Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Private deals value renewable power
Scotiabank analyst Robert Hope predicts that the Boralex privatization will go through and that the transaction will benefit shareholders in Northland Power and Transalta,
“Boralex (BLX) has entered into a definitive agreement to be acquired by Brookfield and La Caisse de dépôt et placement du Québec (CDPQ) for $37.25 per share in cash. This transaction highlights that private markets continue to highly value renewable assets, especially those with development pipelines. We view the transaction as a highly probable event given the backing of Boralex’s largest shareholder, and we expect the shares to immediately re-rate toward the offer price. We increase our Boralex target price to $37.25. The transaction also has positive valuation read throughs for Northland Power (NPI), TransAlta (TA) and to a lesser extent Capital Power (CPX) … BEP to take a 17.5% stake. Brookfield will acquire its interest in Boralex through its flagship Brookfield Infrastructure Fund V (BIF V). CDPQ will also increase their ownership interest in Boralex to 30% from ~15% … The transaction again highlights that private capital continues to have a favourable view of renewable assets, especially those with visible, long-term cash flow generation. In contrast, sentiment from public market investors on the renewable companies remains tepid (at best) … By our estimates, the $37.25 price implies EV / EBITDA valuations of 12.8x / 12.0x / 11.2x for 2026 / 2027 / 2028. This translates to a ~13x 2026E consensus EBITDA multiple on the combined enterprise value … renewables represent 54% of TransAlta’s 2028 EBITDA and our target is based on a 13x EBITDA multiple for the hydro assets as well as 10x for the wind and solar assets. For Capital Power renewables represent 15% of EBITDA, and we value them at 10.0x-10.5x. Our Northland Power target implies 9.1x multiple largely due to execution risk”
Oil and gas industry scrambling
BMO head of global commodity strategy Helima Croft surveyed the resource space with an understandable emphasis on oil and gas,
“While President Trump once again proves to be the master of optimistic endgame messaging, facts on the ground continue to point to the continuation of the Iran conflict. Paper and physical markets continue to see disconnect, as financial prices continue to be moderated by hopes for relief while physical participants remain actively engaged in the unprecedented reshuffling of flows. As the shoulder season begins and warmer weather tamps domestic demand and prices, any slack could help to fill the near-term widening global supply gap for LNG if capacity allows, including deferring maintenance. Yesterday’s trading pattern, where gold moved higher on headline-driven conflict optimism, reinforces our take on gold prices — the idea that gold’s story is not over — and our conviction holds for this year …17% of Qatari LNG export capacity (nearly 12.8 Mtpa) will be offline for 3-5 years after drone strikes caused damage."
Three hikes ahead
Scotiabank foreign exchange strategist Shaun Osborne is forecasting bad news for people like me who are facing mortgage renewal this year,
“Scotia Economics’ latest forecast update incorporates some changes in the expected policy rate path for the BoC and the Fed. We now anticipate an earlier and (initially) a slightly more aggressive tightening move by the BoC (50bps of hikes in Q3 this year and another 25bps tightening move in Q4) than the last forecast iteration. This takes the BoC’s Overnight Target rate to 3.00% at the end of this year. We also expect originally less easing from the Fed in this cycle, with just two 25bps cuts anticipated now (one in Q4 and another in Q1 2027), versus three cuts of 25bps each in the last forecast. As a consequence, our updated rate outlook reflects an anticipated narrowing in the 150bps policy rate gap [between the U.S. and Canada] that exists currently to a 25bps spread. The previous forecast reflected an expectation that the policy rate gap would close entirely by 2027″
Bluesky post of the day
https://bsky.app/profile/jsbarlow.bsky.social/post/3mhxjvc4bdk2f
Diversion
“Can quantum computers now solve health care problems? We’ll soon find out” - M.I.T. Technology Review