RBC Dominion Securities Inc.
Nadine Eugene, CFA (Analyst)
Quantitative Research
(416) 842-7883
nadine.eugene@rbccm.com
Chad McAlpine, CFA (Analyst)
Quantitative Research
(416) 842-7869
chad.mcalpine@rbccm.com
Jason Nguyen, CFA (Associate)
Quantitative Research
Myles Zyblock, CFA (Analyst)
Chief Institutional Strategist &
Director of Capital Markets
Research
(416) 842-7805
myles.zyblock@rbccm.com
Quant@rbccm.com
July 18, 2007
This report is priced as of market
close June 30, 2007 ET.
All values in Canadian dollars
unless otherwise noted.
QUANTITATIVE RESEARCH A
The Canadian Earnings Guide
Highlights
• Recurring Earnings
Recurring earnings for the S&P/TSX Composite were relatively flat in June at
$773.14. Health Care saw its earnings increase 26.3% following the index rebalancing
in June (see page 2).
• Focus: Sectors That Are Most Affected by a Rising Canadian Dollar
After appreciating more than 10% year to date, the Canadian dollar is now trading
around $0.94 US for the first time in 30 years.
Few sectors in Canada benefit from a rising Canadian dollar. The airlines are one sector
that benefits, as these firms pay for their rent, parts and fuel in US dollars. Telecom
Services and some of the Media stocks get a positive break on their US dollardenominated debt.
Resource sectors are forecast to see the largest reduction in earnings from a rising
Canadian dollar. Analysts are forecasting that Paper & Forest Products earnings will
continue to erode, while many Energy firms will continue to experience margin
pressure. Other sectors with negative impacts include Insurance and the Banks,
attributed to translation of foreign income (see page 3).
• Projected Earnings Growth Rates
Despite reaccelerating earlier in the year, the forecast earnings growth rate for the
S&P/TSX Composite has been on the decline since April. Consensus is now
forecasting earnings growth of 13.0% over the next year (see page 4).
For Required Disclosures, please
see page 12.
S&P/TSX
Com posite
June Close
S&P/TSX
60
S&P/TSX
Com pletion
13,906.57
799.70
931.45
12-Month Trailing Earnings
Reported
Recurring (Before Excess Provisions)
P/E (Recurring)
$802.83
$773.14
18.0x
$48.45
$46.40
17.2x
$46.69
$45.77
20.4x
12-Month Estimated Earnings
Bottom Up RBC CM
Bottom Up Consensus
P/E (Consensus)
$881.78
$873.64
15.9x
$53.03
$52.39
15.3x
$51.86
$51.84
18.0x
$5,289.99
2.6x
$288.23
2.8x
$403.83
2.3x
$331.71
2.4%
$16.00
2.0%
$31.76
3.4%
Book Value
P/BV
Indicated Dividend
Yield
The Canadian Earnings Guide
July 18, 2007
S&P/TSX Composite Earnings (Before and After Adjustments)
S&P/TSX 12-Month Trailing
Recurring Earnings
Recurring earnings for the
S&P/TSX Composite were
relatively flat in June at $773.14.
Health Care saw its earnings
increase 26.3%, following the
removal of Patheon and
Neurochem from the index in June.
REPORTED
By
TSX
Month
S&P/TSX Composite
2006:06
2006:09
2006:12
2007:03
2007:06
NON-RECURRING ITEMS
DiscontRestrucGains/
turing Write-Offs inued Ops
OTHER *
Excess
Provisions
RECURRING EARNINGS **
3-Month
% Change
$642.13
737.06
818.27
807.80
802.83
($22.57)
(22.58)
(20.88)
(22.50)
(20.32)
($4.83)
25.43
17.28
30.20
30.99
$32.08
37.18
22.17
23.56
29.59
($27.60)
(21.33)
43.15
27.21
(10.57)
$665.05
718.37
756.56
749.33
773.14
4.7%
8.0%
5.3%
(1.0%)
3.2%
S&P/TSX 60
2006:06
2006:09
2006:12
2007:03
2007:06
$36.34
44.36
50.69
49.24
48.45
($1.39)
(1.30)
(1.14)
(1.35)
(1.42)
$0.16
2.47
1.98
2.70
2.74
$1.10
1.51
1.33
1.29
1.90
($2.13)
(0.32)
3.51
2.39
(1.17)
$38.61
41.99
45.01
44.21
46.40
3.8%
8.7%
7.2%
(1.8%)
5.0%
S&P/TSX Completion
2006:06
2006:09
2006:12
2007:03
2007:06
$46.78
40.71
42.50
45.40
46.69
($2.26)
(2.75)
(2.50)
(1.33)
(0.57)
($1.92)
(3.06)
(3.51)
(0.98)
(0.89)
$8.73
9.68
2.50
1.77
1.36
($2.50)
(9.91)
0.53
(0.76)
1.02
$44.73
46.75
45.49
46.69
45.77
9.3%
4.5%
(2.7%)
2.6%
(2.0%)
* Other Excess Provisions include very large provisions (and/or gains) normally considered
part of operations.
