 6.8x $2.00 $0.85 77%Pinecliff Energy PNE R R R R R R R R R R R R R R R R R RRaging River Exploration RRX OP AA 200.3 $8.46 $1,695 6.4x 10.4x 9.0x 0.6x 0.5x $1.19 $0.86 $0.98 9.8x 8.6x $6.20 $10.50 24% Rock Energy RE OP AA 47.5 $1.30 $62 2.8x 3.2x 3.9x 1.8x 2.1x $1.58 $0.70 $0.53 1.8x 2.5x $4.50 $2.00 54% Storm Resources SRX OP AA 119.4 $3.60 $430 8.7x 11.5x 7.4x 1.5x 1.5x $0.41 $0.35 $0.56 10.4x 6.4x $1.90 $5.00 39% Striker Exploration SKX OP AA 32.2 $0.84 $27 -9.7x 2.8x 2.8x 1.1x 1.5x -$0.23 $0.51 $0.58 1.7x 1.5x $3.40 $2.50 198%Surge Energy SGY OP AA 220.9 $2.51 $554 5.7x 5.0x 6.6x 1.2x 1.5x $1.22 $0.59 $0.46 4.3x 5.5x $4.18 $4.00 65%Tamarack Valley Energy TVE OP AA 99.9 $2.93 $293 4.0x 6.2x 4.9x 2.0x 1.5x $1.05 $0.67 $0.78 4.4x 3.8x $2.30 $4.75 62%Torc Oil & Gas TOG OP AA 161.0 $6.47 $1,041 5.6x 9.4x 7.9x 2.1x 1.8x $1.97 $0.97 $0.99 6.7x 6.5x $2.60 $9.00 47%Toro Oil & Gas TOO OP AA 56.9 $0.45 $26 -23.8x -15.3x 4.2x 4.9x 0.9x -$0.12 -$0.01 $0.06 -54.6x 7.1x $0.80 $0.65 44%Tourmaline Oil TOU OP AA 220.8 $26.35 $5,818 9.9x 8.1x 6.6x 1.8x 1.5x $4.58 $3.93 $4.70 6.7x 5.6x $24.01 $42.50 61%

** 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

EV/DACF Net Debt/Cash Flow

CFPS - FDP/CFPS

12-MthPrice

Share Stock Market CNAVKyle Preston Stock Stock Risk O/S Price Cap. est. est. est. est.

Sym. Rating ∆ Rating (Mln) 11/16 (Mln) 2013 2014 2015 2014e 2015e 2013 2014 2015 2014e 2015e 2014a Target Return ∆Oil & GasARC Resources Ltd. ARX OP AA 344.2 $18.06 6,215.9 10.3x 5.9x 8.9x 1.0x 1.2x $2.76 $3.54 $2.26 5.1x 8.0x $22.98 $25.00 45%Baytex Energy Corp. BTE SP AA 210.2 $5.25 1,103.7 11.0x 3.3x 4.8x 2.6x 3.7x $5.08 $5.87 $2.65 0.9x 2.0x $14.51 $9.00 71%Bonavista Energy Corporation BNP SP AA 224.4 $2.52 565.6 7.2x 2.7x 4.3x 2.0x 3.4x $2.40 $2.66 $1.71 0.9x 1.5x $6.33 $4.00 63% Canadian Natural Resources CNQ OP AA 1094.4 $31.55 34,528.6 5.9x 5.0x 8.1x 1.5x 2.7x $6.86 $8.76 $5.31 4.7x 5.9x $40.31 $40.00 30% Canadian Oil Sands COS SP AA 485.0 $9.11 4,418.4 7.9x 5.5x 13.9x 1.8x 6.8x $2.78 $2.28 $0.72 4.0x 12.6x $9.98 $10.00 12% Cenovus Energy CVE SP AA 833.3 $19.50 16,249.2 6.9x 5.2x 7.8x 1.3x 0.8x $4.77 $4.59 $2.38 4.2x 8.2x $23.55 $23.00 21% Crescent Point Energy Corp. CPG OP AA 504.6 $17.17 8,664.1 9.1x 3.4x 9.7x 1.4x 2.1x $5.29 $5.71 $4.09 3.0x 4.2x $27.42 $26.00 58%Encana Corp.* ECA SP AA 845.7 $8.12 6,867.1 5.8x 3.8x 5.3x 2.6x 2.9x $3.50 $3.96 $1.82 2.1x 4.5x $11.71 $10.00 27%Enerplus Corporation ERF OP AA 206.5 $7.00 1,445.5 5.4x 3.0x 4.5x 1.6x 2.4x $3.74 $4.14 $2.57 1.7x 2.7x $12.72 $10.00 48% Freehold Royalties FRU OP AA 98.6 $11.23 1,107.3 13.2x 6.8x 11.5x 1.0x 1.4x $1.78 $1.95 $1.14 5.8x 9.8x n/a $15.00 41%MEG Energy MEG SP AA 224.9 $11.15 2,508.1 25.3x 6.1x 16.4x 4.9x 38.7x $1.15 $3.46 $0.53 3.2x 20.9x $15.93 $14.00 26% Northern Blizzard Resources Inc. NBZ OP AA 110.6 $4.67 516.6 -0.4x 3.3x 4.4x 1.7x 2.2x n/a $2.55 $1.61 1.8x 2.9x $9.10 $7.00 60%Penn West Exploration PWT UP AA 502.2 $1.51 758.3 7.5x 2.9x 6.9x 2.6x 8.1x $1.89 $1.89 $0.51 0.8x 3.0x $2.10 $0.50 -67%Pengrowth Energy Corporation PGF SP AA 543.0 $1.10 597.3 6.7x 4.3x 4.6x 3.8x 4.3x $1.08 $1.06 $0.84 1.0x 1.3x $2.61 $2.00 85%Peyto Exploration & Development Corp. PEY OP AA 159.0 $27.86 4,428.6 10.9x 7.9x 9.3x 1.6x 2.0x $2.94 $4.18 $3.58 6.7x 7.8x $34.98 $38.00 41% PrairieSky Royalty PSK OP AA 156.3 $25.10 3,923.9 0.0x 23.3x 31.2x -0.4x -1.2x $1.48 $1.21 $1.14 20.7x 21.9x n/a $30.00 25%Suncor Energy SU OP AA 1445.4 $36.93 53,380.3 5.6x 6.1x 7.6x 0.8x 1.5x $6.26 $6.18 $4.85 6.0x 7.6x $45.51 $45.00 25% Vermilion Energy Inc. VET OP AA 110.8 $40.05 4438.3 8.8x 6.6x 10.3x 1.6x 2.7x $6.51 $7.51 $4.75 5.3x 8.4x $48.74 $56.00 46%

*In USD ** 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

Net Debt/Cash Flow

CFPS - FDP/CFPS

EV/DACF 12-MthPrice

Brian Milne Share Share Market NAVStock Stock Risk O/S Price Cap. est. est. est. est. est.Sym. Rating D Rating (Mln) 11/16 (Mln) 2014 2015 2016 2015e 2016e 2014 2015 2016 2015e 2016e 2014e Target Return D

Junior Oil & GasAdvantage Oil & Gas AAV OP AA 170.7 $7.31 $1,248 6.5x 11.0x 8.1x 2.1x 1.8x $0.96 $0.74 $1.05 9.9x 7.0x $2.85 $9.00 23%Arsenal Energy AEI OP AA 20.3 $1.52 $31 3.4x 2.5x 3.5x 1.8x 2.6x $3.22 $1.65 $1.04 0.9x 1.5x $4.94 $3.50 136%Boulder Energy BXO OP AA 46.5 $3.57 $166 nm 4.0x 4.0x 2.0x 2.0x $2.42 $1.49 $1.44 2.4x 2.5x $5.86 $8.00 124% Cequence Energy CQE OP AA 211.0 $0.30 $63 4.5x 2.9x 3.6x 2.7x 3.8x $0.33 $0.12 $0.13 2.5x 2.2x $1.20 $0.60 100%Crew Energy CR SP AA 141.1 $4.09 $577 7.3x 7.9x 7.1x 2.6x 2.8x $1.40 $0.59 $0.64 7.0x 6.4x $1.90 $6.00 47% Delphi Energy DEE OP AA 155.5 $0.69 $107 5.8x 4.7x 4.3x 3.2x 2.9x $0.41 $0.25 $0.29 2.8x 2.4x $1.54 $1.00 45% Granite Oil GXO OP AA 30.3 $8.70 $264 nm 5.3x 6.1x 0.7x 0.8x $2.08 $1.85 $1.58 4.7x 5.5x $10.03 $9.50 14% Kicking Horse Energy KCK Tender AA 61.4 $4.71 $289 40.2x 12.4x 8.7x 1.9x 1.8x $0.22 $0.42 $0.64 11.2x 7.4x $5.40 $4.75 1%Manitok Energy MEI SP AA 85.1 $0.26 $22 4.6x 2.7x 3.7x 2.7x 4.1x $0.65 $0.42 $0.29 0.6x 0.9x $1.52 $0.50 92%Paramount Resources POU SP AA 106.2 $9.37 $995 29.7x 12.3x 6.5x 16.9x 6.2x $1.39 $1.04 $2.98 9.0x 3.1x $10.50 $17.00 81% RMP Energy RMP OP AA 123.8 $1.68 $208 6.2x 3.0x 3.3x 1.3x 1.5x $1.30 $0.74 $0.71 2.3x 2.3x $2.57 $2.50 49%Spartan Energy SPE OP AA 264.3 $2.38 $629 9.6x 9.9x 8.5x 1.4x 1.2x $0.36 $0.25 $0.29 9.6x 8.2x $2.23 $3.25 37%Spyglass Resources SGL SP AA 127.8 $0.06 $8 5.2x 5.0x 6.7x 6.8x 11.1x $0.46 $0.20 $0.12 0.3x 0.5x $1.71 $0.10 67% Strategic Oil & Gas Ltd. SOG UP AA 542.3 $0.12 $62 13.3x 9.6x 12.7x 7.2x 12.7x $0.03 $0.02 $0.01 6.4x 8.5x $0.47 $0.10 -13%Trilogy Energy TET SP AA 126.1 $4.09 $516 8.5x 7.4x 7.4x 6.3x 6.2x $2.78 $0.86 $0.85 4.8x 4.8x $2.40 $5.00 22%Twin Butte Energy TBE OP AA 359.9 $0.26 $92 2.5x 1.7x 3.0x 1.6x 3.1x $0.60 $0.52 $0.26 0.5x 1.0x $0.89 $0.60 139%Whiltecap Resources WCP OP AA 298.9 $11.22 $3,353 7.6x 7.9x 9.0x 1.7x 1.9x $2.08 $1.69 $1.43 6.6x 7.8x $7.68 $17.00 58%Zargon Energy ZAR UP AA 30.3 $1.10 $33 5.1x 4.5x 5.9x 4.7x 6.9x $1.65 $0.85 $0.57 1.3x 1.9x $3.38 $0.75 -32%

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

EV/DACF Net Debt/Cash Flow

CFPS - FDP/CFPS

12-MthPrice

VISIONDecember 2015

40

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In 2014, the Pipelines, Utilities & Energy Infrastructure sector delivered a total return of 19% versus 11% for the S&P TSX Composite Index - reflecting declining long-term interest rates, continued per share growth in corporate cash flow, earnings and dividends, partially offset by the rapid sell-off in oil prices late in the year . Year-to-date, the Pipeline, Utilities & Energy Infrastructure sector is down 19% versus an 11% loss in the S&P TSX Composite Index .

Since the beginning of 2014, Canada 10-year bond rates have moved down ~100 bps to ~1 .7% . Looking ahead, our Economic and Strategy Group is forecasting a Canada 10-year bond rate of ~2% by Q4 2016 . Of note, our cost of capital assumptions within our valuations continue to be anchored by a longer-term 10-year Government of Canada bond rate assumption of 3 .0% . As such, we expect steadily rising long-term interest rates through 2015 to keep a lid on current valuation multiples for both the high payout and low payout groups (currently ~12x EV/Free-EBITDA, in line with the historical average) .

Meanwhile, since mid-2014 crude oil prices have been cut in half with WTI currently sitting below US$50/bbl, putting downward pressure across the board on the Pipeline / Midstream names as the market grapples with the uncertainty surrounding oil & gas drilling activity and the corresponding impact on near-term cash flows and longer-term

growth outlook . However, we tally $83 billion of secured growth for the space, underpinning double-digit annual EBITDA growth profiles for several players through 2018 .

For 2015, we highlight two macroeconomic factors expected to offset rising long-term interest rates and lower oil & gas activity:

1. Several companies on our coverage list generate a material portion of their cash flow in U .S . dollars - a longer-term valuation tailwind not to be overlooked by investors as the Canadian dollar currently sits at ~US$0 .75 and potentially lower (i .e ., on Jan . 21st, the Bank of Canada shocked the market by cutting its overnight rate by 25 bps to 0 .75% and once more July 15th to 0 .50%) . Of note, every US$0 .05 decline to our long-term US$0 .90 Canadian dollar assumption boosts valuations by ~2 .5% on average .

2. We view the sharp crude price correction as a rare opportunity for Midstream companies to acquire energy infrastructure assets (namely gas processing plants) from oil & gas producers looking to shore up balance sheets amid weak oil prices through 2015 . On average, we see ~10% valuation upside from potential M&A activity for the gas / NGL Midstream players .

Overall, we recommend investors continue to own those companies with the strongest secured EBITDA growth profiles - underpinning steady dividend growth while also mitigating valuation headwinds stemming from rising long-term interest rates .

