Research Roundup: RBC analyst’s top stocks picks in dividend-oriented energy infrastructure sector

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Copper market tightens

Scotiabank analyst Orest Wowkodaw identifies a tightening of global copper markets,

“It’s been only a month since we published our most recent copper (Cu) supply demand outlook, but the market appears to be tightening significantly more than we previously envisioned as new material supply side disappointments mount. Recently disclosed multi-year mine plan downgrades for both Grasberg (FCX) and Kamoa-Kakula (IVN) have served to meaningfully tighten the near-term outlook. Based on these two revisions alone, we now see materially larger 2026-2027 market deficits of 529kt and 375kt, representing 1.9 per cent and 1.3 per cent of demand; this compares positively to our last published deficit forecasts of 350kt and 99kt … We now forecast relatively large market deficits of 382kt in 2029 and 1,010kt in 2030, which compares to our previous forecast of balanced in 2029 and a deficit of 713kt in 2030 … Our top pick for Cu exposure is FM. We also highly recommend exposure to CS, ERO, FCX, and LUN. We are restricted on HBM”.

Top picks in energy infrastructure

RBC Capital Markets analyst Robert Kwan previewed earnings reports in the income-oriented energy infrastructure sector,

“Conference Calls: We will be most interested in hearing about companies that can leverage the high commodity price environment into new projects and contracting … Prospects for positive revisions and more importantly, more cash. The rise in commodity prices, and in particular commodity spreads, should result in positive estimate revisions driven by the prospects for wider frac spreads, blending margins, crack spreads, and geographic price dislocations … The inflationary pressure from the war adds to the already elevated focus on affordability, and investors will want the utilities to reaffirm their abilities to manage rate increases without limiting rate base growth or jeopardizing their balance sheet positions … Frac spreads: The frac spread decreased 21 per cent relative to last year, primarily driven by lower natural gas liquids (NGL) prices and to a lesser extent, the higher cost of natural gas. Companies with material exposure to frac spreads include AltaGas, Brookfield Infrastructure Partners and Pembina … Oil and gas prices: The companies in our coverage universe generally have minimal direct exposure to the absolute price of crude oil or natural gas. As such, we do not expect the year-over-year changes themselves to materially impact results”

RBC has “outperform” ratings on Altagas, Brookfield Infrastructure, Brookfield Renewable, Capital Power, Chemtrade Logistics, Clearway Energy, Emera, Enbridge, Gibson Energy, Hammond Power Solutions, Keyera, Northland Power, Pembina Pipeline, Rockpoint Gas Storage, South Bow, Superior Plus and TC Energy

Oil prices in CAD

National Bank strategists Ethan Currie and Stefane Marion provide an interesting domestic perspective on oil prices,

“This crude oil price shock is one of the largest on digital record since the inception of WTI futures trading (in the mid-1980s). While the change is historically significant in percentage terms, the same can’t necessarily be said about where the price stands outright. That’s true for the USD-denominated price, at least … the price of WTI in Canadian dollar terms is near a record high early in Q2, recently trading just below C$160/bbl—a level reached only once before, briefly, during the 2022 invasion of Ukraine. Canadian producers—and governments—could thus be poised to capture one of the most lucrative quarters on record in terms of royalty revenues. How long this fiscal windfall will last is uncertain, but if sustained, its impact on provincial and federal finances will be significant—particularly for oil-levered provinces such as Alberta. Though the net impact of this crude shock on the Canadian economy—and its implications for monetary policy—has yet to be fully revealed, we urge governments to capitalize on this opportunity. Most notably, this can be done by directing any additional, unbudgeted revenues to the bottom line or towards productivity-enhancing investments (link) in the national interest”

Bluesky post of the day

Diversion

A Dangerous Bacteria Is Moving Up the East Coast. Here’s What That Means for You - Gizmodo