These are removed if they cause a large distortion to occur in our adjusted earnings series.
** Recurring Earnings = Reported - Non-Recurring Items - Other Excess Provisions
Valuation Analysis
Industry
June
Closing
Price
S&P/TSX Composite
$13,906.57
Energy
3,405.72
Integrated Oil & Gas
4,211.31
Exploration & Prod'n
3,603.11
Materials
2,680.62
Metals & Mining
3,012.44
Diversified Metals
6,770.09
Gold
2,056.60
Paper & Forest Products
832.33
Industrials
1,366.19
Consumer Discretionary
1,374.62
Media
1,124.31
Consumer Staples
1,752.06
Health Care
508.37
Financials
1,985.63
Banks
2,048.15
Diversified Financials
2,276.56
Insurance
1,614.44
Real Estate
2,531.18
Information Technology
308.94
Software & Services
679.70
Technology Hardware
287.94
Telecom. Services
1,066.33
Utilities
1,818.75
S&P/TSX 60
S&P/TSX Completion
$799.70
931.45
Trailing
12-Month Recurring
Earnings
P/E
12-Month
Consensus Earnings *
Estimate
P/E
Current
Book
Value
P/BV
Dividend
Indicated Yield
$773.14
179.47
257.12
190.34
151.81
186.74
576.38
83.29
0.71
75.59
66.83
49.33
84.26
30.51
131.72
150.88
122.91
113.66
60.68
5.74
29.46
3.76
46.67
98.20
18.0x
19.0x
16.4x
18.9x
17.7x
16.1x
11.7x
24.7x
n/m
18.1x
20.6x
22.8x
20.8x
16.7x
15.1x
13.6x
18.5x
14.2x
41.7x
53.8x
23.1x
76.6x
22.8x
18.5x
$873.64
208.00
270.33
222.80
166.12
204.40
646.13
88.89
(10.67)
81.89
78.56
59.56
95.26
24.41
145.64
166.00
159.81
125.01
63.34
11.58
39.12
9.51
52.76
103.21
15.9x
16.4x
15.6x
16.2x
16.1x
14.7x
10.5x
23.1x
n/m
16.7x
17.5x
18.9x
18.4x
20.8x
13.6x
12.3x
14.2x
12.9x
40.0x
26.7x
17.4x
30.3x
20.2x
17.6x
$5,289.99
1,193.95
1,145.12
1,366.82
1,128.79
1,313.11
2,048.60
1,215.34
735.37
504.41
656.13
550.07
650.71
251.01
787.08
750.43
655.77
785.09
923.50
61.91
232.40
48.62
350.17
871.38
2.6x
2.9x
3.7x
2.6x
2.4x
2.3x
3.3x
1.7x
1.1x
2.7x
2.1x
2.0x
2.7x
2.0x
2.5x
2.7x
3.5x
2.1x
2.7x
5.0x
2.9x
5.9x
3.0x
2.1x
$331.71
98.05
46.32
130.58
24.42
28.09
86.65
12.26
12.06
22.68
31.42
39.73
26.78
15.13
60.60
67.96
84.09
38.05
81.13
0.00
0.00
0.00
31.10
81.05
2.4%
2.9%
1.1%
3.6%
0.9%
0.9%
1.3%
0.6%
1.4%
1.7%
2.3%
3.5%
1.5%
3.0%
3.1%
3.3%
3.7%
2.4%
3.2%
0.0%
0.0%
0.0%
2.9%
4.5%
$46.40
45.77
17.2x
20.4x
$52.39
51.84
15.3x
18.0x
$288.23
403.83
2.8x
2.3x
$16.00
31.76
2.0%
3.4%
* The 12-month earnings estimate is a combination of year one and year two earnings forecasts that increases the emphasis on the year
two estimate each time another quarter in year one is reported.
Note: All historical values in this report are subject to minor changes as more detailed information becomes available.
2 Nadine Eugene, CFA
July 18, 2007
The Canadian Earnings Guide
FOCUS: Sectors That Are Most Affected by a Rising Canadian Dollar
We recently published a detailed piece entitled Canadian Dollar
Exposure (June 15, 2007), which looked at the effect of a rising
Canadian dollar on companies and sectors. The following is a
summary of the key points.
Dramatic Rise in Canadian Dollar Year To Date:
The Canadian dollar is now trading above $0.94 US for the first
time in 30 years, after appreciating more than 10% year to date.
If this level is sustained for the remainder of the 2007, it would
imply an average exchange rate of $0.92 for the calendar year,
versus $0.88 in 2006 (an increase of 4.0%). As we saw when the
C$ rose from $0.62 to $0.80 during 2002-2004, the earnings and
performance of stocks in certain sectors of the index were
impacted to varying degrees, and in many cases by a
considerable amount.