Selections

AltaGas, Enbridge Income Fund, Gibson Energy, Hydro One, Inter Pipeline, Keyera and Tidewater

Pipelines, Utilities and Energy InfrastructureSector Analysis

—

Patrick Kenny, CFA Analyst 403-290-5451 —

Associate: Michael Nguyen 416-869-7566

Units Unit MarketStock Stock Risk O/S Price Cap. est. est. est. est. est. est. Debt/ Price CombinedSym. Rating Rating (Mln) 11-16 (Mln) 2014 2015 2016 2015e 2016e 2014 2015 2016 2015e 2016e 15e DCF Target Return Return

Pipeline & MidstreamAltaGas ALA OP A 145.0 33.21 4,814 1.67 1.86 2.06 5.6% 6.2% 3.07 2.70 3.49 12.3 9.5 6.3 46.00 38.5% ↓ 44.6%Canexus CUS R R R R R R R R R R R R R R R R R R REnbridge Inc. ENB SP ↓ A 863.7 49.44 42,699 1.40 1.86 2.14 3.8% 4.3% 2.98 3.55 4.00 13.9 12.3 8.0 65.00 31.5% ↓ 35.7%Enbridge Income Fund ENF OP ↑ A 695.1 30.98 21,534 1.39 1.59 1.87 5.1% 6.0% 1.93 2.62 2.77 11.8 11.2 5.4 41.00 32.3% ↓ 38.1%Gibson Energy GEI OP AA 126.1 16.23 2,047 1.18 1.26 1.35 7.8% 8.3% 2.01 1.64 1.94 9.9 8.4 3.5 28.00 72.5% ↓ 80.7%Inter Pipeline IPL OP A 335.3 24.68 8,275 1.31 1.51 1.57 6.1% 6.4% 1.53 1.99 2.22 12.4 11.1 5.4 34.00 37.8% ↓ 44.1%Keyera KEY OP A 170.7 40.94 6,988 1.25 1.41 1.61 3.4% 3.9% 2.77 2.94 3.31 13.9 12.4 3.0 55.00 34.3% ↑ 38.1%Pembina Pipelines PPL R R R R R R R R R R R R R R R R R R RSuperior Plus SPB R R R R R R R R R R R R R R R R R R RTidewater Midstream and Infrastructure Ltd. TWM OP AA 178.2 1.36 242 n/a 0.02 0.04 1.5% 2.9% n/a 0.10 0.17 13.7 7.8 0.0 2.25 65.4% 68.4%TransCanada Corp. TRP SP A 709.0 42.56 30,175 1.92 2.08 2.25 4.9% 5.3% 5.57 5.45 5.48 7.8 7.8 7.5 57.00 33.9% ↓ 39.1%Valener Inc. VNR SP A 38.3 17.01 651 1.00 1.03 1.07 6.1% 6.3% 1.10 1.28 1.27 13.3 13.4 4.0 18.00 5.8% 12.1%Veresen Inc. VSN SP AA 294.4 10.99 3,236 1.00 1.00 1.00 9.1% 9.1% 1.10 1.00 1.00 11.0 11.0 4.7 15.00 36.5% ↓ 45.6%Power Producers & UtilitiesATCO Ltd. ACO'X SP A 115.1 37.66 8,664 0.86 0.99 1.09 2.6% 2.9% 3.46 3.05 4.50 12.3 8.4 6.0 46.00 22.1% ↓ 25.0%Canadian Utilities CU SP A 266.0 34.62 9,208 1.07 1.18 1.30 3.4% 3.7% 3.49 3.37 3.81 10.3 9.1 7.1 43.00 24.2% 27.9%Capital Power CPX SP A 99.7 19.05 1,899 1.31 1.41 1.51 7.4% 7.9% 2.62 3.04 2.78 6.3 6.9 4.8 26.00 36.5% ↓ 44.3%Emera Inc. EMA SP A 207.1 42.64 8,830 1.48 1.66 1.94 3.9% 4.5% 3.49 3.80 3.54 11.2 12.0 13.0 50.00 17.3% 21.6%Fortis Inc. FTS SP A 279.9 37.80 10,580 1.28 1.40 1.52 3.7% 4.0% 3.52 1.79 3.07 21.1 12.3 8.7 43.00 13.8% 17.7%Hydro One Ltd. H OP A 595.0 21.90 13,031 0.45 1.47 0.84 6.7% 3.8% 1.02 1.36 1.46 16.1 15.0 7.9 26.00 18.7% 22.6%TransAlta TA SP AA 280.6 5.97 1,675 1.67 0.72 0.72 12.1% 12.1% 3.07 1.21 1.50 4.9 4.0 7.8 9.00 50.8% ↓ 62.8%

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

41

—

Top Pick Updates

Element Financial Corp. (EFN: TSX)On Nov . 10, EFN reported strong Q3 2015 results (EPS increased 13% q/q), largely in line with our forecasts and consensus . EFN remains on course to exceed its previously stated 2015 origination target of $6 .5 billion . The outlook is supported by continued growth in U .S . vendor finance relationships and Trinity’s US$6 .3 billion railcar backlog (note: agreement was extended through 2019), and a stable replacement cycle in the Fleet business . Management reiterated its intention to increase leverage to ~6 .0x in the near term (given $4 .3 billion in funding capacity as at Sept . 30) and ~7 .0x following the integration of GE Fleet .

The adjusted operating expense ratio (as a percentage of average earning assets) decreased to 2 .39% from 2 .44% in the preceding quarter . We believe EFN will continue to drive operating leverage on continued asset growth and as synergies from the GE Fleet acquisition materialize . On that front, the company provided upbeat commentary on achieving purchasing economies of scale, giving us confidence EFN will, at the very least, achieve the target US$90-$95 million in synergies .

Given the progress on the integration of GE Fleet, supported by a predictable growth outlook, EFN initiated a $0 .025 quarterly dividend to be in Q1 2016 . The dividend translates to a yield of 0 .6% .

Our 2016 and 2017 operating EPS estimates are $1 .62 and $2 .03, respectively . Our 2015 EPS estimate is $1 .04 . We see upside to our estimates coming from:

Upside to US$90-$95 million synergies target from GE Fleet transaction;

Additional portfolio purchases, likely smaller tuck-in acquisitions;

Growth in fleet management services fees; and

Additional investment grade credit ratings .

Equitable Group Inc. (EQB: TSX)EQB reported a new record for third quarter originations on Nov . 10 . Core Lending (Alt-A uninsured mortgages) jumped 17% y/y to $980 million, driven by a robust housing market as well as recent market share gains . In addition, originations of insured residential mortgages increased to $790 million from $479 million a year ago . This is primarily a result of the successful launch of EQB’s insured prime single-family mortgage business in Q3 2014 .

EQB’s strong loan growth outlook is supported by (i) a larger Alt-A market on the back of regulatory changes, (ii) expansion into underserved markets, and (iii) the launch of a prime single family mortgage product .

At only 7 .2x our 2016 EPS estimate, we do not believe the shares appropriately reflect the robust outlook .

Selections

Element Financial, Equitable Group and Street Capital Group

Financials (Diversified)Sector Analysis

—

Shubha Rahman Khan Analyst 416-869-6425 —

Associate: Jaeme Gloyn 416-869-8042

Shares Stock Last FDEPS Book Value per Share 12-MthStock Stock Risk O/S Price Year Last est. est. P/E Last est. est. P/BV Div. PriceSym. Rating Rating (Mln) 11-16 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target

BankingCanadian Western Bank CWB SP AA 80.5 25.33 10/2014 2.59 2.65 2.78 9.5 9.1 22.01 22.49 24.36 1.1 1.0 3.5% 25.00Laurentian Bank LB SP BA 29.0 53.50 10/2014 5.31 5.60 5.94 9.5 9.0 47.45 48.32 51.85 1.1 1.0 4.2% 52.00Mortgage FinanceEquitable Group EQB OP AA 15.5 55.03 12/2014 6.53 7.61 7.62 7.2 7.2 44.72 46.37 53.30 1.2 1.0 1.4% 71.00 First National Financial FN SP AA 60.0 22.50 12/2014 2.04 2.34 2.52 9.6 8.9 5.73 6.00 7.00 3.7 3.2 6.7% 23.00 Genworth MI Canada MIC SP AA 91.8 29.89 12/2014 3.87 3.83 3.52 7.8 8.5 36.57 37.02 38.87 0.8 0.8 5.2% 35.00 Home Capital Group HCG SP AA 70.2 33.53 12/2014 4.10 4.15 4.35 8.1 7.7 22.37 23.22 26.60 1.4 1.3 2.6% 34.00 MCAN Mortgage Corp. MKP SP A 22.8 13.00 12/2014 1.22 1.23 1.23 10.5 10.6 11.19 11.18 11.25 1.2 1.2 8.6% 12.50 Street Capital Group SCB OP AA 120.9 1.36 12/2014 0.18 0.21 0.20 6.3 7.0 1.00 1.04 1.23 1.3 1.1 0.0% 2.25 Equipment FinanceElement Financial EFN OP AA 385.8 17.50 12/2014 0.55 1.04 1.62 16.9 10.8 12.56 12.88 14.32 1.4 1.2 0.0% 24.00Callidus Capital Corp. CBL OP AA 49.2 10.54 12/2014 1.03 1.52 1.86 6.9 5.7 9.92 10.17 12.82 1.0 0.8 0.0% 18.00 Securities ExchangeTMX Group X SP A 54.4 47.00 12/2014 3.84 3.55 3.86 13.2 12.2 54.50 55.04 57.30 0.9 0.8 3.4% 50.00InsuranceIntact Financial Corp. IFC SP BA 131.5 87.00 12/2014 5.68 5.84 6.32 14.9 13.8 37.84 39.59 43.76 2.2 2.0 2.4% 96.00 Asset ManagersAGF Management Ltd. AGF'B SP AA 80.3 5.19 11/2014 0.68 0.59 0.56 8.8 9.2 11.34 11.42 11.76 0.5 0.4 6.2% 6.00CI Financial Corp CIX SP BA 276.4 31.34 12/2014 1.83 2.05 2.23 15.3 14.1 6.77 6.96 7.84 4.5 4.0 4.2% 34.00 Fiera Capital Corp. FSZ OP A 69.4 11.67 12/2014 0.96 0.95 0.94 12.2 12.4 6.29 6.59 6.72 1.8 1.7 4.5% 14.00 Gluskin Sheff + Assoc. GS SP AA 31.7 21.94 06/2014 3.61 1.67 1.81 13.2 12.1 3.94 3.94 3.78 5.6 5.8 4.1% 24.00 IGM Financial Inc. IGM SP A 246.1 37.91 12/2014 3.27 3.18 3.30 11.9 11.5 19.01 19.24 20.30 2.0 1.9 5.9% 41.00

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

VISIONDecember 2015

42

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Canada’s Big Six Banks – Walking the Tightrope

Following Q3 f2015 results, we reminded investors to be wary of a “Drôle de guerre” complex when thinking about Canadian Big Six bank valuations . Specifically, we suggested that perhaps a very strong Q3 f2015 for the banks did not represent an accurate prologue to the f2016 future, drawing an analogy to the Drôle de guerre – the period of time during WWII largely bereft of hostilities between the combatants . We pointed to the sense of unreality that existed between September 1939 and May 1940 – the idea that the world as it existed then presented an inaccurate picture of the world that would exist between 1942 and 1945 – and compared it to the contemporary period .

Looking towards the recently completed (but not yet reported on) Q4 f2015, in some respects we find that much of the apparently stable aspects of the “Drôle de guerre” environment persisted . Nonetheless, in other respects we found signs of instability or deterioration . With regards to the former, it appears that credit conditions remain benign . On the other hand, two of the banks in our coverage universe raised expensive equity capital, market volatility increased measurably (particularly in fixed income markets) and many of the Big Six Canadian banks have embraced expense restructuring measures .

In this context, we asked what implications do these drivers have for Q4 f2015 and for the upcoming fiscal year (f2016)?

1. Bank capital issues appear to have re-emerged and will be magnified by the forthcoming recapitalization regime which will require the banks to add more capital, translating into a negative earnings headwind;

2. Trading revenue appears poised to fall sharply due to market volatility;

3. Competitive challenges from Fintech will offset the benefits of cost reductions; and

4. Leading, coincident and lagging indicators all suggest that credit conditions remain benign…for now .

Of these developments, three of them (bank capital issues, trading revenue headwinds and competitive challenges from Fintech) have already started to put downward pressure on bank valuations . Meanwhile, the fourth (Canadian household credit) is so historically strong, it can only get worse . In fact, three other trends give us pause in relying too heavily on recent, positive credit data: (a) house prices continue to appreciate faster than household income; (b) the employment environment appears mixed; and (c) present conditions are conducive to unproductive risk-taking in mortgage underwriting .

At present, our price targets rest, on average, 3% below consensus . We base our cautious outlook on headwinds stemming from the above-mentioned developments . While favourable credit performance has sustained itself in a benign environment, conditions may become less benign in f2016 and f2017 . Canadian households are vulnerable to adverse changes in house prices and employment; so too are the Big Six Canadian banks .

Selections

Manulife Financial, Sun Life Financial and TD Bank Group

Financial ServicesSector Analysis

—

Peter Routledge Analyst 416-869-7442 —

Associates: Parham Fini, J .D ./MBA,BBA: 416-869-6515 Paul Poon: 416-507-8006

Shares Stock Last FDEPS Book Value per Share 12-MthStock Stock Risk O/S Price Year Last est. est. P/E Last est. est. P/BV Div. PriceSym. Rating Rating (Mln) 11-16 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target

BankingBank of Montreal BMO SP BA 642.0 75.66 10/2014 6.59 6.78 7.26 11.2 10.4 55.36 56.75 61.51 1.3 1.2 4.3% 76.00Bank of Nova Scotia BNS SP BA 1,208.0 60.11 10/2014 5.46 5.71 5.90 10.5 10.2 40.30 41.39 44.83 1.5 1.3 4.7% 65.00CIBC CM UP BA 397.0 98.94 10/2014 8.94 9.54 9.63 10.4 10.3 50.02 52.18 57.41 1.9 1.7 4.5% 99.00National Bank NA NR A 330.0 43.19 10/2014 4.45 4.71 4.78 9.2 9.0 27.60 28.02 31.11 1.5 1.4 4.8% N/ARoyal Bank of Canada RY SP BA 1,443.0 75.22 10/2014 6.19 6.70 6.95 11.2 10.8 38.20 39.45 44.62 1.9 1.7 4.2% 76.00Toronto-Dominion Bank TD OP BA 1,854.0 53.95 10/2014 4.27 4.61 4.95 11.7 10.9 33.25 34.39 37.86 1.6 1.4 3.8% 58.00InsuranceGreat-West Lifeco GWO SP BA 997.0 35.21 12/2014 2.55 2.76 2.85 12.8 12.4 19.40 19.54 21.46 1.8 1.6 3.7% 36.00 Industrial Alliance IAG SP A 101.0 42.29 12/2014 3.97 3.63 4.29 11.7 9.9 36.45 36.29 39.57 1.2 1.1 2.8% 45.00 Manulife Financial MFC OP A 1,971.0 21.66 12/2014 1.80 1.48 2.17 14.6 10.0 18.98 19.23 21.03 1.1 1.0 3.1% 25.00Sun Life Financial SLF OP A 611.0 43.77 12/2014 2.86 3.72 3.88 11.8 11.3 30.03 30.53 32.62 1.4 1.3 3.6% 47.00Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted; NR = Not RatedRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

43

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Gildan Activewear Inc.

Q3 2015 Results: Sales fall short; however, growth expected to resume

Adj. Q3/15 EPS was $0.52 vs. NBF at $0.50 and consensus at $0.51; last year was $0.50 (adj.). We consider results to be slightly soft, notwithstanding our cautious disposition ahead of the quarter . Total sales were $675 million vs . NBF at $689 million; last year was $666 million . Printwear sales were $440 million vs . NBF at $452 million; last year was $436 million . Printwear sales were supported by volume growth (U .S . and International), the acquisition of Comfort Colors and partially offset by lower prices, unfavourable mix and FX . Branded sales were $234 million vs . NBF at $237 million; last year was $230 million . On a y/y basis, Branded benefitted from an ~30% increase in sales of Gildan branded programs (conversion from private label, new program wins, licenced brands, etc .); inventory replenishment issues by a major retailer was a partial negative offset (~$15 million) . Adj . EBITDA was $164 million, in line with NBF; last year was $144 million . On a segmented basis, the EBIT margin was in line with NBF in Printwear (28%) and above expectation in Branded (13% vs . NBF at 10%) . A lower than forecast effective tax rate added $0 .02 to EPS .

Guidance revised downward… (as indicated in our preview note). Management reduced its 2015 outlook (for the third time) for revenue and EPS by approximately $50 million (down by 2%) and $0 .02-$0 .06, respectively . The changes largely reflect weaker mix, unfavourable retailer replenishment and tepid market conditions . The downward revision to the 2015 EPS outlook was not that significant; however, we caution that the weaker revenue guidance clouds the medium-term outlook (2017+), particularly given Gildan’s significant ambitions for growth and planned capacity expansion . While results were soft, Gildan is still making progress in Branded . For example, the company reiterated its view to near double the number of retail doors by the end of 2015 to 18,000 (vs . June 2015) . Gildan also announced product placement in a new major U .S . mass retailer, which we believe is Target (also indicated in our prior commentary) .

Estimates revised lower. We reduced our 2015 EPS estimate to $1 .47 from $1 .48 and our 2016 EPS to $1 .80 from $1 .88 (implies 23% y/y EPS growth) . We believe that Gildan should deliver significant growth in 2016 in part because of lower y/y cotton prices, manufacturing efficiencies and new program wins .

Maintain Outperform rating; Price target is Cdn$46. We value Gildan at 18 .0x our blended 2016/17 EPS adjusted for FX .

Selection

Gildan Activewear Inc .

