Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Top picks in domestic tech
RBC analyst Paul Treiber attempted to identify bargains in a beaten-down domestic technology sector,
“The S&P/TSX Info-tech sub-sector has declined 23% YTD, as AI disruption concerns intensified and software contagion spread across our coverage. The average stock in our coverage fell 15% YTD and the median stock has dropped 20% YTD. Even though calendar Q4 results were solid, as 79% of our covered stocks reported Q4 revenue above consensus, 75% of the stocks in our coverage are now in the lowest quintile of their historical valuation range. While negative software sentiment may persist in the near-term, we believe sustained healthy growth will underpin improved returns on stocks in our coverage in the remainder of the year. The best investment ideas in our coverage are Shopify, Constellation, Kinaxis, and Descartes. Canadian tech stocks essentially flat after Q4. Stocks in our coverage universe were essentially flat (+0.1%) on average after reporting calendar Q4 earnings, despite results exceeding expectations (Q4 revenue 0.4% above consensus on average or 2.1% above excluding outlier, which compares to a 1.7% beat in Q3) ... Stocks that rallied the most after Q4 were LMN (+21% 1-day return), OTEX (+10%) and TOI (+5%). The rallies stemmed from better than expected growth. Conversely, stocks that declined the most after Q4 were CLS (-13%), VHI (-9%), and LSPD (-8%). Q1 and CY26 revenue estimates unchanged, profitability expectations decline slightly ... We compare our coverage against the 100 largest technology stocks listed on Canadian stock exchanges, which adds broader context for our coverage and helps identify outliers across the larger landscape. The best-performing Canadian tech stocks with >$50MM market cap in Q4 are FTG (+51% last 90 days), HAI (+44%), and PNG (+44%). Stocks with >$50MM market cap reporting the largest quarterly upside to consensus are ACT (revenue 151% above consensus), LMN (9%), and GRID (7%). Stocks with >$50MM market cap where CY26″
Keyera a winner
Wells Fargo analyst Michael Blum sees Keyera Corp (KEY-T) as a key beneficiary of higher spreads between North American, European and Asian fossil fuel prices,
“Since the start of the Iran war (2/28), crude oil (WTI) prices are up 35% to $90.33/Bbl and NGLs [natural gas liquids]prices have increased 30% to $0.83/gal. International LNG spreads have widened materially (TTF [Europe natural gas]-HH [U.S.]: +125%, JKM [Asia natural gas]-HH: +170%). The butane blending spread widened to $1.65/gal from $0.75/gal. Midstream Is Primarily Fee-Based. We estimate fee-based cash flows comprise 92% (median) of the total for our midstream coverage universe. The remaining 8% (median) represents commodity-sensitive marketing businesses. Companies with the highest exposure include: VG (34% - int’l spreads), KEY-CA (33% - butane blending, NGLs) & EPD (20% - NGL and petchem prices and spreads) ...
KEY-CA: we estimate the annual potential benefit from higher butane spreads (now up to $1.65/g vs ~$0.75/g prior to war) to be ~$200MM. Note: AEF [Alberta Envirofuels facility] is currently out of service through May, limiting actual upside till the facility is operational.”
Natural gas shortages
The shortage of Middle East LNG is a bigger problem in some European countries than others, according to BofA Securities commodities strategist Rachel Wiser,
“The Iran conflict has halted Middle East LNG production of more than 80 mtpa, which account for ~20% of global LNG supply. Further, Iranian attacks damaged 2 of Qatar’s 14 trains and it could take years to repair these large and complicated facilities. So
Europe will now have to compete for LNG cargos again … Spain’s large renewable energy profile helped mitigate high natural gas prices back then [when Russia invaded the Ukraine]. Renewables could help soften the blow of the Iran war this year again. Solar and wind combined to accounted for 35% of Spain’s power generation in 2022 and that share increased to 42% last year. Nat gas represents just 17% of the stack … France relies on nuclear for ~80% of its generation and hydro for 12%. A drought in 2022 limited hydro generation and restricted water available to cool the nuclear reactors … France is in much better shape this year owing to winter precipitation that was nearly double the 5-year average … Wind and solar accounted for ~40% of German power generation in 2022 and their share has grown to ~50%, but Germany retired the last nuclear units in 2023. While German reliance on fossil fuels has declined during the past decade, natural gas and coal still account for nearly 40% of German generation”
Bluesky post of the day
https://bsky.app/profile/limpetnerd.eurosky.social/post/3mhzx2xvzts2g
Diversion
“Humans Were Already Dog People 16,000 Years Ago, DNA Suggests” - Gizmodo