Historical Correlations:
In the past, the segments of the S&P/TSX Composite with the
highest positive correlations to changes in the C$/US$ exchange
rate as it rises include Industrials (particularly Transportation),
Diversified Metals & Mining, Oil & Gas Equipment & Service,
and Oil & Gas Exploration & Production. At first glance this
may appear contrary; however, periods of Canadian dollar
strength during the past 30 years have coincided with booming
commodity markets, which in many cases have more than offset
foreign exchange losses.
Sectors:
As part of the aforementioned report, we polled our analysts to
estimate what a $.01 rise in the C$/US$ exchange rate would
imply to the earnings of their coverage universe. We then
aggregated these results up to the sector level.
Positively Impacted Sectors: Few sectors in Canada benefit
from a rising Canadian dollar. The airlines are expected to see a
positive benefit, as these firm pay for their rent, parts and fuel in
US dollars. Telecom Services and some of the Media stocks get
a positive break on their US dollar-denominated debt when the
Canadian dollar rises.
Negatively Impacted Sectors: Similar to prior periods, the
resource sectors would see the largest reduction in earnings from
a rising Canadian dollar, all else equal.
Analysts are forecasting that Paper & Forest Products earnings
will continue to erode due, in part, to an appreciating dollar.
Consensus estimates call for earnings to decline in excess of
1000% over the next year (page 4).
Many energy firms would face margin pressure, as crude oil &
natural gas are sold in US dollars, but expenses are incurred in
Canadian dollars. The sector gets some benefit from US dollardenominated debt, and more so, historically high commodity
prices continue to offset the rising Canadian dollar.
Other sectors with negative impacts include Insurance and the
Banks, attributed to translation of foreign income. The Big 3
lifecos generate 50% of their earnings outside of Canada, while
for the banks, the estimate is closer to 20%-25%.
Top 10 Sector and Sub-sector Correlations
During Periods of Increasing C$/US$ Exchange Rate
(Feb 1986 – Oct 1991 & Feb 2002 – Present)
Feb 1986 - Oct 1991
Feb 2002 - Present
Sector
Industrials
Transportation
Energy Equipment & Svcs
Diversified Metals & Mining
Chemicals
Materials
Metals & Mining
Oil & Gas Expl'n & Prod'n
Gold
Corr.
0.37
0.34
0.29
0.25
0.24
0.24
0.24
0.21
0.21
Sector
Industrials
Diversified Financials
Food & Staples Retailing
Utilities
Transportation
Broadcasting & Cable TV
Diversified Metals & Mining
Capital Goods
Consumer Staples
Corr.
0.25
0.25
0.21
0.20
0.19
0.18
0.16
0.16
0.15
Estimated Impact of $0.01 Increase in C$/US$
Exchange Rate on Sector EPS
-1.9%
Energy
-1.1%
Materials
-0.9%
S&P/TSX Composite
-0.7%
Health Care
-0.6%
Info. Technology
-0.4%
Industrials
-0.3%
Financials
Consumer Discr.
-0.2%
Utilities
-0.2%
-0.1%
Consumer Staples
0.1%
Telecom. Services
-2.5%
-1.5%
-0.5%
0.5%
Sector Contribution to Recurring & Estimated Earnings
and Exchange Rate Sensitivity
Energy
Materials
Industrials
Cons. Discretionary
Cons. Staples
Health Care
Financials
Info. Tech.
Telecomm. Services
Utilities
S&P/TSX Composite
12-Month
12-Month
Trailing Consens. Est. FX Consens. Est FX
Rec. EPS
EPS
Impact $ After FX Impact %
204.23
236.69
(4.45)
232.24
-1.88%
131.63
144.03
(1.64)
142.39
-1.14%
42.81
46.38
(0.18)
46.20
-0.38%
35.52
41.75
(0.08)
41.67
-0.19%
16.90
19.11
(0.02)
19.09
-0.12%
5.78
4.62
(0.03)
4.59
-0.71%
281.33
311.07
(0.96)
310.11
-0.31%
9.82
19.82
(0.13)
19.69
-0.65%
34.49
38.99
0.04
39.03
0.10%
10.63
11.17
(0.02)
11.15
-0.19%
773.14
873.64
(7.51)
866.13
-0.86%
Nadine Eugene, CFA 3
The Canadian Earnings Guide
July 18, 2007
Projected Earnings Growth Rates
Comparison of Earnings
Forecasts
RBC Capital Markets Versus
Consensus Estimates
TRAILING
12-Month
Recurring
Earnings
Industry
S&P/TSX Composite
Energy
Despite reaccelerating earlier in the
year, the forecast earnings growth
rate for the S&P/TSX Composite
has been on the decline since April.
Consensus is now forecasting
earnings growth of 13.0% over
the next year.
Integrated Oil & Gas
Exploration & Prod'n
Materials
Metals & Mining
Diversified Metals
Gold
Paper & Forest Products
Industrials
Consumer Discretionary
Media
Consumer Staples
Health Care
Financials
Banks
Diversified Financials
Insurance
Real Estate
Information Technology
Software & Services
Technology Hardware
Telecom. Services
Utilities
Paper & Forest Products continues
to see deterioration in forecast
earnings.