Merchandising and Consumer ProductsSector Analysis

—

Vishal Shreedhar Analyst 416-869-7930 —

Associate: Ryan Li 416-869-6767

Shares Stock Last FDEPS EBITDA Debt/ 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total PriceSym. Rating Rating (Mln) 11/16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

General MerchandiseCanadian Tire CTC.a SP A 76.2 122.53 12/2014 7.96 8.47 8.82 14.5 13.9 1,376 1,493 1,527 8.3 8.1 64.05 0.39 135.00Dollarama DOL OP A 129.5 87.71 02/2015 2.21 2.79 3.21 31.4 27.3 461 561 629 21.4 19.1 5.69 0.46 92.00

Specialty StoresCouche Tard ATD.b OP A 569.1 59.55 04/2015 1.80 2.18 2.23 20.5 20.1 1,913 2,268 2,317 11.9 11.7 7.37 0.34 65.00 Rona RON SP A 108.2 12.65 12/2014 0.71 0.94 1.05 13.4 12.1 235 257 280 6.4 5.9 14.36 0.15 15.00

ApparelGildan GIL OP A 244.1 39.35 12/2014 1.47 1.47 1.80 26.8 21.8 467 511 605 19.6 16.6 8.72 0.16 46.00

Drug StoresJean Coutu PJC.a SP BA 186.9 20.09 03/2015 1.17 1.19 1.24 16.9 16.2 332 341 344 10.7 10.6 5.84 (0.09) 23.00

GrocersEmpire Company EMP.a OP A 277.5 26.08 05/2015 1.86 1.80 2.14 14.5 12.2 1,326 1,285 1,404 7.1 6.5 21.90 0.24 32.67Loblaw L OP BA 412.0 68.48 12/2014 3.14 3.48 4.13 19.7 16.6 3,227 3,579 3,845 10.8 10.1 31.80 0.44 76.00Metro MRU SP BA 250.1 37.18 09/2014 1.71 2.03 2.26 18.3 16.5 788 852 878 12.2 11.8 10.83 0.29 39.00

Food ManufacturerSaputo SAP SP A 397.2 31.71 03/2015 1.46 1.54 1.80 20.7 17.6 1,062 1,103 1,253 12.9 11.4 10.00 0.30 35.00

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

VISIONDecember 2015

44

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Potential Rate Hike Moves Bond Yields Higher: With strong employment data coming from the United States, the fed moved to a more hawkish stance hinting at a rate hike in 2015 and as a result bond yields rallied across the board . This led to downward pressure for fund flows as the S&P/TSX Capped REIT index saw heightened weakness over the month . As a result of the anticipated rate hike, the 10-year government of Canada bond moved higher to ~1 .7% (versus 2 .8% in September 2013) . Currently, the REIT yield spreads on average are ~482 bps (vs . ~333 bps five-year average) .

Q3/15 Earnings – Softness from Western Canada and Target Departure Seen in Results: We had a number of companies from our coverage universe report Q3/15 earnings . We were largely expecting some form of weakness to trickle into the results of the more Alberta exposed names . On the Office front, we looked to Dream Office REIT (D .un) which showcased the incoming weakness from the region with SPNOI growth down y/y in downtown Calgary (-9 .3%) and the rest of W . Canada (-2 .7%) . Turning to multi-residential, Boardwalk REIT (BEI .un) displayed resiliency in y/y SPNOI growth with Calgary and Edmonton up 4 .0% and 3 .9%, respectively, (although Fort McMurray did see a massive drop down -41 .8%); however, occupancy moved to its lowest level since 2009 . Q3/15 also saw the first full impact of Target’s departure in the results of some of the retail REITs in our coverage (although it does represent upside once re-leased which should take 18-24 months as Target negotiated rents significantly below market) .

Selections

CAP REIT (CAR .un: TSX; Outperform; $32 .00 target), Crombie REIT (CRR .un: TSX; Outperform; $15 .00 target), First Capital Realty (FCR: TSX; Outperform, $21 .50 target), Milestone Apartments REIT (MST .un: TSX; Outperform, $18 .50 target), Pure-Multi Family REIT (RUF .u: TSX .V; Outperform, US$6 .00 target), Slate Retail REIT (SRT .u: TSX; Outperform, US$12 .75) and SmartREIT (SRU .un: TSX; Outperform, $35 .00 target)

Real EstateSector Analysis

—

Matt Kornack Analyst 416-507-8104 —

Associates: Dawoon Chung: 416-507-8102 Ammar Shah: 416-869-7476

Trevor Johnson, cfa Analyst 416-869-8511 —

Associates: Alex Bauer: 416-869-7935

Endri Leno: 416-869-8047 Kyle Stanley: 416-507-8108

45

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Real EstateSector Analysis

—Units Unit FD FFO P/FFO Net

REIT Stock Risk O/S Price (A) est. est. (A) est. est. Current (A) est. est. (A) est. est. Asset CombinedSym. Rating Rating Analyst (Mln) 11-16 2014 2015 2016 2014 2015 2016 Annualized 2014 2015 2016 2014 2015 2016 Value Target Return Return (1)

RetailChoice Properties REIT CHP.un SP BA Johnson 406 11.22 0.65 0.65 0.65 0.0% 5.8% 5.8% 5.8% 0.91 0.96 1.00 12.3 11.7 11.3 12.00 12.50 11.4% 17.2%

Crombie REIT CRR.un OP ↔ BA Kornack 131 12.64 0.89 0.89 0.89 7.0% 7.0% 7.0% 7.0% 1.10 1.12 1.15 11.5 11.3 10.9 14.90 15.00 18.7% 25.7%CT REIT CRT.un SP ↔ BA Johnson 190 12.72 0.65 0.66 0.66 5.1% 5.2% 5.2% 5.2% 0.98 1.03 1.10 13.0 12.3 11.5 12.00 13.50 6.1% 11.3%

First Capital Realty FCR OP ↔ BA Kornack 230 19.15 0.85 0.86 0.86 4.4% 4.5% 4.5% 4.5% 1.04 1.04 1.10 18.5 18.4 17.5 19.10 21.50 12.3% 16.8%

Partners REIT PAR.un UR UR Kornack UR UR UR UR UR UR UR UR UR UR UR UR UR UR UR UR UR UR URSlate Retail REIT SRT.un OP BA Leno 29 13.31 0.76 0.76 0.76 5.7% 5.7% 5.7% 5.7% 0.89 1.48 1.61 15.0 9.0 8.3 12.75 12.75 -4.2% 1.5%SmartREIT SRU.un OP A Johnson 154 31.63 1.56 1.61 1.61 4.9% 5.1% 5.1% 5.1% 1.96 2.11 2.20 16.2 15.0 14.4 31.50 35.00 10.7% 15.8%

Office & DiversifiedAllied Properties REIT AP.un SP A Kornack 79 33.01 1.41 1.46 1.46 4.3% 4.4% 4.4% 4.4% 2.09 2.16 2.36 15.8 15.3 14.0 34.80 38.25 15.9% 20.3%

Artis REIT AX.un SP A Kornack 138 13.12 1.08 1.08 1.08 8.2% 8.2% 8.2% 8.2% 1.42 1.49 1.53 9.2 8.8 8.6 16.00 15.00 14.3% 22.6%BTB REIT BTB.un R ↔ R Kornack R R R R R R R R R R R R R R R R R R RCominar REIT CUF.un OP ↔ BA Kornack 170 14.95 1.46 1.47 1.47 9.7% 9.8% 9.8% 9.8% 1.85 1.80 1.85 8.1 8.3 8.1 19.30 19.50 30.4% 40.3%CREIT REF.un SP ↔ BA Kornack 73 41.40 1.74 1.78 1.78 4.2% 4.3% 4.3% 4.3% 2.96 3.03 3.10 14.0 13.7 13.4 45.75 47.00 13.5% 17.8%DREAM Office REIT D.un SP ↔ A Kornack 111 19.20 2.24 2.24 2.24 11.7% 11.7% 11.7% 11.7% 2.86 2.83 2.82 6.7 6.8 6.8 26.55 22.50 17.2% 28.9%

H&R REIT HR.un OP ↔ BA Kornack 302 20.68 1.35 1.35 1.35 6.5% 6.5% 6.5% 6.5% 1.85 1.88 1.93 11.2 11.0 10.7 25.50 26.25 26.9% 33.5%Melcor REIT MR.un SP ↔ A Johnson 11 7.83 0.68 0.68 0.68 8.6% 8.6% 8.6% 8.6% 0.87 1.00 1.02 9.0 7.8 7.7 9.00 9.00 14.9% 23.6%NorthWest H.P. REIT NWH.un SP ↔ A Kornack 72 8.38 0.80 0.80 0.80 9.5% 9.5% 9.5% 9.5% 0.99 0.90 0.93 8.5 9.3 9.0 9.25 9.50 13.4% 22.9%Slate Office REIT SOT.un SP ↔ BA Chung 35 7.26 0.75 0.75 0.75 10.3% 10.3% 10.3% 10.3% 0.79 1.04 1.13 9.2 7.0 6.4 8.50 8.50 17.1% 27.4%

IndustrialDREAM Industrial REIT DIR.un OP ↔ A Kornack 77 7.89 0.70 0.70 0.70 8.9% 8.9% 8.9% 8.9% 0.95 0.96 0.98 8.3 8.2 8.1 10.00 9.50 20.4% 29.3%Pure Industrial REIT AAR.un OP ↔ A Kornack 191 4.37 0.31 0.31 0.31 7.1% 7.1% 7.1% 7.1% 0.36 0.39 0.42 12.0 11.3 10.5 4.95 5.15 17.8% 25.0%Summit Industrial SMU.un OP ↔ BA Kornack 29 6.12 0.50 0.50 0.50 8.2% 8.2% 8.2% 8.2% 0.59 0.60 0.67 10.4 10.2 9.1 6.15 6.50 6.2% 14.4%WPT Industrial REIT WIR'U-T OP ↔ AA Johnson 19 11.20u 0.70u 0.76u 0.76u 6.2% 6.8% 6.8% 6.4% 1.00u 1.02u 1.15u 11.2 11.0 9.8 14.50u 14.50u 29.5% 36.2%HotelsAmerican Hotel Income Properties HOT.un OP ↔ BA Johnson 35 10.26 0.90 0.90 0.90 8.8% 8.8% 8.8% 8.8% 0.91 1.07 1.24 11.3 9.6 8.3 12.50 12.50 21.8% 30.6%Temple Hotels TPH SP AA Johnson 78 1.09 0.54 0.15 0.15 49.5% 13.8% 13.8% 13.8% 0.49 0.33 0.27 2.2 3.3 4.0 2.50 1.50 37.6% 51.4%

Multi-ResBoardwalk REIT BEI.un SP ↔ A Kornack 52 48.22 2.04 2.04 2.04 4.2% 4.2% 4.2% 4.2% 3.36 3.55 3.58 14.3 13.6 13.5 61.00 60.00 24.4% 28.7%

CAP REIT CAR.un OP ↔ A Kornack 130 24.94 1.17 1.21 1.21 4.7% 4.8% 4.8% 4.9% 1.65 1.68 1.80 15.1 14.9 13.9 28.75 32.00 28.3% 33.1%InterRent REIT IIP.un OP ↔ BA Kornack 72 6.62 0.20 0.22 0.22 3.1% 3.4% 3.4% 3.3% 0.32 0.36 0.44 20.4 18.5 15.0 7.15 7.50 13.3% 16.7%

Milestone Apartments REIT MST.un OP ↔ A Kornack 76 15.50 0.65 0.65 0.65 4.2% 4.2% 4.2% 4.2% - 1.07 1.17 - 14.5 13.2 13.95 18.50 19.4% 23.5%

Pure Multi-family REIT RUFu.V OP ↔ A Johnson 42 5.57u 0.38u 0.38u 0.38u 6.7% 6.7% 6.7% 6.7% 0.46u 0.46u 0.53u 12.0 12.2 10.5 6.00u 6.00u 7.7% 14.5%InternationalDREAM Global REIT DRG.un OP A Kornack 113 8.71 0.80 0.80 0.80 9.2% 9.2% 9.2% 9.2% 0.88 0.79 0.89 9.9 11.1 9.7 9.80 10.00 14.8% 24.0%

Inovalis REIT INO.un OP ↔ A Kornack 18 9.16 - 0.83 0.83 - 9.0% 9.0% 9.0% - 0.96 1.11 - 9.5 8.3 10.35 10.25 11.9% 20.9%Asset ManagementTricon Capital Group TCN OP ↔ A Johnson 104 11.24 0.24 0.24 0.24 2.1% 2.1% 2.1% 2.1% 0.51u(2) 0.70u(2) 0.55u(2) 20.9 20.1 18.1 NA 13.00 15.7% 17.8%

Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating System: BA = Below Average; A = Average; AA = Above Average; S = Speculative(1) Figures represent DCPS u = US Dollars

12-MthPrice

Cash YieldMatt Kornack, Trevor Johnson Distributions per Unit

VISIONDecember 2015

46

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Metals and Mining: Precious MetalsSector Analysis

—

Shane Nagle, CFA Analyst 416-869-7936 —

Associates: Gregory Doyle: 416-869-6538

Raj Ray, MBA: 416-507-8105

Adam Melnyk Analyst 604-643-2864 —

Associate: David Lee 416-869-8045

Steve Parsons, P.Eng Analyst 416-869-6766 —

Associate: Don DeMarco 416-869-7572

(All dollar amounts in Canadian dollars unless noted)

Waiting for Cues From the U.S. Federal Reserve

Hawkish overtones. Following strong economic data prints, the potential for the U .S . Federal Reserve to raise rates has kept the price of gold range-bound . Through the final weeks of 2015, market focus for the industry will be on the prospects of a December rate hike with the yellow metal trading in tandem . As of mid-November, Bloomberg reported a 60%+ probability of a rate hike by year end, which we view as reflective of the current negative sentiment for the sector . Although a delay would represent a short-term positive for gold miners, the spectre of the first rate increase since 2006 will remain an overhang for the industry .

Weak foreign currencies relative to the USD remain a key criteria for investment in the precious metals sector. As the USD gained in relative strength through the course of 2015, depreciating foreign currencies (CAD/NZD/MXN/BRL) served as a (partial) hedge to declining gold prices . Close to home, the CAD continues to remain weak against the USD, which should benefit several producers in our coverage universe including: Lake Shore Gold, Kirkland Lake Gold, Richmont Mines, Claude Resources, Wesdome Gold, Agnico Eagle Mines and Detour Gold . We note larger producers such as Yamana Gold and Kinross Gold may see more limited impact from a weakened CAD due to in-place FX hedges that roll off later in 2015, with continuing benefits from the weak Brazilian real . Reiterating this theme, the depreciating Mexican peso and Peruvian nuevo sol has had a positive impact on unit costs for Fortuna Silver (~US$4 .70/t year-to-date) .

Looking towards the long term. For patient investors, we continue to highlight producers that offer a robust balance sheet and production sustainability either supported by a long resource life or having significant near-term exploration potential with a relatively low capex requirement .