S&P/TSX 60
S&P/TSX Completion
12-MONTH ESTIMATE
Consensus
RBC CM
Yr/Yr
Yr/Yr
Est.
Chg(A)
Est.
Chg(B)
Growth
Rate
Comparison
(B-A)
$773.14
179.47
257.12
190.34
151.81
186.74
576.38
83.29
0.71
75.59
66.83
49.33
84.26
30.51
131.72
150.88
122.91
113.66
60.68
5.74
29.46
3.76
46.67
98.20
$873.64
208.00
270.33
222.80
166.12
204.40
646.13
88.89
(10.67)
81.89
78.56
59.56
95.26
24.41
145.64
166.00
159.81
125.01
63.34
11.58
39.12
9.51
52.76
103.21
13.0%
15.9%
5.1%
17.1%
9.4%
9.5%
12.1%
6.7%
(1603%)
8.3%
17.5%
20.7%
13.1%
(20.0%)
10.6%
10.0%
30.0%
10.0%
4.4%
101.8%
32.8%
152.8%
13.1%
5.1%
$881.78
212.08
276.35
226.56
172.48
214.38
684.36
88.89
(9.62)
82.14
75.95
58.90
95.03
24.07
146.20
167.28
159.81
124.60
63.34
10.85
40.50
8.54
52.00
102.94
14.1%
18.2%
7.5%
19.0%
13.6%
14.8%
18.7%
6.7%
(1455%)
8.7%
13.6%
19.4%
12.8%
(21.1%)
11.0%
10.9%
30.0%
9.6%
4.4%
89.0%
37.5%
127.0%
11.4%
4.8%
$46.40
45.77
$52.39
51.84
12.9%
13.3%
$53.03
51.86
14.3%
13.3%
1.1%
2.3%
2.3%
2.0%
4.2%
5.3%
6.6%
0.0%
148.0%
0.3%
(3.9%)
(1.3%)
(0.3%)
(1.1%)
0.4%
0.8%
0.0%
(0.4%)
0.0%
(12.8%)
4.7%
(25.8%)
(1.6%)
(0.3%)
1.4%
0.0%
12-MONTH CONSENSUS EARNINGS FORECASTS
VERSUS ACTUAL RECURRING EARNINGS RESULTS
S&P/TSX Composite
1000
900
The current earnings cycle for the S&P/TSX
Composite is now 61 months in duration.
800
$873.64
700
$773.14
600
12-Month Consensus
Earnings Forecast
500
400
300
200
Actual Recurring
Earnings Results
100
0
1985
1987
1989
4 Nadine Eugene, CFA
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
July 18, 2007
The Canadian Earnings Guide
S&P/TSX Composite Earnings Contribution
Sector/Group
Contributions to Trailing
and Estimated Earnings
S&P/TSX Composite recurring
earnings were essentially flat in
June, while the 12-month-forward
consensus estimate fell $7.72.
Energy was responsible for $5.27 of
the decline followed by Financials
at $2.39. Diversified Metals added
$2.53 to the consensus estimate.
Composition
Of Trailing
Recurring
Earnings
Industry
S&P/TSX Composite
Composition
Of 12-month
Consensus
Estimate
PREVIOUS COMPARISONS
Composition Of
Composition Of
Erngs At Peak
Erngs At Trough
(Mar 01)
(May 02)
Materials
Metals & Mining
Diversified Metals
Gold
Paper & Forest Products
Industrials
Consumer Discretionary
Media
Consumer Staples
Health Care
Financials
Banks
Diversified Financials
Insurance
Real Estate
Information Technology
Software & Services
Technology Hardware
Telecom. Services
Utilities
$773.14
204.23
56.01
113.24
131.63
115.27
55.44
29.01
0.08
42.81
35.52
16.16
16.90
5.78
281.33
174.61
11.05
84.51
11.16
9.82
4.18
5.65
34.49
10.63
100%
26%
7%
15%
17%
15%
7%
4%
0%
6%
5%
2%
2%
1%
36%
23%
1%
11%
1%
1%
1%
1%
4%
1%
$873.64 100%
236.69
27%
58.89
7%
132.56
15%
144.03
16%
126.17
14%
62.15
7%
30.96
4%
(1.21)
0%
46.38
5%
41.75
5%
19.50
2%
19.11
2%
4.62
1%
311.07
36%
192.11
22%
14.36
2%
92.95
11%
11.65
1%
19.82
2%
5.54
1%
14.28
2%
38.99
4%
11.17
1%
$449.83 100%
80.40
18%
23.79
5%
53.56
12%
67.55
15%
42.00
9%
11.42
3%
10.61
2%
14.31
3%
44.90
10%
25.28
6%
9.20
2%
9.62
2%
1.52
0%
157.14
35%
106.39
24%
14.75
3%
32.29
7%
3.71
1%
43.07
10%
(2.83)
(1%)
45.90
10%
1.31
0%
19.04
4%
$248.89 100%
61.34
25%
17.68
7%
39.28
16%
15.03
6%
15.86
6%
2.52
1%
7.19
3%
2.31
1%
21.61
9%
16.38
7%
(0.25)
0%
14.05
6%
2.94
1%
154.28
62%
99.83
40%
13.07
5%
38.57
15%
2.81
1%
(59.15) (24%)
(2.43)
(1%)
(56.72) (23%)
3.96
2%
18.45
7%
S&P/TSX 60
S&P/TSX Completion
$586.48
186.66
100%
100%
$662.22
211.42
$367.09
$48.51
$213.68
$27.19
Energy
Integrated Oil & Gas
Exploration & Prod'n
100%
100%
100%
100%
100%
100%
S&P/TSX Composite Dividend Contribution
Sector/Group Contributions
to Trailing and Estimated
Dividends
The indicated annual dividend for
the S&P/TSX Composite rose $0.56
in June.
Oil & Gas Exploration & Production
contributed $1.35 to the increase.
However, this was the result of the
float share adjustments related to the
quarterly index rebalancing, as
opposed to actual dividend
increases.
Composition
Of Current
Indicated
Dividend
Industry
S&P/TSX Composite
Composition
Of 12-month
RBC CM
Estimate
PREVIOUS COMPARISONS
Composition of
Composition of
Divs at Peak
Divs at Trough
(Jan 90)
(Feb 94)
Materials
Metals & Mining
Diversified Metals
Gold
Paper & Forest Products
Industrials
Consumer Discretionary
Media
Consumer Staples
Health Care
Financials
Banks
Diversified Financials
Insurance
Real Estate
Information Technology
Software & Services
Technology Hardware
Telecom. Services
Utilities
$331.71
111.57
10.09
77.69
21.17
17.34
8.34
4.27
1.37
12.85
16.70
13.01
5.37
2.86
129.42
78.65
7.56
28.29
14.93
0.00
0.00
0.00
22.99
8.77
100%
34%
3%
23%
6%
5%
3%
1%
0%
4%
5%
4%
2%
1%
39%
24%
2%
9%
5%
0%
0%
0%
7%
3%
$331.16
111.58
10.09
77.70
20.78
16.95
8.34
4.28
1.37
12.85
16.71
13.01
5.37
2.87
129.23
78.65
7.37
28.29
14.93
0.00
0.00
0.00
22.99
8.77
100%
34%
3%
23%
6%
5%
3%
1%
0%
4%
5%
4%
2%
1%
39%
24%
2%
9%
5%
0%
0%
0%
7%
3%
$129.68
5.33
2.75
2.50
29.26
21.31
7.80
3.63
3.33
12.34
6.01
3.62
7.49
0.27
40.66
30.19
7.93
0.52
2.02
1.74
0.00
1.74
18.92
7.65
100%
4%
2%
2%
23%
16%
6%
3%
3%
10%
5%
3%
6%
0%
31%
23%
6%
0%
2%
1%
0%
1%
15%
6%
$96.65
4.64
2.61
1.93
13.52
8.66
4.07
2.80
2.19
5.93
6.11
3.46
8.35
0.07
28.84
24.23
3.87
0.53
0.22
1.29
0.00
1.29
17.45
10.44
100%
5%
3%
2%
14%
9%
4%
3%
2%
6%
6%
4%
9%
0%
30%
25%
4%
1%
0%
1%
0%
1%
18%
11%
S&P/TSX 60
S&P/TSX Completion
$202.18
129.53
100%
100%
$202.21
128.94
100%
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Energy
Integrated Oil & Gas
Exploration & Prod'n
Nadine Eugene, CFA 5
The Canadian Earnings Guide
July 18, 2007
Historical Earnings Momentum Scorecard
# Cos In
Index
Number of Companies in
Each Stage of Earnings
Momentum
By Sector/Group
Industry
Positive
Slowing
Current
Last Qtr
Materials
Metals & Mining
Diversified Metals
Gold
Paper & Forest Products
Industrials
Consumer Discretionary
Media
Consumer Staples
Health Care
Financials
Banks
Diversified Financials
Insurance
Real Estate
Information Technology
Software & Services
Technology Hardware
Telecom. Services
Utilities
96
25
6
13
17
13
5
6
0
7
14
6
4
2
18
4
4
5
5
3
1
2
2
4
62
4
0
1
17
14
7
5
2
4
9
5
6
2
13
5
3
2
3
4
3
1
2
1
66
15
0
6
21
16
6
5
4
8
4
1
2
3
10
0
2
1
7
0
0
0
0
3
51
33
0
27
6
4
1
2
2
1
2
1
1
0
3
0
0
2
1
2
1
1
1
2
37
29
100
14
21
9
(12)
27
(28)
(3)
48
54
31
54
59
67
68
57
21
88
54
95
16
3
13
(68)
(100)
(87)
5
(3)
49
(40)
(30)
8
19
49
24
18
71
86
65
61
23
89
74
93
24
42
S&P/TSX 60
S&P/TSX Completion
60
215
29
67
17
45
8
58
6
45
46
14
16
3
Energy
Integrated Oil & Gas and
Technology Hardware are
demonstrating positive earnings
momentum.