Selections

Producers: Claude Resources (CRJ:TSX, Outperform, $1 .10 target), Detour Gold (DGC:TSX, Outperform, $17 .50 target), Fortuna Silver (FVI:TSX, Outperform, $4 .50 target), Lake Shore Gold (LSG:TSX, Outperform, $1 .75 target), OceanaGold (OGC:TSX, Outperform, $3 .50 target) and Yamana Gold (YRI:TSX, Outperform, $5 .75 target)

Royalties: Franco-Nevada (FNV:TSX, Outperform, $74 .00 target), Osisko Gold Royalties (OR:TSX, Outperform, $18 .00 target) and Silver Wheaton (SLW:TSX, Outperform, $25 .00 target)

Developers: MAG Silver (MAG:TSX, Outperform, $12 .50 target) and Sabina Gold and Silver (SBB:TSX, Outperform, $1 .00 target)

47

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Metals and Mining: Precious MetalsSector Analysis

—Stock 12-Mth FDEPS FDCFPS Net

Stock Risk Shares Price Price (A) est. est. (A) est. est. Asset Company Symbol Rating Rating O/S (Mln) 11/16 Target Analyst Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value P/NAVPS *

Senior Producers (>1 mln oz production)Agnico-Eagle Mines Ltd. AEM-T OP AA 217.7 34.86$ 41.25$ Parsons 0.83u 0.51u 0.07u 82.8x 607.3x 3.18u 3.34u 2.69u 12.7x 15.8x 19.34 1.8xKinross Gold Corporation K-T SP AA 1146.4 2.46$ 3.80$ Parsons 0.11u (0.11)u (0.09)u - - 0.85u 0.62u 0.75u 4.8x 4.0x 3.09 0.8xYamana Gold Inc YRI-T OP AA 946.6 2.55$ 5.75$ Parsons 0.01u (0.08)u 0.00u - 1805.3x 0.75u 0.55u 0.69u 5.6x 4.5x 4.81 0.5x

Royalty CompaniesAuRico Metals Inc. AMI-T OP S 130.9 0.64$ 1.00$ Melnyk n/a n/a (0.07)u n/a n/a n/a n/a (0.06)u n/a n/a 0.84 0.8xFranco-Nevada Corp FNV-T OP AA 156.9 62.94$ 74.00$ Nagle 0.72u 0.52u 0.63u 161.0x 132.9x 2.20u 2.05u 2.31u 40.8x 36.2x 40.99 1.5xOsisko Gold Royalties Ltd. OR-T OP AA 94.4 13.95$ 18.00$ Nagle (0.04)c 0.37c 0.35c 38.1x 40.4x 0.12c 0.38c 0.49c 36.7x 28.6x 13.22 1.1xRoyal Gold Inc RGLD-O OP AA 65.1 36.58$ 65.00$ Nagle 0.80u (0.41)u 1.81u n/a 20.2x 2.49u 4.16u 4.78u 8.8x 7.7x 50.58 0.7xSilver Wheaton Corp SLW-T OP AA 403.8 16.70$ 25.00$ Nagle 0.55u (0.13)u 0.75u n/a 29.6x 1.21u 0.74u 1.33u 30.0x 16.7x 18.05 0.9xSandstorm Gold Ltd SSL-T OP S 128.3 3.55$ 5.00$ Nagle 0.11u (0.18)u (0.05)u n/a n/a 0.32u 0.27u 0.33u 17.5x 14.3x 4.03 0.9x

Intermediate Producers ( >250 Koz production)Alamos Gold Inc. AGI-T OP AA 255.9 4.06$ 7.00$ Melnyk n/a n/a (0.11)u n/a n/a n/a n/a 0.34u n/a 8.8x 6.24 0.7xB2Gold Corp. BTO-T OP AA 923.0 1.44$ 2.40$ Parsons 0.01u 0.02u 0.08u 84.5x 22.4x 0.16u 0.18u 0.22u 9.9x 8.1x 1.61 0.9xDetour Gold Corp DGC-T OP AA 170.7 13.22$ 17.50$ Parsons (0.51)u (0.26)u 0.21u - 62.4x 0.78u 0.97u 1.36u 13.6x 9.7x 15.49 0.9xFirst Majestic Silver Corp. FR-T SP AA 154.8 4.02$ 6.00$ Doyle (0.53)c (0.08)c (0.06)c n/a n/a 0.64c 0.49c 0.63c 10.9x 8.5x 4.86 0.8xFortuna Silver Mines Inc. FVI-T OP AA 129.1 3.33$ 4.50$ Doyle 0.12c 0.06c 0.14c 73.8x 31.6x 0.47c 0.22c 0.42c 20.1x 10.5x 3.99 0.8xIAMGOLD Corporation IMG-T SP AA 390.6 1.99$ 2.45$ Parsons 0.12u (0.38)u (0.31)u - - 0.88u 0.44u 0.34u 4.5x 5.9x 1.67 1.2xNew Gold Inc NGD-T SP AA 509.1 2.96$ 4.50$ Parsons 0.07u (0.01)u (0.03)u - - 0.61u 0.52u 0.50u 6.9x 7.2x 3.00 1.0xOceanaGold Corp. OGC-T OP AA 603.1 2.37$ 3.50$ Ray 0.37u 0.15u 0.10u 13.7x - 0.77u 0.56u 0.35u 3.5x 5.7x 2.54 0.9xTahoe Resources Inc. THO-T SP AA 226.0 12.15$ 15.60$ Parsons 0.62u 0.46u 0.48u 22.4x 22.0x 1.18u 0.83u 0.93u 12.4x 11.3x 11.01 1.1x

Junior Producers (<250 Koz production)Alacer Gold Corp ASR-T SP AA 290.7 2.72$ 3.25$ Parsons 0.28u 0.20u 0.02u 17.0x 135.6x 0.41u 0.34u 0.17u 9.8x 20.0x 3.04 0.9xClaude Resource Corp. CRJ-T OP S 195.0 0.72$ 1.10$ Melnyk 0.02c 0.14c 0.06c 5.3x 11.8x 0.14c 0.24c 0.17c 3.0x 4.2x 1.11 0.7xGolden Star Resources Ltd GSC-T SP AA 259.5 0.30$ 0.35$ Ray (0.28)u (0.37)u (0.12)u - - 0.03u (0.09)u (0.06)u - - 0.36 0.8xKirkland Lake Gold Inc KGI-T OP AA 80.4 5.64$ 7.00$ Ray 0.27u 0.38u 0.47u 13.2x 9.4x 0.90u 0.59u 0.91u 6.6x 5.2x 7.65 0.7xLake Shore Gold Corp LSG-T OP AA 456.3 1.17$ 1.75$ Ray 0.06c 0.02c 0.06c 66.2x 13.7x 0.26c 0.22c 0.26c 4.8x 3.7x 1.40 0.8xRichmont Mines Inc. RIC-T OP S 58.1 4.02$ 5.50$ Melnyk 0.21c 0.22c 0.22c 18.3x 18.3x 0.76c 0.66c 0.61c 6.1x 6.6x 6.03 0.7xSEMAFO Inc. SMF-T OP AA 294.1 3.11$ 4.35$ Ray 0.07u 0.13u 0.16u 14.2x 16.0x 0.43u 0.46u 0.47u 5.7x 6.0x 2.93 1.1xTimmins Gold Corp. TMM-T SP S 390.1 0.24$ 0.30$ Nagle 0.06u (0.65)u 0.04u n/a 8.0x 0.26u 0.03u 0.07u 10.6x 4.6x 0.39 0.6xWesdome Gold Mines Ltd. WDO-T OP AA 111.1 0.99$ 1.55$ Ray 0.11u 0.05u 0.13u 11.6x 5.2x 0.21u 0.11u 0.22u 6.3x 3.4x 1.66 0.6x

DevelopersAtlantic Gold Corp. AGB-V OP S 115.5 0.36$ 0.70$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.97 0.4xBelo Sun Mining Corp BSX-T OP S 359.6 0.23$ 0.35$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.46 0.5xDalradian Resources Inc. DNA-T OP S 214.2 0.71$ 1.10$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.24 0.6xKaminak Gold Corp. KAM-V OP S 143.7 0.79$ 1.30$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.41 0.6xLuna Gold Corp. LGC-T UR UR UR UR UR Nagle UR UR UR UR UR UR UR UR UR UR UR URLundin Gold Inc. LUG-T OP S 101.3 3.82$ 5.00$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 6.28 0.6xLydian International Ltd. LYD-T OP S 186.9 0.26$ 0.60$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.81 0.3xMAG Silver Corp MAG-T OP S 68.7 9.03$ 12.50$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 11.31 0.8xMidas Gold Inc. MAX-T OP S 160.8 0.27$ 0.60$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.65 0.4xMountain Province Diamonds Inc. MPV-T OP S 159.7 4.22$ 6.50$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 6.50 0.6xNovaGold Resources Inc. NG-T SP S 317.9 4.75$ 4.00$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 4.20 1.1xOrezone Gold Corp. ORE-T OP S 117.4 0.25$ 0.60$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.69 0.4xRubicon Minerals Corp RMX-T UP S 395.9 0.20$ 0.15$ Parsons (0.05)u (0.06)u (0.04)u - - (0.05)u (0.06)u (0.03)u - - 0.18 1.1xPilot Gold Corp. PLG-T OP S 146.2 0.32$ 0.80$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.02 0.3xSabina Gold & Silver Corp. SBB-T OP S 196.8 0.63$ 1.00$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.39 0.5xSeabridge Gold Inc. SEA-T OP S 50.3 9.60$ 13.50$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 14.27 0.7xTMAC Resources Inc. TMR-T SP S 77.6 6.05$ 6.50$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 7.24 0.8xTrue Gold Mining Inc. TGM-T OP S 398.8 0.22$ 0.45$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.47 0.5x

OtherSprott Resource Corp. SCP-T SP AA 97.9 0.60$ 0.95$ DeMarco n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.54 0.4x

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US dollars; c = Canadian dollarsRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

P/CFP/E

VISIONDecember 2015

48

—

(All dollar amounts in Canadian dollars unless noted)

Maintaining Our Near-Term Cautious Outlook, But Potential Supply Deficits Could Provide Longer-Term Price Support

Slowdown in the Chinese and Global economy will continue to result in volatile commodity prices throughout the year. Our near-term outlook for base metals remains cautious as the last 18 months have clearly marked a conclusion to the rapid Chinese urbanization/commodity super-cycle . Chinese Manufacturing PMI data, which data has shown some stabilization of late, remains a primary focus, with this month’s print of 50 .0 (versus 49 .8 for the prior period) is still teetering on contraction territory . We do note that the country’s factory sector has shown some resilience year-to-date, which we believe is partially attributable to ongoing infrastructure stimulus, aided by the People’s Bank of China (PBOC) maintaining low interest rates and lowering reserve ratio requirements within the country’s banking sector . As this phase of seemingly unlimited demand for commodities draws to an end, the market has demonstrated significant concern with what demand will look like in a more consumer-driven Chinese economy, exacerbated by the reduction in the World Bank’s most recent 2015 global growth forecast of 3 .0% from its previous projection of 3 .4% earlier this year . Although the PBOC’s devaluation of the Chinese yuan versus the U .S . dollar may lead to increases in Chinese exports, it certainly underscores our expectation for volatile demand for base metals, particularly copper, through the coming months .

Long-term outlook remains intact for copper, nickel and zinc as market fundamentals become more prevalent in price determination. With impartial demand for commodities out of China in recent years, metal prices have deviated from valuations implied by

underlying market fundamentals . With the anticipated slowdown in Chinese GDP growth (NBF Estimate of +6 .5% in 2015, down from +7 .4% in 2014) and its government’s shift in emphasis toward reform over short-term expansion, we contend that supply/demand factors will once again weigh more prominently in determining fair value . Looking forward, we expect this to translate into improved support long term for copper, nickel and zinc, given a lack of significant investment in recent years and that current commodity prices are well below the incentive price for many large-scale development projects . On the other end of the spectrum, bulk commodities such as iron ore and coking coal are likely to remain oversupplied given expansion of production, particularly out of Australia, where a depreciating domestic currency and lower oil prices have moved the marginal cost of production even lower in recent months .

Lundin Mining Corp. (LUN:TSX) continues to offer the best combination of value, growth and defensiveness. The company maintains the strongest balance sheet in our base metals coverage universe with US$550 million of cash, US$1 .00 billion of long-term debt (due in 2020 and 2022) and an additional US$350 million of available credit . Lundin Mining’s shares continue to trade at attractive EV/2016E CF multiples relative to its multi-mine peers while benefitting from a stable multi-mine operating base and tangible near-term cash flow growth . Longer term, stepwise improvement in free cash flow is backed by comparably less exposure to capital cost increases and commissioning delays .

Selection

Lundin Mining Corp .

Metals and Mining: Base MetalsSector Analysis

—

Shane Nagle, CFA Analyst 416-869-7936 —

Associates: Gregory Doyle: 416-869-6538

Raj Ray, MBA: 416-507-8105

Steve Parsons, P.Eng Analyst 416-869-6766 —

Associate: Don DeMarco 416-869-7572

Stock 12-Mth FDEPS FDCFPS NetStock Risk Shares Price Price (A) est. est. (A) est. est. Asset

Company Symbol Rating Rating O/S (Mln) 11-16 Target Analyst Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value P/NAVPSBase Metals Producers

Capstone Mining Corp CS-T SP AA 382.0 0.45$ 0.90$ ↓ Nagle -0.06 -0.65 -0.15 n/a n/a 0.52 0.16 0.23 3.7x 2.6x 1.54 0.3xCopper Mountain Mining Corp. CUM-T OP S 118.8 0.46$ 1.15$ ↓ Parsons 0.08 -0.04 0.15 - 3.1x 0.44 0.31 0.55 1.5x 0.8x 2.98 0.2xFirst Quantum Minerals FM-T OP AA 689.3 4.98$ 12.50$ ↓ Nagle 1.42 -0.95 0.40 n/a 16.5x 1.87 1.04 2.10 6.4x 3.2x 18.61 0.3xHudBay Minerals HBM-T OP AA 235.2 5.21$ 10.00$ ↓ Nagle 0.34 -0.30 0.01 n/a 410.6x 0.07 0.94 1.58 5.5x 3.3x 10.04 0.5xLundin Mining LUN-T OP AA 718.2 3.61$ 6.00$ ↓ Nagle 0.19 0.10 0.11 27.3x 23.8x 0.64 0.90 0.87 5.3x 5.5x 5.48 0.7xSherritt Int. Corp S-T SP AA 293.9 0.81$ 1.90$ ↓ Parsons -0.68 -1.13 -0.89 - - 0.86 1.09 1.09 0.7x 0.7x 1.46 0.6xTaseko Mines Limited TKO-T SP AA 221.8 0.51$ 1.15$ Parsons -0.18 -0.13 -0.18 - - 0.19 0.23 0.25 2.2x 2.1x 1.27 0.4xTeck Resources TCK'B-T SP AA 576.2 6.19$ 11.00$ ↓ Nagle 0.63 -3.36 0.38 n/a 16.5x 3.48 3.17 3.19 2.0x 1.9x 16.14 0.4xThompson Creek Metals TCM-T SP S 221.2 0.41$ 0.90$ Nagle 0.28 -0.20 -0.11 n/a n/a 0.75 0.29 0.45 1.4x 0.9x 2.19 0.2x

Base Metals Developers and ExplorersPolyMet Mining Corp. POM-T SP S 275.0 1.21$ 1.70$ Parsons -0.02 -0.02 -0.02 - - -0.02 -0.02 -0.02 - - 1.60 0.8x

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted u = US dollars; c = Canadian dollarsRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

P/CFP/E

49

—

Manitoba Telecom Services Inc. (MBT:TSX) – turnaround, transformation, and eventual sales to drive value: On Nov . 4, we raised our target for MTS Allstream to $32 and upgraded the stock to Outperform . While the shares experienced a nice recovery in 2015 after its new CEO began laying out his new strategy earlier in the year and cut the dividend to finally eliminate a prolonged overhang, we see a sustainable move above $30 in 2016 with an attractive dividend yield near 4 .5% . With its 3Q15, management highlighted that the turnaround at Allstream is evolving on schedule, with 75% of planned job eliminations expected to be completed by the end of the year and the remainder occurring through 2016 . Run-rate savings should hit $38 million exiting 2015 amidst a total target of $50 million . Allstream is also expected to see capex reduced by 20% to 30% . YTD, capex is down 36% y/y without hampering growth in converged IP revenues which have grown 9 .5% . This summer, it was made clear that a sale process was underway for Allstream with potential buyers being pursued during 2H15 . On its 3Q15 call, management noted that its sale process for Allstream is moving along as planned, with meetings having occurred with interested parties . We await more news regarding

the planned divestiture early in the new year . As for MTS, whose 3Q15 results underperformed, management highlighting that it was turning its attention to the business with a newly-established Transformation Management Office tasked with a three-year, multi-phase plan to unlock $100 million in FCF (same level of costs to be incurred), as it streamlines processes, improves customer service, refreshes the brand and strives to rejuvenate growth . Embarking on Phase 1, MTS expects to identify $30 million to $40 million of capex savings during 4Q15 . Phase 1 unlocks funding to invest in building a market-leading customer experience . Better prioritizing investments is anticipated to yield $20 million to $25 million in capex reductions which should bring MTS’s annual capex to about $180 million ex-spectrum or 18% capex intensity, at a cost of less than $1 million . MTS initiated a voluntary workforce reduction which is expected to result in 200 to 250 employees in back-office functions departing the company in 1Q16 for savings of $20 million to $25 million at a cost of $10 million to $15 million . We’re not speculating yet on a sale of MTS but that will inevitably come once Allstream gets sold .

Selections

Quebecor, Cogeco Cable, MTS Telecom, TELUS, Cineplex, Transcontinental, DHX and Intertain

Telecom, Media and GamingSector Analysis

—

Adam Shine, cfa Analyst 514-879-2302 —

Associates: Peter Stusio, MBA, CFA .: 514-879-2564 Luc Troiani: 416-869-6585

Shares Stock Last FDEPS EBITDA ($mln) ND/ 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. Book Total PriceSym. Rating Rating (Mln) 11-16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Broadcasting & Entertainment Cineplex Inc. CGX OP BA 63.1 49.30 12/2014 1.24 1.54 2.05 32.0 24.0 201.0 245.8 288.7 14.2 12.2 11.28 0.36 55.00

Corus Entertainment Inc. CJR.b SP AA 87.2 11.42 08/2015 1.57 1.61 1.51 7.1 7.6 289.6 277.2 264.2 6.4 6.4 13.85 0.40 14.00

DHX Media DHX.b OP AA 124.0 8.05 06/2015 0.31 0.44 0.54 17.1 14.9 90.2 110.4 124.5 10.8 9.2 2.11 0.50 11.00NYX Gaming NYX OP AA 49.6 2.29 12/2014 (0.02) 0.02 0.20 NM 11.5 6.1 8.3 31.6 10.0 5.6 1.70 NM 5.50Sirius XM Canada Holdings XSR OP AA 128.3 4.25 08/2015 0.22 0.34 0.38 12.5 11.2 79.0 82.9 88.1 8.6 8.1 NM NM 5.00

Spin Master TOY OP AA 99.6 22.90 12/2014 NM 0.82 0.90 21.0 19.1 111.7 148.3 171.7 10.7 9.1 NM NM 27.00

Stingray Digital RAY.a OP AA 50.8 7.24 03/2015 0.52 0.47 0.48 15.4 15.1 27.1 30.4 33.4 12.4 11.1 1.72 0.17 10.00The Intertain Group Limited IT OP AA 71.4 13.34 12/2014 0.80 1.54 2.04 7.7 6.5 20.1 132.5 189.6 7.3 5.9 10.43 0.31 26.00TVA Group Inc. TVA.b SP AA 43.2 4.50 12/2014 0.00 (0.16) 0.32 NM 14.1 34.1 43.3 52.3 6.1 4.9 7.24 0.16 5.50 Printing & PublishingSupremex Inc. SXP UP AA 28.8 5.14 12/2014 0.39 0.41 0.44 12.5 11.7 26.6 27.7 29.4 5.7 5.2 5.14 0.19 4.50Thomson Reuters TRI OP A 781.2 52.60 12/2014 1.95 2.03 2.27 19.4 17.4 3448.0 3407.4 3644.4 11.4 10.5 16.36 0.38 62.50

Torstar Corporation TS.b SP AA 80.5 3.02 12/2014 0.58 0.37 0.44 8.2 6.9 101.7 64.5 62.4 3.8 3.9 10.44 NM 4.50Transcontinental Inc. TCL.a OP AA 78.0 20.56 10/2014 2.11 2.39 2.42 8.6 8.5 354.1 381.8 393.1 4.9 4.6 12.00 0.25 22.50Advertising & MarketingAimia Inc. AIM SP AA 158.3 9.16 12/2014 1.05 1.06 0.90 8.6 10.2 316.5 218.5 238.2 9.8 8.7 1.62 0.26 11.50

TelecommunicationsBCE Inc. BCE SP A 849.4 57.41 12/2014 3.18 3.40 3.56 16.9 16.1 8303.0 8564.2 8857.9 8.4 8.1 14.33 0.43 56.50

Cogeco Cable CCA OP A 49.2 67.77 08/2015 5.22 5.53 5.75 12.3 11.8 930.5 1003.7 1032.2 6.2 5.8 34.29 0.64 77.00

Manitoba Telecom Services Inc. MBT OP A 79.3 28.30 12/2014 1.70 1.04 1.24 27.2 22.8 565.9 541.0 582.2 6.8 6.0 15.23 0.31 32.00

Quebecor Inc. QBR.b OP AA 122.7 32.94 12/2014 1.70 2.05 2.47 16.1 13.3 1409.9 1444.3 1520.1 6.8 6.2 7.24 0.80 41.00Rogers Communications Inc. RCI.b UP A 516.7 52.18 12/2014 2.96 2.94 2.94 17.7 17.7 5019.0 5062.3 5167.8 8.5 8.3 11.16 0.58 48.50Shaw Communications SJR.b SP A 462.0 26.95 08/2015 1.80 1.74 1.74 15.5 15.5 2379.0 2406.1 2413.6 7.5 7.3 11.94 0.48 27.50

Telus Corp. T OP A 602.0 41.08 12/2014 2.31 2.25 2.69 18.3 15.3 4216.0 4464.1 4612.4 8.1 7.8 12.31 0.61 46.00

Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative TRI & TOY estimates are in US$, rest is CAD$.Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted

EV/EBITDA

VISIONDecember 2015

50

—

Highlights as of December 2015

New Flyer Industries Inc. (NFI: TSX)

Continued Earnings Momentum; Highly Accretive Acquisition. NFI reported strong Q3/15 results with revenues of US$364 .7 million (vs . US$362 .3 million est . & US$360 .8 million Q3/14), adj . EBITDA of US$36 .3 million (vs . US$29 .4 million est . & US$25 .7 million Q3/14) and DCPS of US$0 .30 (Cdn$0 .40) reflecting a 39% payout ratio (vs . US$0 .29 (Cdn$0 .39) / 40% est . & US$0 .29 (Cdn$0 .32) and 45% Q3/14) . Results were largely reflective of a robust backlog, improved operating efficiencies and increased Aftermarkets profitability .

Following the quarter, the company announced the acquisition of Motor Coach Industries International, Inc . (MCI) - North America’s leading manufacturer of motor coaches and an extensive provider of aftermarket parts and repair services - from KPS Capital Partners L .P . The purchase price is ~US$455 million, representing ~6x estimated 2015 Adjusted EBITDA and financed entirely with debt via a new credit facility totaling US$825 million . With three manufacturing facilities, nine service and parts distribution centres and an installed base of 28k coaches, MCI’s footprint is complementary to NFI, in that it is: 1) well-established and brings dominant market share (MCI representing ~42% of 2014 coach deliveries and ~50% of installed base compared with NFI’s 43-50% of transit bus manufacturing);

2) Winnipeg headquartered and caters to the North American market, with 30% of sales to public customers (NFI’s legacy audience) and 70% to the private market; 3) an assembler of heavy duty buses providing the opportunity for operational and purchasing synergies over time (management anticipates at least US$10 million annually); 4) focused on green technologies and creating value for customers through technological / efficiency improvements; and 5) also a provider of comprehensive aftermarkets support and parts supply .

Our preliminary forecasts indicate 2016e top line increases 40% to US$2 .2 billion, EBITDA +53% to US$218 million and DCPS +36% to US$2 .01 . Payout declines to 27% (was 32%) after incorporating the +13% dividend increase (to Cdn$0 .70/year) . We expect NFI to be leveraged an elevated ~3 .2x net debt to pro forma EBITDA (including converts), but are comfortable with this level, as: 1) NFI’s new free cash flow profile suggests rapid deleveraging; and 2) the company still has ~$200 million in unused credit to continue financing growth . NFI trades at 8 .6x 2016e EV/EBITDA and 9 .7x P/CF, a 2-3x discount to TSX diversified yield peers and 1-1 .5x discount to its recent trading range before the MCI announcement, both suggesting additional upside . We use a 9 .5x forward EV/EBITDA multiple (was ~10x) to arrive at a $29 target (was $24), the more conservative valuation due to the risks associated with the transaction and NFI entering a new (albeit complementary) vertical .

Selections

New Flyer Industries Inc ., Boyd Group Inc ., Exchange Income Corp . and Just Energy Group

Special SituationsSector Analysis

— Trevor Johnson, cfa

Analyst 416-869-8511 —

Associates: Alex Bauer: 416-869-7935

Endri Leno: 416-869-8047 Kyle Stanley: 416-507-8108

Shares Stock Last FDDCPS EBITDA (mln) Net Y1 Net 12-MthStock Stock Risk O/S Price Quarter (A) est. est. P/DCPS (A) est. est. EV/EBITDA Debt Debt/ PriceSym. Rating Rating (Mln) 11-16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (Mln) EBITDA Target

Alaris Royalty AD OP A 36.0 24.90 09/2015 1.89 1.82 2.21 13.7 11.2 57.4 70.3 90.3 13.6 11.3 27.1 0.3 33.00

Boyd Group Inc. BYD.UN OP A 17.0 68.29 09/2015 2.82 3.08 4.89 22.2 14.0 69.0 94.4 116.3 13.2 10.8 89.6 0.8 80.00

Chemtrade CHE.UN OP A 69.1 18.19 09/2015 2.04 2.31 2.74 7.9 6.6 216.8 239.0 268.5 8.8 8.1 849.8 3.2 22.00DH Corp. DH OP BA 106.1 33.73 09/2015 2.61 2.40 2.71 14.0 10.6 352.3 441.7 509.8 10.4 10.6 1979.8 0.4 44.00

EnerCare Inc. ECI OP A 92.8 15.53 09/2015 1.17 1.32 1.30 11.7 12.0 182.7 235.8 252.3 8.9 8.3 649.6 2.6 17.50Exchange Income Corp. EIF OP AA 27.5 26.89 09/2015 1.50 2.59 2.57 9.3 9.6 94.3 178.6 186.4 6.9 6.6 495.8 2.7 31.00

Grenville Strategic Royalty Corp. GRC OP S 98.5 0.60 06/2015 0.01 0.04 0.07 16.4 9.1 1.5 6.2 14.8 7.5 6.4 (2.9) 0.0 1.00K-Bro Linen Inc. KBL OP A 8.0 49.98 09/2015 2.87 2.77 3.28 18.1 15.2 26.2 27.5 32.6 14.7 12.2 (3.0) 0.0 55.00Liquor Stores N.A. Ltd. LIQ SP AA 27.4 8.69 09/2015 0.92 0.83 1.09 10.4 8.0 37.9 38.4 44.8 9.3 8.3 124.2 2.8 11.50

Just Energy Group Inc. JE SP AA 146.9 8.75 09/2015 0.57 0.75 0.71 11.7 12.2 180.4 196.3 201.9 9.7 9.3 596.8 3.0 9.00

Medical Facilities Corp. DR SP A 31.4 15.61 09/2015 1.22u 1.16u 1.16u 10.9 11.2 97.2u 94.3u 101.1u 7.7 7.7 (5.2)u -0.1 17.50Morneau Shepell Inc. MSI OP BA 48.0 15.25 09/2015 0.92 1.06 1.03 14.4 14.8 98.9 105.1 119.0 10.0 8.8 327.4 2.8 19.00Mosaic Capital Corp. M SP AA 8.7 7.15 06/2015 0.68 1.07 0.61 11.8 6.7 25.1 24.5 31.9 7.4 6.9 14.7 0.6 8.00New Flyer Industries Inc. NFI OP A 55.5 25.32 09/2015 1.18u 1.53u 2.62u 16.6 9.7 86.5u 129.8u 218.0u 10.9 8.6 698.9u 3.2 29.00

Parkland Fuel Corp. PKI OP A 90.8 22.79 09/2015 1.41 1.32 1.73 17.3 13.2 183.2 217.2 272.7 11.3 9.1 454.2 1.7 28.00Rogers Sugar Inc. RSI SP BA 94.3 4.09 06/2015 0.36 0.39 0.39 10.5 10.4 61.1 65.8 539.3 9.1 8.7 222.4 0.4 4.50WesternOne Equity WEQ SP AA 39.7 0.53 09/2015 0.58 0.18 0.11 3.0 5.0 41.6 27.3 25.1 6.4 6.5 150.4 6.0 0.50

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

51

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Highlighting two of our selections post-Q3 reporting

With Q3 2015 earnings now behind us, we highlight two companies within our coverage universe that reported strong results and for which we have a constructive view.

Cascades: Containerboard strength and Tissue margin recovery. Cascades (CAS: TSX; Outperform, $13 .00 target) reported Q3 results that were much stronger than anticipated with 13% y/y revenue growth and record EBITDA .

Momentum continued in the company’s Containerboard segment with EBITDA reaching a new record thanks to low recycled fibre costs, favourable foreign exchange rate variations and strong demand . In Tissue, where performance had been underwhelming in recent quarters, we were pleasantly surprised by Q3’s significant margin improvement which was driven by pricing, lower start-up costs of new machines, better productivity and favourable foreign exchange rates .

Looking ahead, we expect Cascades to continue to benefit from the tailwinds seen during Q3 . We increased our 2015 and 2016 estimates on the back of the large positive Q3 surprise and solid outlook . As a result, our target was increased to $13 from $10 . Despite the recent share price appreciation, we believe valuation remains attractive .

Aecon: Q3 beat, record backlog and bright outlook shouldn’t result in stock price drop. Aecon (ARE: TSX; Outperform, $17 .00 target) also released Q3 results that were ahead of our forecasts . Revenues increased 4 .1% y/y to $875 million; above our $845 million estimate, EBITDA of $76 million was ahead of our $67 million, and Adjusted EPS came in at $0 .49 vs . our $0 .42 estimate after excluding a one-time non-cash tax expense .

In addition to the Q3 beat, backlog at the end of the quarter increased to a record $3 .4 billion due to the Eglinton LRT (~$1 .25 bln) . Looking ahead, ARE’s $15 billion transportation bidding pipeline is robust, with ~$5 billion in submission stage, including Site C Civil works ($2-3 bln), Edmonton LRT and Winnipeg BRT .

Management provided the following guidance in line with our positive view on the company: a) Q4/15 EBITDA of ~$60 million, b) 2016 revenue growth similar to F15 growth, c) margin expansion in all segments, and d) Infrastructure EBITDA of 5-6% in the near term .

A strong Q3, favourable guidance on all fronts, expected debt-free position at the end of Q4/15 and promising near and long-term outlook reinforce our positive bias . Our $17 target is based on 6 .0x 2016e EV/EBITDA . We view recent share price weakness as an attractive point of entry .