Integrated Oil & Gas
Exploration & Prod'n
Negative Bottoming
Earnings
Momentum Index *
275
77
6
47
61
47
19
18
8
20
29
13
13
7
44
9
9
10
16
9
5
4
5
10
S&P/TSX Composite
Our Earnings Momentum Index for
the S&P/TSX Composite was
unchanged in June.
Changes In Earnings Growth Rates
This Quarter Versus Last Quarter
* = 100 x ∑(Co’s S&P/TSX wt x (1 if Pos; 0.5 if Slow; -1 if Neg; -0.5 if Bott))
Total S&P/TSX Weight Of Companies Within The Index
RBC CAPITAL MARKETS RECURRING EARNINGS MOMENTUM INDEX
(THREE-MONTH MOVING AVERAGE)
S&P/TSX Composite
100
75
1.50
Our Earnings Momentum Index for the S&P/TSX Composite is now
trending positively (on a three-month moving average basis).
1.25
50
1.00
25
0
0.75
-25
0.50
-50
0.25
Momentum Index (Lt)
-75
S&P/TSX Composite vs. Long Bond Relative Performance (Rt)
-100
1980
0.00
1982
1984
6 Nadine Eugene, CFA
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
July 18, 2007
The Canadian Earnings Guide
Estimate Revisions Scorecard
Change in 12-Month
Consensus Estimates
# Of Cos
With
Estimates
Industry
S&P/TSX Composite
Our Estimate Revisions Index for
the S&P/TSX Composite moved
into negative territory in June, as
the ratio of upgrades to
downgrades deteriorated.
REVISIONS
INDEX *
Current Last Qtr
Materials
Metals & Mining
Diversified Metals
Gold
Paper & Forest Products
Industrials
Consumer Discretionary
Media
Consumer Staples
Health Care
Financials
Banks
Diversified Financials
Insurance
Real Estate
Information Technology
Software & Services
Technology Hardware
Telecom. Services
Utilities
92
15
0
11
28
24
12
8
1
5
11
6
7
3
12
6
4
2
0
4
2
2
2
5
33.5%
19.5%
0.0%
23.4%
45.9%
51.1%
63.2%
44.4%
12.5%
25.0%
37.9%
46.2%
53.8%
42.9%
27.3%
66.7%
44.4%
20.0%
0.0%
44.4%
40.0%
50.0%
40.0%
50.0%
125
53
5
33
22
14
5
6
7
11
12
6
3
2
11
3
1
3
4
4
2
2
3
4
45.5%
68.8%
83.3%
70.2%
36.1%
29.8%
26.3%
33.3%
87.5%
55.0%
41.4%
46.2%
23.1%
28.6%
25.0%
33.3%
11.1%
30.0%
25.0%
44.4%
40.0%
50.0%
60.0%
40.0%
-9
-45
-100
-23
51
50
52
34
-47
-51
-15
-34
37
58
-2
16
42
-25
-50
73
-13
92
-83
-11
0
-17
-21
-20
-30
-43
-49
-77
-100
-37
-13
-14
-41
-27
47
61
12
37
13
-69
33
-96
6
11
S&P/TSX 60
S&P/TSX Completion
60
215
28
64
46.7%
29.8%
29
96
48.3%
44.7%
-9
-9
3
-11
Integrated Oil & Gas
Exploration & Prod'n
Integrated Oil & Gas also had a
number of downward revisions,
reversing its positive trend over
the past few months.
REVISIONS DOWN
% Of
# Estimates
275
77
6
47
61
47
19
18
8
20
29
13
13
7
44
9
9
10
16
9
5
4
5
10
Energy
Diversified Metals and Gold saw
estimates improve, while Telecom
Services and Banks saw
deterioration.
REVISIONS UP
% Of
# Estimates
*=
100 x
∑ (Co’s S&P/TSX wt x (1 if Up; 0 if Unch; -1 if Down))
Total S&P/TSX Weight Of Companies With Estimates
RBC CAPITAL MARKETS CONSENSUS ESTIMATE REVISIONS INDEX
(THREE-MONTH MOVING AVERAGE)
S&P/TSX Composite
100
75
50
25
0
-25
1.25
Our Estimate
Revisions
Index is at a
much lower
level than
corresponding
periods over
the past
2 years (on a
three-month
moving
average
basis).
1.00
0.75
0.50
-50
0.25
Revisions Index (Lt)
-75
S&P/TSX Composite vs. Long Bond Relative Performance (Rt)
-100
1980
0.00
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Nadine Eugene, CFA 7
The Canadian Earnings Guide
July 18, 2007
S&P/TSX Composite Sector Net Margins
At a Glance…
Net margin for the S&P/TSX
Composite rose slightly in June to
10.8%.
Health Care saw a dramatic spike in
net margin to 18.6%, following the
index removal of Patheon and
Neurochem.
Industry
June
Closing
Price
S&P/TSX Comp.
Energy
Integrated Oil & Gas
Exploration & Prod'n
Materials
Metals & Mining
Diversified Metals
Gold
Paper & Forest Products
Industrials
Consumer Discretionary
Media
Consumer Staples
Health Care
Financials
Banks
Diversified Financials
Insurance
Real Estate
Information Technology
Software & Services
Technology Hardware
Telecom. Services
Utilities
13,906.57
3,405.72
4,211.31
3,603.11
2,680.62
3,012.44
6,770.09
2,056.60
832.33
1,366.19
1,374.62
1,124.31
1,752.06
508.37
1,985.63
2,048.15
2,276.56
1,614.44
2,531.18
308.94
679.70
287.94
1,066.33
1,818.75
S&P/TSX 60
S&P/TSX Completion
799.70
931.45
Trailing 12-Month
Recurring
Earnings
$773.14
179.47
257.12
190.34
151.81
186.74
576.38
83.29
0.71
75.59
66.83
49.33
84.26
30.51
131.72
150.88
122.91
113.66
60.68
5.74
29.46
3.76
46.67
98.20
46.40
45.77
Trailing
12-Month
Net
Revenue Margin
Price /
Revenue
$7,167.94
1,159.62
2,019.84
921.07
1,115.23
1,035.14
1,808.52
360.97
1,268.61
1,144.36
1,309.16
663.39
3,272.12
164.02
979.26
593.66
2,017.55
1,447.39
816.10
161.82
378.00
148.75
477.70
999.51
10.8%
15.5%
12.7%
20.7%
13.6%
18.0%
31.9%
23.1%
0.1%
6.6%
5.1%
7.4%
2.6%
18.6%
13.5%
25.4%
6.1%
7.9%
7.4%
3.5%
7.8%
2.5%
9.8%
9.8%
1.94x
2.94x
2.08x
3.91x
2.40x
2.91x
3.74x
5.70x
0.66x
1.19x
1.05x
1.69x
0.54x
3.10x
2.03x
3.45x
1.13x
1.12x
3.10x
1.91x
1.80x
1.94x
2.23x
1.82x
359.74
642.94
12.9%
7.1%
2.22x
1.45x
S&P/TSX Composite
12%
10%
8%
6%
4%
2%
Dec-89
Dec-92
Dec-95
Dec-98
Energy
Dec-01
Dec-07
Integrated Oil & Gas (Sub-Industry)
21%
18%
18%
15%
15%
12%
12%
9%
9%
6%
6%
3%
3%
0%
D e c-89
Dec-04
0%
D e c -9 2
D e c-95
8 Nadine Eugene, CFA
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
D e c-89
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
July 18, 2007
The Canadian Earnings Guide
S&P/TSX Composite Sector Net Margins
Oil & Gas Exploration & Production (Sub-Industry)
Materials
15%
30%
25%
10%
20%
15%
5%
10%
5%
0%
0%
D e c-89
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
Metals & Mining (Industry)
D e c -8 9
D e c-92
D e c-95
D e c -9 8
D e c-01
D e c-0 4
D e c -0 7
Diversified Metals & Mining (Sub-Industry)
20%
35%
30%
16%
25%
12%
20%
8%
15%
10%
4%
5%
0%
D e c-89
0%
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
Gold (Sub-Industry)
D e c-89
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
D e c -0 1
D e c-04
D e c -0 7
D e c -9 8
D e c -0 1
D e c-04
D e c -0 7
D e c-98
D e c-0 1
D e c -0 4
D e c -0 7
Paper & Forest Products (Industry)
25%
9%
20%
6%
15%
10%
3%
5%
0%
D e c-89
0%
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
Industrials
D e c -8 9
D e c -9 2
D e c -9 5
D e c -9 8
Consumer Discretionary
8%
6%
6%
4%
4%
2%
2%
0%
0%
D e c -8 9
D e c-92
D e c-95
D e c -9 8
D e c-01
D e c -0 4
D e c-07
Media (Industry Group)
D e c -8 9
D e c-95
Consumer Staples
8%
5%
6%
4%
4%
3%
2%
2%
0%
D e c -8 9
D e c -9 2
1%
D e c-92
D e c -9 5
D e c-98
D e c-0 1
D e c -0 4
D e c -0 7
D e c -8 9
D e c-92
D e c -9 5
Nadine Eugene, CFA 9
The Canadian Earnings Guide
July 18, 2007
Health Care
Financial Services
15%
20%
PTI & NRM
removed
16%
13%
12%
11%
8%
9%
4%
7%
0%
D e c-89
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
Banks (Industry Group)
D e c-89
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
Diversified Financials (Industry Group)
30%
30%
POW & PWF
removed
25%
25%
20%
Onex
added
15%
20%
10%
15%
5%
0%
10%
D e c -8 9
D e c-92
D e c -9 5
D e c -9 8
D e c -0 1
D e c-04
D e c -0 7
Insurance (Industry Group)
D e c-89
7%
8%
6%
7%
5%
6%
4%
5%
3%
4%
2%
3%
1%
2%
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
D e c-01
D e c -0 4