Selections

Aecon Group, Cascades, GDI Integrated Facility Services and Uni-Sélect


—

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

Associates: Connor Sedgewick: 514-390-7825 Frédéric Tremblay, M .Sc ., CFA: 514-412-0021

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

Symbol Rating ∆ Rating (Mln) 11-16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 yield FY2 EBITDA Target ∆

Aecon Group ARE OP AA 56.4 15.14 12/2014 0.40 0.77 0.70 19.7 21.5 170.2 172.5 165.3 7.3 6.3 2.7% 2.5 17.00Canam Group CAM OP A 45.7 14.52 12/2014 0.70 1.00 1.30 14.6 11.2 78.6 112.9 129.3 7.8 6.8 1.1% 1.7 19.00Cascades CAS OP AA 94.5 10.80 12/2014 0.21 1.23 1.20 8.8 9.0 340.0 427.8 451.1 6.5 6.1 1.5% 3.9 13.00

Centric Health Corp. CHH R R R R R R R R R R R R R R R R R RDomtar Corporation UFS OP AA 65.0 40.83 12/2014 3.61 3.10 3.26 13.2 12.5 765.0 694.1 733.0 5.5 5.2 3.9% 1.6 47.00Dorel Industries DII.B SP A 32.3 30.98 12/2014 2.18 1.62 2.31 14.3 10.1 186.5 157.9 200.4 8.4 6.6 5.2% 2.8 36.00GDI Integrated Facility ServicesGDI OP AA 21.2 14.00 12/2014 (6.67) (0.05) 0.83 nmf 16.8 37.5 37.2 51.2 11.5 8.4 0.0% 2.5 21.00

Knight Therapeutics GUD OP AA 103.5 7.40 12/2014 2.20 0.32 0.39 19.3 15.6 -4.9 -12.2 34.8 nmf 9.2 0.0% -12.8 10.00KP Tissue KPT OP A 8.9 12.72 12/2014 0.41 0.22 1.24 57.2 10.3 121.6 126.7 151.2 8.4 7.0 5.7% 2.5 17.00New Look Vision Group BCI SP AA 13.4 27.65 12/2014 0.72 0.82 0.94 33.7 29.3 27.0 31.5 32.9 13.6 13.0 2.2% 1.7 30.00Park Lawn Corporation PLC OP AA 5.8 12.10 12/2014 0.44 0.57 0.72 21.4 16.9 3.8 5.4 7.5 15.3 10.9 3.8% 1.6 16.00Richelieu Hardware RCH OP A 19.5 70.52 11/2014 2.63 2.98 3.42 23.6 20.6 77.4 88.5 100.2 15.3 13.5 0.9% -0.2 75.00Savaria Corporation SIS OP AA 32.6 5.50 12/2014 0.23 0.25 0.30 21.7 18.6 11.2 13.6 16.1 12.4 10.5 3.6% -0.6 6.50SNC-Lavalin Group SNC OP AA 149.8 42.14 12/2014 8.74 2.67 2.87 12.0 14.5 666.6 696.7 751.5 8.3 7.7 2.4% -1.4 48.00Stantec STN SP BA 94.4 33.26 12/2014 1.74 1.88 2.25 17.7 14.8 294.7 330.6 378.8 10.5 9.2 1.3% 0.9 33.00Stella-Jones SJ OP A 69.1 48.94 12/2014 1.50 2.00 2.51 24.4 19.5 176.3 243.1 284.1 16.1 13.8 0.7% 1.9 55.00

Stuart Olson SOX SP AA 26.4 6.58 12/2014 0.28 0.34 0.49 18.1 12.6 41.7 50.4 52.5 5.2 5.0 7.8% 1.9 6.00Uni-Sélect UNS OP AA 21.6 59.50 12/2014 2.60 2.74 2.63 16.3 17.0 111.4 100.0 101.0 9.0 8.9 1.1% -0.4 73.00

WSP Global WSP OP A 98.3 44.13 12/2014 1.83 2.18 2.75 20.2 16.1 253.5 443.1 546.6 10.9 8.8 3.4% 0.9 51.00

Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted Risk Rating: BA = Below Average; A = Average; AA = Above Average, S = SpeculativeNote: Dorel and Uni-Select 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 16.3% interest).

EBITDA (mln)FDEPSEV/EBITDA

VISIONDecember 2015

52

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Q3 2015 earnings wrapped up

Over the past few weeks, a number of companies in our Special Situations coverage list reported their Q3 2015 results.

ATS Automation (ATA: TSX): Solid quarter after weak H1/16 orders. ATS delivered Q2/16 revenues that exceeded our expectations, though it was due entirely to foreign exchange; however, the stock fell sharply as we believe the soft orders raised investor concerns that the company may be contracting . We believe orders (which are historically very lumpy) should recover and may show a recovery as management noted that their order funnel is the biggest it has ever been . Still, the market seems shaken; the stock has fallen by 10% since the results were released .

AutoCanada Inc. (ACQ: TSX): Good cost control in a challenging environment. ACQ reported a sizeable 7% same-store sales decline in Q3/15, much worse than the 2% decline we anticipated, driven by weaker than expected Alberta results . Management indicated that the sales environment seems to have stabilized, albeit at a very low level; we continue to believe same-store sales declines will persist for at least the next year and modestly lowered our forecast .

Despite continued top-line weakness, ACQ delivered a sequentially strong margin performance as the company reduced its variable employee costs greater than expectations . Further, the Parts, Collision and Repair segment turned in the highest margins since 2013 .

Management maintained their guidance for the acquisition of six to eight dealerships by the end of May 2016; we note that they are half way to the low end of their guidance . We believe investors should look beyond the weak near-term outlook to the solid medium and long-term prospects for the firm, as our forecast anticipates a solid top-line growth from the low end of management’s acquisition guidance .

Cara Operations Inc. (CAO: TSX): Strong momentum continues. Cara delivered very strong Q3/15 results, in line with our relatively aggressive forecast driven primarily from the addition of corporate stores and a stellar (in the context of a negative Western Canada performance) 1 .9% Same Restaurant Sales (SRS) improvement .

The operating EBITDA margin was 6 .6% of system sales, in line with our forecast of 6 .7% . EPS was $0 .36, beating the consensus and our forecasts at $0 .31 due to a low tax expense, which appears transitory .

We increased our system sales estimate to reflect the growth attributable to the addition of the New York Fries restaurants . This change drove an increase in our EBITDA estimate, though the difference is relatively small . We continue to believe Cara should deliver superior operating performance, driven by its nascent turnaround, which should result in superior share price performance with upside potential from acquired operations .

Selections

ATS Automation Tooling Systems, AutoCanada Inc . and Cara Operations Inc .


—

Christopher Bowes Analyst 416-869-7375 —

Associate: John Xu 416-507-9115

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

Symbol Rating ∆ Rating (Mln) 11-16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 yield FY2 EBITDA Target ∆

AirBoss of America Corp. BOS OP AA 23.6 18.42 12/2014 0.60 0.87 1.10 16.1 17.1 28.9 39.5 49.6 7.9 7.5 1.3% 1.2x 25.00 ATS Automated Tooling Systems Inc. (ATA - TSE)ATA OP A 93.3 12.56 03/2015 0.76 0.82 1.02 18.3 19.2 122.2 140.5 166.3 9.9 8.4 0.0% 1.3x 17.00AutoCanada Inc. ACQ OP AA 24.5 28.75 12/2014 2.23 1.65 2.01 16.9 16.2 89.1 90.4 107.4 9.0 7.1 3.5% 2.5x 41.00Cara Operations Inc. CAO OP AA 52.9 36.25 12/2014 0.91 1.13 1.56 29.1 29.2 83.5 109.1 127.1 15.0 13.4 1.1% 0.3x 42.00Colabor Group Inc GCL OP AA 27.5 1.05 12/2014 (2.48) (0.08) 0.12 11.5 9.1 30.1 27.1 31.6 7.0 6.4 0.0% 4.8x 2.25MTY Food Group Inc. MTY SP A 19.1 29.67 11/2014 1.41 1.65 1.70 18.2 17.1 42.7 49.5 52.7 11.1 10.4 1.3% -1.3x 36.00Premium Brands Holdings Corp.PBH OP A 25.3 36.99 12/2014 0.91 1.81 2.06 17.3 17.1 110.0 127.2 137.6 11.9 10.3 3.7% 2.5x 39.00TerraVest Capital Inc. TVK SP A 20.6 6.19 09/2014 0.70 0.84 1.09 5.4 5.3 23.0 33.0 34.0 4.6 4.5 6.5% 0.8x 6.00

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

FDEPS EBITDA (mln)EV/EBITDA

Risk Rating: BA = Below Average; A = Average; AA = Above Average, S = Speculative

53

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Data suggests that 2015 is on track to be the warmest year on record, for the first time breaking the threshold of 1oC above the average from the late 19th century . According to the Intergovernmental Panel on Climate Change (IPCC), a 2oC increase in the global temperature is the threshold above which the world could see severe consequences, including extreme climate events . To stay below this level, global emissions needs to be reduced by 40-70% by 2050 .

The U .N . Climate Change Conference (COP 201) will be held in Paris from Nov . 30th – Dec . 11th, during which governments from over 190 countries will gather to establish a new international agreement and commitments for carbon reduction . Global warming is becoming an increasingly important discussion and countries such as the United States and China are taking steps to reduce their emissions . On Nov . 6th, President Obama spoke out against the Keystone XL pipeline and has taken a hard stance against greenhouse gas emissions . Its mandate is to reduce its reliance on “dirty energy” and transition to a clean energy economy . Other developed and developing countries will likely follow the lead of the United States and China, providing a significant opportunity for renewable energy companies .

Our IPP coverage universe should see attractive growth given the change in geopolitics surrounding global warming . There may be reduced investment in oil pipeline infrastructure, but this should be offset by an increase in renewable energy investment . Large-scale utilities may also be forced to change from status quo by diversifying their asset portfolio and entering into the renewable energy space . For companies that want to gain a foothold into this sector, acquisition of smaller independent pure-plays such as Innergex (INE), Boralex (BLX) and Northland Power (NPI) would make sense . These companies have strong development pipelines for future growth, operational expertise and long-term contracts .

Our IPP coverage continues to trade below historical valuation ranges, with yield spreads to the Canada 10-year at about 4 .9% compared to long term spread of 3-4% . We believe that equities are discounting potential bond yield increases and continued dividend growth should provide upside .

Recent Highlights: Boralex Inc. (BLX: TSX, Outperform, $17 target): BLX is a renewable energy

producer with assets in the United States, France and Canada . The company has more than 970 MW (net) of generating assets, mostly under long-term contracts with an average remaining life of 16 years . BLX is on track to commission another 114 MW of installed capacity by the end of 2015 from the Calmont wind project in France and three other wind facilities in Canada which should contribute $36 .5 million in incremental EBITDA . Its long-term strategy is to continue growing capacity by 10% annually over the next five years by aggregating smaller projects (10-30MW range) primarily in France, but also from Canada and Denmark . With a strong development pipeline and excess liquidity, dividend increases should be coming .

Innergex Renewable Energy Inc. (INE: TSX, Action List, Outperform, $14 target): INE has 1,216 MW (gross) of installed capacity and operates in North America, primarily in the hydro segment . It has the longest remaining life on its power purchase agreements (PPA) with a weighted average of 18 years compared with its peers . INE recently commissioned the Tretheway Creek hydro project on Oct . 27 which was six months ahead of our estimates and approximately $7 million under budget . This project should generate $8 .7 mln/yr in revenue and $7 .2 mln/yr in EBITDA . INE has another four projects currently under construction that should add 297 .3 MW (gross) of installed capacity by Q1 2017 . The next step change in growth for INE could come from international markets . It has made progress by recently signing a letter of intent with the Federal Electricity Commission in Mexico to jointly develop hydro projects and has hinted at potential M&A opportunities in France . Share buybacks under its NCIB totalled 706,297 shares in the quarter (NCIB has a maximum of two million shares that can be repurchased) and with the possibility of a dividend increase in the near term, we remain positive on INE .

Northland Power Inc. (NPI: TSX, Outperform, $21 target): NPI is one of Canada’s largest independent power producers with 1,338 MW of net installed capacity and 712 MW of net capacity under construction . The company released strong Q3 results and provided a positive update on its two large offshore wind projects: Gemini and Nordsee One (combined 642 MW net to NPI) . At Gemini, the 150 turbine foundations were installed 71 days ahead of schedule, with turbine installation expected in the spring of 2016 . Nordsee One is on track with the manufacturing of plants components on schedule . Both projects are expected to be in commercial operation in 2017, potentially doubling EBITDA by 2018 . We have seen offshore wind further de-risked (especially with experienced contractors such as Van Oord which are invested in the project) and with a shrinking payout ratio of below 50% in 2018, NPI is well positioned in the renewable sector .

Selections

Boralex, Innergex and Northland Power

Sustainability and Clean TechSector Analysis

—

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

— Associates: Steven Hong: 416-869-7538 Ryan Wong: 416-869-6763

Shares Stock LastStock Stock Risk O/S Price Year (A) est. est. (A) est. est. P/S Book Debt/ PriceSym. Rating Rating (Mln) 11/16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Energy TechnologyAlgonquin Power AQN OP A 256 10.62 12/2014 0.36 0.46 0.53 22.9 19.9 4.35 4.18 4.92 2.5 2.2 5.62 0.42 11.00 Alterra Power AXY SP S 467 0.45 12/2014 0.02u 0.05u 0.05u 12.1 11.2 0.15u 0.13u 0.15u 4.6 3.9 0.42u 0.47 0.55Atlantic Power AT-US UP AA 122 2.00u 12/2014 (1.89)u (0.40)u (0.34)u nmf nmf 4.70u 3.96u 3.77u 0.7 0.7 4.69u 0.82 2.50uBoralex BLX OP AA 66 13.30 12/2014 (0.29) 0.13 0.61 nmf 21.6 4.79 5.08 4.95 3.4 3.5 8.52 0.63 17.00Brookfield Renewable Energy BEP.UN SP AA 273 33.10 12/2014 0.42u 0.32u 0.61u nmf 54.1 6.33u 6.17u 6.81u 7.0 6.3 28.69u 0.58 39.00Capstone Infrastructure CSE OP AA 97 3.04 12/2014 0.06 (0.12) 0.02 nmf nmf 4.58 3.61 3.81 0.8 0.8 5.35 0.54 3.75Conifex Timber Inc. CFF OP AA 22 2.67 12/2014 0.22 (0.92) 0.64 nmf 4.1 16.40 16.08 19.40 0.2 0.1 4.94 0.43 7.00DIRTT Environmental Solutions DRT OP AA 86 7.20 12/2014 0.07 0.14 0.27 49.8 26.6 2.38 2.72 3.19 2.7 2.3 1.82 0.05 9.00 Etrion Corp ETX SP AA 334 0.29 12/2014 (0.05)u (0.09)u (0.07)u nmf nmf 0.15u 0.15u 0.17u 2.4 2.1 0.08u 0.89 0.35 Innergex INE OP AA 103 10.82 12/2014 0.16u 0.15u 0.47u nmf 29.9 2.45u 2.43u 2.90u 5.8 4.8 4.95 0.80 14.00Interfor IFP OP AA 70 12.06 12/2014 0.62 (0.51) 1.17 nmf 10.3 21.93 24.19 27.90 0.5 0.4 10.05 0.33 17.00 Mason Graphite LLG OP S 87 0.39 06/2014 (0.12) (0.07) (0.04) nmf nmf 0.00 0.00 0.00 na na 0.30 0.26 1.20Northland Power NPI OP A 170 17.87 12/2014 (0.73) 0.11 0.49 nmf 36.3 5.12 4.42 4.56 4.0 3.9 4.50 0.76 21.00 Ovivo Inc (formerly GLV Inc) OVI'A OP S 44 1.33 03/2015 (0.30) 0.06 0.13 23.8 10.1 10.62 7.29 7.77 0.2 0.2 1.61 0.12 2.50Pattern Energy PEGI-US SP AA 75 19.14u 12/2014 (0.54)u (0.40)u 0.42u nmf 58.6 4.58u 4.77u 6.00u 5.2 4.1 32.27u 0.58 25.00u Progressive Waste Solution BIN-US OP AA 109 23.29u 12/2014 1.34u 1.24u 1.29u 24.4 23.4 17.57u 17.74u 18.33u 1.7 1.7 0.67u 0.58 30.00u Pure Technologies PUR OP AA 54 4.62 12/2014 0.18 0.03 0.27 nmf 22.4 1.50 1.99 2.50 3.0 2.4 2.33 0.00 7.50 TransAlta Renewables RNW OP AA 217 10.80 12/2014 0.42 0.69 0.59 15.7 18.4 2.04 1.25 1.32 8.6 8.2 9.71 0.21 12.505N Plus VNP OP S 84 1.16 12/2014 0.10u (0.21)u 0.15u nmf 10.4 6.03u 3.88u 3.80u 0.4 0.4 1.61u 0.12 2.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative1 FD EPS are pro-forma numbers from continuing operations and exludes goodwill amortization, restructuring and one-time charges. u = US dollar

12-MthFDEPSP/E

Sales per share

VISIONDecember 2015

54

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The Q3 reporting period seemed tougher than the recent normal for tech investing . Many stocks have traded down or sideways even after delivering strong Q3 results . Investors are becoming a little more cautious on tech valuations after supporting a handful of winners over the past several quarters . We continue to believe the technology sector is well-positioned to outperform the overall market driven by strong cash flow generation supporting M&A, share buybacks and dividends, and demand for technology to drive sales growth and productivity across all sectors .

CGI Group remains our favourite large-cap stock . The outlook is supported by a recurring business model that is based on a large backlog of long-term contracts . While top-line growth remains challenged, we do expect organic growth to resume in Q2 (March) . CGI’s Q4 (Sept) bookings were very strong and EBIT margin reached all-time highs . While a weak CAD makes it harder for CGI to acquire, management trumpeted M&A as a very likely event in F2016 .

Constellation Software is a holdco of many software vendors and as such offers great global diversification . The company continues to deliver impressive margin gains and is executing larger M&A in a competitive market . We are more receptive to investing in this stock; the company will grow into its valuation with continued execution .

Open Text’s Q1 (Sept) was a mixed quarter as revenue missed consensus partially due to FX and license revenue weakness . The margin expansion story continues to resonate with investors . We expect the company to be aggressive with M&A alongside

a new software version launch in calendar Q1 . While a potential tax liability that could trim ~$5/sh from cash lingers in the background, we like the stock ahead of the seasonally strong December quarter .

Sandvine missed two quarters in a row as large deals have not closed for a number of reasons: longer evaluation cycles, net neutrality, a misunderstanding of encryption, consolidation, two large customers in LatAm transitioning suppliers and a CEO transition at one customer . Investors have punished this stock on concerns that these delayed deals are not temporary . Sandvine is trading at ~4x EV/EBITDA on F2016 (Nov) estimates; we believe the stock is oversold and presents a great entry point for the inherent risk . The company is actively purchasing shares under the buyback plan .

While Avigilon announced positive headline Q3 results, constant currency revenue growth is slowing and sales to smaller installations – the company’s bread and butter – are showing weakness . The sector is becoming more competitive, as expected . Avigilon’s margins have been aided by capitalized R&D, which remains a legitimate investor concern . We’d hold back on buying this stock until we have better visibility on cash margins as the company continues to add headcount at a very fast clip .

While Lumenpulse reported strong Q1 revenue in September, we lowered our target price to reflect another reduction in our EBITDA forecast as operating expenses continue to escalate . The stock seems to have found a bottom after the last quarter as investors anticipate ongoing revenue strength and a bottom in EBITDA margin . We continue to see value in the stock for long-term investors .

Our coverage group average EV/EBITDA is ~12x and P/E is ~20x on our C2015 estimates . However, the EV/EBITDA range is ~4x-25x and the P/E range is ~13x-46x .

Selections

CGI and Sandvine

TechnologySector Analysis

—

Kris Thompson, MBA Analyst 416-869-8049 —

Associate: Steven Walt 416-869-7938

Shares Stock Last FDEPS Debt/ 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total PriceSym. Rating Rating (Mln) 11/16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Avigilon Corporation AVO SP AA 44.9 11.90 2014 0.80 0.78 1.03 15.2 11.5 54.3 61.0 75.7 9.0 7.2 6.84 24% 20.00Axia NetMedia AXX SP AA 63.4 3.19 2014 NA NA NA NA NA 32.7 35.9 44.4 5.5 4.5 1.83 14% 3.50 CGI Group Inc. GIB.A OP A 309.0 54.25 2015 3.13 3.52 3.77 16.8 15.0 1922.5 2111.3 2209.6 9.4 8.7 19.68 26% 63.00 Constellation Software Inc. CSU SP A 21.2 552.78 2014 12.94u 16.49u 19.23u 25.4 21.8 364.5u 457.4u 565.3u 19.9 16.1 12.11u 56% 600.00 Datawind Inc. DW OP S 22.1 2.30 2014 (0.44) (0.12) 0.18 NMF 9.2 (8.8) 0.9 8.3 NMF 5.7 0.52 52% 4.00EXFO Inc. EXFO UP AA 53.8 3.29 2014 0.07u 0.19u 0.23u 17.5 14.0 13.8u 18.7u 22.6u 7.9 6.6 3.17 0% 3.00uGuestLogix Inc. GXI UR UR UR UR UR UR UR UR UR UR UR UR UR UR UR UR UR URHalogen Software Inc. HGN SP AA 22.1 7.70 2014 (0.55u) (0.35u) (0.36u) NMF NMF (8.7u) (3.4u) (1.7u) NMF NMF 0.70 0% 10.00 Kinaxis Inc. KXS OP AA 24.1 44.82 2014 0.43u 0.74u 0.76u 46.0 44.4 16.1u 28.9u 29.2u 25.1 24.8 2.58 0% 50.00 Lumenpulse Inc. LMP OP AA 23.7 15.60 2014 NMF 0.40 0.75 60.0 25.1 3.7 12.8 27.4 36.3 14.6 4.80 0% 18.00Macdonald, Dettwiler and Associates Ltd. MDA SP AA 36.2 80.52 2014 5.76 6.14 6.32 13.2 12.8 338.1 367.6 378.5 10.5 10.2 29.75 47% 90.00Mediagrif Interactive Inc. MDF OP AA 15.0 16.25 2015 1.00 1.15 1.17 14.2 13.9 27.6 28.9 29.5 9.2 9.0 7.91 21% 22.00Open Text Corporation OTEX OP AA 121.4 44.93 2014 3.46u 3.65u 3.74u 13.7 12.3 623.7u 670.9u 680.3u 10.2 9.5 14.91 47% 55.00uSandvine Inc. SVC OP S 149.7 2.53 2014 0.17u 0.13u 0.16u 13.8 10.9 31.6u 25.2u 31.4u 4.2 3.4 1.21u 0% 4.00TeraGo Inc. TGO OP AA 14.0 5.40 2014 (0.11u) (0.12u) 0.18u NMF 30.1 16.2u 18.9u 22.1u 5.9 5.1 3.70u 48% 9.00TIO Networks Corp. TNC OP S 57.1 1.58 2014 0.01 0.04 0.10 26.5 NMF 1.49 2.74 7.02 21.4 NMF 0.15 22% 1.50

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

EBITDA (Mln)

55

—

Bombardier’s (BBD.B: TSX; Sector Perform; $1.75 target) most recent quarterly report and associated announcement of Quebec’s investment in the CSeries program provided more visibility around liquidity, which was a pre-condition for us to become more constructive on the stock . However, the company needs to generate new CSeries orders, we would like to see tangible progress on margin improvement and we continue to have some concerns about the business jet market .

The key market concern, however, is the cash flow profile in 2016 and whether Bombardier has sufficient financial resources to ramp up the CSeries . Management provided more clarity on this issue, indicating that the cash costs to get the CSeries to cash flow breakeven (in the 2020-21 timeframe) will be approximately $2 .0 billion with the majority of the spend in 2016-17 . Furthermore, management expects FCF to be negative in both 2016 and 2017, potentially moving to positive territory in 2018 .

To help fund the CSeries cash flow needs, Bombardier has signed an MoU (memorandum of understanding) with the Quebec government to form a limited partnership on the CSeries that will see the government take a 49 .5% stake in the program . The JV will receive $1 .0 billion in cash from the government in two tranches in 2016 while Bombardier will contribute the assets and liabilities of the CSeries program .

If the JV requires additional cash and this is provided by Bombardier (as will likely be the case based on management’s projections), the government’s share in the JV will be diluted down (and Bombardier’s share will increase) . Pro-forma the $1 .0 billion cash investment, Bombardier projects its year-end liquidity at $5 .0 billion (~$3 .6 billion in cash) . We also note that the Federal Government has also been approached to provide some financial assistance for the CSeries .

We therefore believe that the company will have sufficient liquidity to get to cash flow breakeven on the CSeries, with one major caveat: the company needs to generate sizeable new CSeries orders to support a ramp-up in production that will propel the company down the production learning curve to achieve the breakeven level in 2020-21 . We therefore view new orders as critical for the program and the company . The good news is that the support of the Quebec government should provide some improvement in prospective customer confidence in the CSeries .

Bombardier also indicated that it is moving forward with a sale of a minority stake of its Transportation division with an announcement expected soon . We note that the company’s press release does not specifically reference an IPO, so the sale may indeed take some other form (strategic investor, etc .) . We previously suggested the sale of a 20% stake in BT could be worth $1 .0 billion and management’s comments suggest the cash from the sale could be in this order of magnitude . Thus, pro-forma the sale of a stake in BT, the cash position would move to $4 .6 billion .

Selections

Air Canada, WestJet, CN Rail, CP Rail and Héroux-Devtek

Transportation and Industrial ProductsSector Analysis

—

Cameron Doerksen, CFA Analyst 514-879-2579 —

Associate: Umayr Allem, CFA, MBA 416-869-8577

Shares Stock Last Cash EPS FDFCFPS 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. P/CFPS PriceSym. Rating Rating (Mln) 11/16 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Target

Air Canada* AC OP AA 287 11.31 12/2014 1.81 3.92 2.21 2.9x 5.1x (1.72) 1.04 (5.67) 10.9x NM nmf 15.00Bombardier Inc. BBD.b SP AA 2,226 1.26 12/2014 u0.35 u0.16 -u0.01 6.0x nmf -u0.65 -u1.01 -u0.48 NM NM 221% 1.75 BRP Inc. DOO SP A 119 22.87 01/2015 1.65 1.64 1.74 14.0x 13.1x 1.40 1.19 1.22 19.2x 18.7x 104% 28.00CAE Inc. CAE SP A 269 14.91 03/2015 0.76 0.85 0.97 17.5x 15.4x 0.45 0.47 0.68 31.9x 22.1x 33% 16.00HNZ Group Inc. HNZ.a SP A 13 12.00 12/2014 0.94 0.02 0.17 na 72.5x 3.49 0.62 1.33 19.5x 9.0x -2% 12.00 Canadian National Rail CNR OP A 802 76.77 12/2014 3.76 4.38 4.69 17.5x 16.4x 2.53 2.99 3.24 25.7x 23.7x 41% 85.00 Canadian Pacific Rail CP OP AA 159 183.25 12/2014 8.50 10.26 11.87 17.9x 15.4x 3.87 5.41 9.19 33.9x 19.9x 67% 214.00 Cargojet Inc. CJT SP AA 10 24.92 12/2014 (1.07) (1.19) 1.33 na 18.7x (12.36) (11.69) 2.50 NM 10.0x 86% 25.00Chorus Aviation Inc.* CHR.b SP AA 122 5.54 12/2014 0.78 0.76 0.87 7.2x 6.4x 1.13 (0.49) 0.20 NM 27.2x 54% 6.00 Héroux-Devtek Inc. HRX OP A 36 13.19 03/2015 0.55 0.70 0.74 19.0x 17.9x 0.12 (0.47) (0.64) NM NM 29% 15.50 Transat A.T. Inc. TRZ SP AA 38 7.31 10/2014 1.16 0.89 0.61 8.2x 12.0x 1.14 0.60 0.63 12.2x 11.6x - 9.00TransForce Inc. TFI OP A 99 24.63 12/2014 1.74 1.74 1.87 14.2x 13.2x 3.35 2.98 3.05 8.3x 8.1x 63% 29.00Trimac Transportation Ltd. TMA SP A 28 5.50 12/2014 0.58 0.53 0.50 10.4x 11.0x 1.23 1.22 0.94 4.5x 5.9x 58% 6.75 WestJet Airlines* WJA OP A 124 22.78 12/2014 2.46 3.05 2.51 7.5x 9.1x (0.72) 0.14 (1.97) nmf NM 35% 30.00

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

*based on EBITDAR (includes leases)

Net Debt / Cap

Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculativeu = US dollars

VISIONDecember 2015

56

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Alphabetical Listing —5N Plus VNP 53Advantage Oil & Gas AAV 39Aecon Group ARE 51Ag Growth International Inc . AFN-T 36AGF Management Ltd . AGF'B 41Agnico-Eagle Mines Ltd . AEM-T 47AGT Food and Ingredients Inc . AGT-T 36Aimia Inc . AIM 49Air Canada AC 55AirBoss of America Corp . BOS 52Alacer Gold Corp ASR-T 47Alamos Gold Inc . AGI-T 47Alaris Royalty AD 50Algonquin Power AQN 53Allied Properties REIT AP .un 45AltaGas ALA 40Alterra Power AXY 53American Hotel Income Properties HOT .un 45ARC Resources Ltd . ARX 39Arianne Phosphate Inc . DAN-V 36Arsenal Energy AEI 39Artis REIT AX .un 45ATCO Ltd . ACO'X 40Atlantic Gold Corp . AGB-V 47Atlantic Power AT-US 53ATS Automated Tooling Systems Inc . (ATA - TSE) ATA 52AuRico Metals Inc . AMI-T 47AutoCanada Inc . ACQ 52Avigilon Corporation AVO 54Axia NetMedia AXX 54B2Gold Corp . BTO-T 47Bank of Montreal BMO 42Bank of Nova Scotia BNS 42Baytex Energy Corp . BTE 39BCE Inc . BCE 49Bellatrix Exploration BXE 39Belo Sun Mining Corp BSX-T 47Birchcliff Energy BIR 39Black Diamond Group Ltd . BDI 37Blackbird Energy BBI 39Boardwalk REIT BEI .un 45Bombardier Inc . BBD .b 55Bonavista Energy Corporation BNP 39Bonterra Energy BNE 39Boralex BLX 53Boulder Energy BXO 39Boyd Group Inc . BYD .UN 50Brookfield Renewable Energy BEP .UN 53BRP Inc . DOO 55BTB REIT BTB .un 45CAE Inc . CAE 55Calfrac Well Services Ltd . CFW 37Callidus Capital Corp . CBL 41Canadian Energy Services & Tech CEU 37Canadian National Rail CNR 55Canadian Natural Resources CNQ 39Canadian Oil Sands COS 39Canadian Pacific Rail CP 55Canadian Tire CTC .a 43Canadian Utilities CU 40Canadian Western Bank CWB 41Canam Group CAM 51Canexus CUS 40Canyon Services Group Inc . FRC 37CAP REIT CAR .un 45Capital Power CPX 40Capstone Infrastructure CSE 53Capstone Mining Corp CS-T 48Cara Operations Inc . CAO 52Cardinal Energy CJ 39Cargojet Inc . CJT 55Cascades CAS 51Cathedral Energy Services Ltd . CET 37Cenovus Energy CVE 39Centric Health Corp . CHH 51Cequence Energy CQE 39Cervus Equipment Corporation CVL-T 36CGI Group Inc . GIB .A 54Chemtrade CHE .UN 50Chinook Energy Inc . CKE 39Choice Properties REIT CHP .un 45Chorus Aviation Inc . CHR .b 55CI Financial Corp CIX 41CIBC CM 42Cineplex Inc . CGX 49Claude Resource Corp . CRJ-T 47