D e c-07
0%
D e c -9 2
D e c -9 5
D e c -9 8
D e c-0 1
D e c-04
D e c-07
Telecommunication Services
D e c -8 9
D e c-92
D e c-95
D e c -9 8
Utilities
12%
11%
RCI.B added
TIW removed
10%
10%
9%
8%
8%
7%
6%
6%
4%
5%
TRP & ENB
removed
4%
2%
3%
0%
D e c-89
D e c-95
Information Technology
9%
D e c -8 9
D e c -9 2
2%
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
S&P/TSX 60
D e c-89
D e c -9 2
D e c-95
D e c -9 8
D e c -0 1
D e c -0 4
D e c-07
D e c-98
D e c-01
D e c-04
D e c-07
S&P/TSX Completion
14%
8%
7%
12%
6%
10%
5%
8%
4%
3%
6%
2%
4%
D e c-89
1%
D e c-92
D e c -9 5
D e c-9 8
10 Nadine Eugene, CFA
D e c-01
D e c-0 4
D e c-07
D e c -8 9
D e c -9 2
D e c -9 5
July 18, 2007
The Canadian Earnings Guide
Appendix
S&P/TSX Composite Calendar: Quarterly Data
S&P/TSX Composite
Recurring
Earnings
(In Quarter)
Q1
Q2
Q3
Q4
Year
Dividends
(Ex-Date Closest To
Fiscal Quarter-End)
S&P/TSX 60
S&P/TSX Completion
2005
2006
2007
2005
2006
2007
2005
2006
2007
$138.97
148.75
155.24
188.46
$161.65
206.74
205.88
179.49
$184.61
$7.81
8.59
9.19
11.28
$9.29
12.44
12.12
10.91
$11.02
$11.26
10.26
8.42
10.09
$11.85
12.45
12.03
10.21
$11.09
648.31
723.23
36.93
43.71
38.23
45.16
S&P/TSX Composite
S&P/TSX 60
S&P/TSX Completion
2005
2006
2007
2005
2006
2007
2005
2006
2007
Q1
Q2
Q3
Q4
$38.74
43.27
41.69
57.75
$68.15
71.97
71.87
79.20
$78.36
$2.39
2.67
2.56
2.82
$2.73
3.08
3.02
3.74
$3.70
$2.32
2.59
2.55
3.27
$5.19
5.78
6.29
6.51
$7.76
Year
211.92
288.10
10.44
13.56
10.88
23.72
Book Value
S&P/TSX Composite
(At Quarter-End)
Q1
Q2
Q3
Q4
S&P/TSX 60
S&P/TSX Completion
2005
2006
2007
2005
2006
2007
2005
2006
2007
$4,156.13
4219.24
4210.82
4289.99
$4,478.09
4614.19
4826.71
5077.22
$5,255.16
$227.98
231.49
232.67
236.21
$247.05
254.08
264.56
278.67
$287.01
$306.98
316.75
306.96
300.70
$300.03
316.47
341.77
367.03
$399.45
Quarterly data will not necessarily sum to calendar year data due to changes
in the composition of the index throughout the year. Bold items are
preliminary estimates.
S&P/TSX Composite Historical Earnings and Dividend Growth Rates
(Least Squares)
Period
Reported
Earnings
Growth *
Dividend
Growth
40 Year
1967-2007
5.3%
4.6%
10 Year
1977-1987
1987-1997
1997-2007
0.5%
(0.8%)
11.0%
6.0%
(0.9%)
10.7%
5 Year
1998-2003
1999-2004
2000-2005
2001-2006
2002-2007
4.9%
6.7%
8.5%
18.8%
22.9%
4.6%
6.1%
7.9%
14.7%
24.8%
* Recurring earnings are used since January 1989.
Historical data in this report have been generated using our proprietary Quantitative Research database. This database features
quarterly earnings, dividends and book values series starting from as early as 1973. All historical earnings series have been
adjusted for non-recurring items on a company-by-company basis since the 1989 Canadian Institute of Chartered Accountant’s
(CICA) revision to section 3480 of the CICA Handbook, which virtually eliminated separate accounting for Extraordinary Items.
Current consensus estimates in this report have been provided by CPMS Computerized Portfolio Management Services Inc.
Nadine Eugene, CFA 11
The Canadian Earnings Guide
July 18, 2007
Required Disclosures
In the event that this is a compendium report (covers more than six subject companies), RBC
Capital Markets may choose to provide specific disclosures for the subject companies by
reference. To access current disclosures, clients should refer to
http://www7.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?EntityID=1 or
send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank
Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Distribution of Ratings, Firmwide
Analyst Certification
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12 Nadine Eugene, CFA
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