Cogeco Cable CCA 49Colabor Group Inc GCL 52Cominar REIT CUF .un 45Conifex Timber Inc . CFF 53Constellation Software Inc . CSU 54Copper Mountain Mining Corp . CUM-T 48Corus Entertainment Inc . CJR .b 49Couche Tard ATD .b 43CREIT REF .un 45Crescent Point Energy Corp . CPG 39Crew Energy CR 39Crombie REIT CRR .un 45CT REIT CRT .un 45Dalradian Resources Inc . DNA-T 47Datawind Inc . DW 54Delphi Energy DEE 39Detour Gold Corp DGC-T 47DH Corp . DH 50DHX Media DHX .b 49DIRTT Environmental Solutions DRT 53Dollarama DOL 43Domtar Corporation UFS 51Dorel Industries DII .B 51DREAM Global REIT DRG .un 45DREAM Industrial REIT DIR .un 45DREAM Office REIT D .un 45Element Financial EFN 41Emera Inc . EMA 40Empire Company EMP .a 43Enbridge Inc . ENB 40Enbridge Income Fund ENF 40Encana Corp . ECA 39EnerCare Inc . ECI 50Enerplus Corporation ERF 39Equitable Group EQB 41Essential Energy Services Ltd . ESN 37Etrion Corp ETX 53Exchange Income Corp . EIF 50EXFO Inc . EXFO 54Fiera Capital Corp . FSZ 41First Capital Realty FCR 45First Majestic Silver Corp . FR-T 47First National Financial FN 41First Quantum Minerals FM-T 48Fortis Inc . FTS 40Fortuna Silver Mines Inc . FVI-T 47Franco-Nevada Corp FNV-T 47Freehold Royalties FRU 39GDI Integrated Facility Services GDI 51Genworth MI Canada MIC 41Gibson Energy GEI 40Gildan GIL 43Gluskin Sheff + Assoc . GS 41Golden Star Resources Ltd GSC-T 47Granite Oil GXO 39Great-West Lifeco GWO 42Grenville Strategic Royalty Corp . GRC 50GuestLogix Inc . GXI 54H&R REIT HR .un 45Halogen Software Inc . HGN 54Héroux-Devtek Inc . HRX 55High Arctic Energy Services Inc . HWO 37HNZ Group Inc . HNZ .a 55Home Capital Group HCG 41Horizon North Logistics Inc . HNL 37HudBay Minerals HBM-T 48Hydro One Ltd . H 40IAMGOLD Corporation IMG-T 47IGM Financial Inc . IGM 41Industrial Alliance IAG 42Innergex INE 53Inovalis REIT INO .un 45Input Capital Corp INP-V 36Intact Financial Corp . IFC 41Inter Pipeline IPL 40Interfor IFP 53InterRent REIT IIP .un 45Jean Coutu PJC .a 43Just Energy Group Inc . JE 50Kaminak Gold Corp . KAM-V 47K-Bro Linen Inc . KBL 50Kelt Exploration KEL 39Keyera KEY 40Kicking Horse Energy KCK 39Kinaxis Inc . KXS 54Kinross Gold Corporation K-T 47

Kirkland Lake Gold Inc KGI-T 47Knight Therapeutics GUD 51KP Tissue KPT 51Lake Shore Gold Corp LSG-T 47Laurentian Bank LB 41Leucrotta Energy LXE 39Liquor Stores N .A . Ltd . LIQ 50Loblaw L 43Lonestar West LSI 37Long Run Exploration LRE 39Lumenpulse Inc . LMP 54Luna Gold Corp . LGC-T 47Lundin Gold Inc . LUG-T 47Lundin Mining LUN-T 48Lydian International Ltd . LYD-T 47Macdonald, Dettwiler and Associates Ltd . MDA 54MAG Silver Corp MAG-T 47Manitoba Telecom Services Inc . MBT 49Manitok Energy MEI 39Manulife Financial MFC 42Marquee Energy MQL 39Mason Graphite LLG 53MCAN Mortgage Corp . MKP 41Mediagrif Interactive Inc . MDF 54Medical Facilities Corp . DR 50MEG Energy MEG 39Melcor REIT MR .un 45Metro MRU 43Midas Gold Inc . MAX-T 47Milestone Apartments REIT MST .un 45Morneau Shepell Inc . MSI 50Mosaic Capital Corp . M 50Mountain Province Diamonds Inc . MPV-T 47MTY Food Group Inc . MTY 52Mullen Group Ltd . MTL 37National Bank NA 42New Flyer Industries Inc . NFI 50New Gold Inc NGD-T 47New Look Vision Group BCI 51Newalta Corp . NAL 37Northern Blizzard Resources Inc . NBZ 39Northland Power NPI 53NorthWest H .P . REIT NWH .un 45NovaGold Resources Inc . NG-T 47NuVista Energy NVA 39NYX Gaming NYX 49OceanaGold Corp . OGC-T 47Open Text Corporation OTEX 54Orezone Gold Corp . ORE-T 47Osisko Gold Royalties Ltd . OR-T 47Ovivo Inc (formerly GLV Inc) OVI'A 53Painted Pony Petroleum PPY 39Paramount Resources POU 39Park Lawn Corporation PLC 51Parkland Fuel Corp . PKI 50Partners REIT PAR .un 45Pason Systems Corp . PSI 37Pattern Energy PEGI-US 53Pembina Pipelines PPL 40Pengrowth Energy Corporation PGF 39Penn West Exploration PWT 39Perpetual Energy PMT 39Peyto Exploration & Development Corp . PEY 39PHX Energy Services Corp . PHX 37Pilot Gold Corp . PLG-T 47Pinecliff Energy PNE 39PolyMet Mining Corp . POM-T 48PrairieSky Royalty PSK 39Premium Brands Holdings Corp . PBH 52Progressive Waste Solution BIN-US 53Pure Industrial REIT AAR .un 45Pure Multi-family REIT RUFu .V 45Pure Technologies PUR 53Quebecor Inc . QBR .b 49Raging River Exploration RRX 39Richelieu Hardware RCH 51Richmont Mines Inc . RIC-T 47RMP Energy RMP 39Rock Energy RE 39Rogers Communications Inc . RCI .b 49Rogers Sugar Inc . RSI 50Rona RON 43Royal Bank of Canada RY 42Royal Gold Inc RGLD-O 47Rubicon Minerals Corp RMX-T 47Sabina Gold & Silver Corp . SBB-T 47

Sandstorm Gold Ltd SSL-T 47Sandvine Inc . SVC 54Saputo SAP 43Savanna Energy Services Corp . SVY 37Savaria Corporation SIS 51Seabridge Gold Inc . SEA-T 47Secure Energy Services Inc . SES 37SEMAFO Inc . SMF-T 47Shaw Communications SJR .b 49Shawcor Ltd . SCL 37Sherritt Int . Corp S-T 48Silver Wheaton Corp SLW-T 47Sirius XM Canada Holdings XSR 49Slate Office REIT SOT .un 45Slate Retail REIT SRT .un 45SmartREIT SRU .un 45SNC-Lavalin Group SNC 51Spartan Energy SPE 39Spin Master TOY 49Sprott Resource Corp . SCP-T 47Spyglass Resources SGL 39Stantec STN 51Stella-Jones SJ 51Stingray Digital RAY .a 49Storm Resources SRX 39Strategic Oil & Gas Ltd . SOG 39Street Capital Group SCB 41Striker Exploration SKX 39Stuart Olson SOX 51Student Transportation Inc . STB 37Summit Industrial SMU .un 45Sun Life Financial SLF 42Suncor Energy SU 39Superior Plus SPB 40Supremex Inc . SXP 49Surge Energy SGY 39Tahoe Resources Inc . THO-T 47Tamarack Valley Energy TVE 39Taseko Mines Limited TKO-T 48Teck Resources TCK'B-T 48Telus Corp . T 49Temple Hotels TPH 45TeraGo Inc . TGO 54TerraVest Capital Inc . TVK 52The Intertain Group Limited IT 49Thompson Creek Metals TCM-T 48Thomson Reuters TRI 49Tidewater Midstream and Infrastructure Ltd . TWM 40Timmins Gold Corp . TMM-T 47TIO Networks Corp . TNC 54TMAC Resources Inc . TMR-T 47TMX Group X 41Torc Oil & Gas TOG 39Toro Oil & Gas TOO 39Toronto-Dominion Bank TD 42Torstar Corporation TS .b 49Tourmaline Oil TOU 39TransAlta TA 40TransAlta Renewables RNW 53Transat A .T . Inc . TRZ 55TransCanada Corp . TRP 40Transcontinental Inc . TCL .a 49TransForce Inc . TFI 55Trican Well Services TCW 37Tricon Capital Group TCN 45Trilogy Energy TET 39Trimac Transportation Ltd . TMA 55Trinidad Drilling Ltd . TDG 37True Gold Mining Inc . TGM-T 47TVA Group Inc . TVA .b 49Twin Butte Energy TBE 39Uni-Sélect UNS 51Valener Inc . VNR 40Veresen Inc . VSN 40Vermilion Energy Inc . VET 39Wesdome Gold Mines Ltd . WDO-T 47WesternOne Equity WEQ 50WestJet Airlines WJA 55Whiltecap Resources WCP 39WPT Industrial REIT WIR'U-T 45WSP Global WSP 51Xtreme Drilling and Coil Services Corp . XDC 37Yamana Gold Inc YRI-T 47Zargon Energy ZAR 39

Branches—

InternationalNBF 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

Baie-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 • 204-571-3200Burnaby • 4211 Kingsway Street, Suite 218, Burnaby, BC, V5H 1Z6 • 604-541-8500Calgary • PB1859, 308, 4th Ave. SW, Suite 2707, Calgary, AB, T2P 0H7 • 403-476-0398Calgary • TCP Building, 450 - 1 Street SW, Suite 2800, Calgary, AB, T2P 5H1 • 403-531-8400Calgary - Southport • 10655 Southport Road SW, Suite 1100, Southland Tower, Calgary,AB, T2W 4Y1 • 403-301-4859Charlottetown • BDC Tower, 310-119 Kent Street, Charlottetown, PEI, C1A 1N3 • 902-569-8813Chatham • 380 St. Clair, Street, Chatham, ON, N7L 3K2 • 519-351-7645Chicoutimi • 1180, boulevard Talbot, Suite 201, Chicoutimi, QC, G7H 4B6 • 418-549-8888DIX30 • 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 • 150, rue Marchand, Bureau 401, Drummondville, QC, J2C 4N1 • 819-477-5024Duncan • 2763 Beverly Street, Suite 206 Duncan,BC, V9L 6X2 • 250-715-3050Edmonton • 10180 – 101 Street, Suite 3500, Edmonton, AB, T5J 3S4 • 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 Fredericton • 551 King Street, P.O. Box 252, Suite B, Fredericton, NB, E3B 1E7 • 506-453-9040Gatineau • 920, St-Joseph, Bureau 100, Hull-Gatineau, QC, J8Z 1S9 • 819-770-5337Granby • 150, rue St-Jacques, Bureau 202, Granby, QC, J2G 8V6 • 450-378-0442Grand-Mère • 602, 6e avenue, Grand-Mère, QC, G9T 2H5 • 819-538-8628GTA 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 • 5670 Spring Garden Road, Suite 901, Halifax, NS, B3J 1H6 • 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 • 250-717-5510Kentville • 402 Main Street, Kentville, NS, B4N 3X7 • 902-679-0077La Pocatière • 608 C, 4e Avenue Painchaud, La Pocatière, QC, G0R 1Z0 • 418-856-4566Lac-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 • 403-388-1900 London • 333 Dufferin Avenue, London, ON, N6B 1Z3 • 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 • 506-857-9926Montréal Centre-Ville • 1, Place Ville-Marie, Bureau 2201, Montréal, QC, H3B 3M4 • 514-879-2509Mont 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 5 • 1155, rue Metcalfe, Bureau 1438, Montréal, QC, H3B 4S9 • 514-843-3088Montréal International • 1155, rue Metcalfe, Suite 1438, Montréal, QC, H3B 4S9 • 514-879-5287Montréal L'Acadie • 9001, boulevard de l’Acadie, Bureau 802, Montréal, QC, H4N 3H5 • 514-389-5506Montréal Siège Social • 1155, rue Metcalfe, 23e étage Montréal, QC, H3B 4S9 • 514-879-2512Nanaïmo • 75 Commercial Street, Nanaïmo, BC, V9R 5G3 • 250-751-1111North Bay • 680 Cassells Street, Suite 101, North Bay, ON, P1B 4A2 • 705-476-6360Oak Bay • #220 - 2186 Oak Bay Avenue, Victoria, BC, V8R 1G3 • 250-953-8400Oakville - Robinson St. • 105 Robinson Street, Oakville, ON, L6J 1G1 • 905-842-1925Ottawa • 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

Penticton • City Center Building, 399 Main Street, Suite 305, Penticton, BC, V2A 5B7 • 250-487-2600Peterborough • 201 George Street North, suite 401, Peterborough, ON, K9J 3G7 • 705-740-1110Plessisville • 1719, rue St-Calixte, Plessisville, QC, G6L 1R2 • 819-362-6000Pointe-Claire • 1, rue Holiday, Tour est, Suite 145, Pointe-Claire, QC, H9R 5N3 • 514-426-2522PVM Montréal • 1, Place Ville-Marie, Bureau 1805, Montréal, QC, H3B 4A9 • 514-879-5200Québec • 500, Grande-Allée Est, suite 400, Québec, Qc, G1R 2H8 • 418-649-2524Québec - 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 • 74, avenue Principale, Rouyn-Noranda, QC, J9X 4P2 • 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 Johnson, Suite 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 • 450-569-8383Saint-Nicolas • 425, rue des Chutes, Bureau 100, Saint-Nicolas, QC, G7A 1E7 • 450-261-5268Saskatoon - 8th St. • 1220 8th Street East, Saskatoon, SK, S7H 0S6 • 306-657-3465Saskatoon - Downtown • 410-22nd Street East, Suite 1360, Saskatoon Square, Saskatoon, SK, S7K 5T6 • 306-657-4400Sept-Îles • 805, boulevard Laure, Suite 200, Sept-Îles, QC, G4R 1Y6 • 418-962-9154Sherbrooke • 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 • 705-671-1160Swift Current • 406 Cheadle Street West, Suite 202, Swift Current, SK, S9H 0B6 • 306-778-4770Thedford 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 • 416-864-7791Trois-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 - Bentall V • 550 Burrard Street, Suite 1028, Vancouver, BC, V6C 2B5 • 604-685-6371Vancouver - Broadway • 1333 West Broadway Avenue, Suite 1488, Vancouver, BC, V6H 4C1 • 604-738-5655Vancouver 1 • Park Place, 666 Burrard Street, Suite 3300, Vancouver, BC, V6C 2X8 • 604-623-6777 Vancouver 2 • Park Place, 666 Burrard Street, Suite 3300, Vancouver, BC, V6C 2X8 • 604-643-2774 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 • 819-758-3191Waterloo • 180 King Street South, Suite 340 Allen Square, Waterloo, ON, N2J 1P8 • 519-742-9991West Vancouver • Suite 202, 545 Clyde Avenue, West Vancouver, BC V7T 1C5 • 604-925-5640White 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 PodiumSuite 3200Toronto, ON M5X 1J9416-869-3707

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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.© 2014 National Bank Financial. All rights reserved. This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank Financial.

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