Td Report First Q

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Td Report First Q

  1. 1. April 3, 2009 Action Notes 1 of 75 Equity Research RATING/TARGET/ESTIMATE CHANGES Bombardier Inc. (BBD.B-T) US$2.71 ...... 3 BUY (Unchanged);Target: US$4.00 ↓ (Prior: US$5.00) Q4/09 Review; Strong Quarter With Weakening Outlook Cameco Corp. (CCO-T, CCJ-N) C$22.10 ...... 8 HOLD ↓ (Prior: BUY);Target: C$24.00 ↓ (Unchanged) Downgrade to Hold - Uranium Price Forecast Lowered Celtic Exploration Ltd. (CLT-T) C$13.68 .... 11 BUY (Unchanged);Target: C$17.50 (Unchanged) Equity Adds To Financial Flexibility First Quantum Minerals Ltd. (FM-T) C$38.13 .... 16 BUY ↑ (Prior: HOLD);Target: C$48.00 ↑ (Prior: C$40.00) Upgrading to BUY on Higher Copper Price Forecast Pacific Rubiales Energy Corp. (PRE-T) C$5.40 .... 19 ACTION LIST BUY (Unchanged);Target: C$10.00 (Unchanged) PRE Reports Q4/08 Results; Holds Conference Call Quadra Mining Ltd. (QUA-T) C$6.00 .... 22 BUY ↑ (Prior: HOLD);Target: C$7.50 ↑ (Prior: C$5.00) Target and Rating Increased on Higher Copper Prices Research In Motion Ltd. (RIMM-Q, RIM-T) US$49.09 .... 27 ACTION LIST BUY (Unchanged);Target: US$80.00 ↑ (Prior: US$70.00) Strong Gross Margins Should Take the Stock Higher Sino-Forest Corp. (TRE-T) C$10.15 .... 31 BUY (Unchanged);Target: C$13.50 ↑ (Prior: C$12.00) Annual Poyry Valuation Report Released INDUSTRY NOTES Financial Services - Banks .... 36 Large-Cap Canadian Banks: March Fund Flows Financial Services - Banks .... 40 Increased MTM Flexibility; Not a Game Changer Financial Services - Diversified Financials .... 45 Its Official - Investors Went on Strike for 2009 RSP Season Please see the final pages of this document for important disclosure information.
  2. 2. April 3, 2009 Action Notes 2 of 75 Equity Research Notes (cont’d) Metals & Minerals .... 51 Q1/09 Marked-to-Market Metal Prices INTRADAY NOTES (published April 2, 2009) Dorel Industries Inc. (DII.B-T) C$19.75 .... 58 BUY (Unchanged);Target: C$26.00 (Unchanged) Dorel Refocuses Recreational Segment into Five Centers Energy Savings Income Fund (SIF.UN-T) C$10.68 .... 61 HOLD (Unchanged);Target: C$11.50 (Unchanged) Q4/F09 Guidance Up Primarily On Windfall Gas Margins Labopharm Inc. (DDS-T, DDSS-Q) C$1.64 .... 63 HOLD (Unchanged);Target: C$2.50 (Unchanged) Tramadol-Acetaminophen Falls Short
  3. 3. April 3, 2009 Action Notes 3 of 75 Equity Research Tim James, CFA Scott Farley, CA (Associate) Transportation/Aerospace Recommendation: BUY Unchanged Risk: HIGH Bombardier Inc. 12-Month Target Price: US$4.00↓ (BBD.B-T) US$2.71 Prior: US$5.00 12-Month Total Return: 50.6% Q4/09 Review; Strong Quarter With Weakening Outlook Market Data (US$) Current Price $2.71 Event 52-Wk Range $1.72-$8.80 Bombardier reported Q4/09 results on April 2nd. Reported EPS increased to Mkt Cap (f.d.)($mm) $4,752.8 EV ($mm) $4,682.1 $0.17 from $0.12 a year earlier, exceeding our estimate and consensus of Dividend per Share $0.08 $0.14. Dividend Yield 3.0% Avg. Daily Trading Vol. (3mths) 12,044,540 Impact - Neutral Financial Data (US$) Fiscal Y-E January Based on Q4/09 results, our updated industry outlook and guidance provided, Shares O/S (f.d.)(mm) 1,753.8 we are maintaining our FY10 EPS estimate at $0.50 and reducing our FY11 Float Shares (mm) 1,753.8 estimate to $0.40 (from $0.49). We have reduced our target EPS and Net Cash ($mm) $295.0 EBITDA multiples to 8.0x (from 9.0x) and 4.5x (from 5.0x) to reflect current Net Debt/Tot Cap NA BVPS (f.d.) $1.45 market conditions which combined with lower FY11 earnings expectations Cash ($mm) $4,247.0 results in a decline in our price target to US$4.00. We are maintaining our Estimates (US$) BUY recommendation. Year 2008A 2009A 2010E 2011E EBITDA ($mm) 1,352.0 1,937.0 1,998.8 1,612.8 While we acknowledge that the outlook for the commercial aerospace EBITDA (old)($mm) 1,352.0 1,937.0 1,850.4 1,627.1 industry continues to weaken, we continue to believe Bombardier is EPS (f.d.) 0.26 0.56 0.50 0.40 undervalued at current levels. We believe the company’s strong balance EPS (f.d.)(old) 0.26 0.56 0.50 0.49 sheet, order backlog and Transportation segment potential will allow EPS (f.d.) Quarterly Estimates (US$) Bombardier to weather the current economic downturn more successfully than Year 2008A 2009A 2010E 2011E Q1 0.04 0.12 0.12 -- current multiples imply. Q2 0.05 0.14 0.13 -- Q3 0.05 0.14 0.12 -- We emphasize that negative Aerospace industry news flow is expected to Q4 0.12 0.17 0.13 -- continue for the next several quarters, and to the extent the market continues Valuations to key on this data, Bombardier’s share price may be challenged to move Year 2008A 2009A 2010E 2011E materially higher. However, on a fundamental value basis, we consider EV/EBITDA 3.5x 2.4x 2.3x 2.9x P/E (f.d.) 10.4x 4.8x 5.4x 6.8x Bombardier shares to be attractive at current levels. Aerospace: All figures in US$, unless otherwise specified. • Revenues declined 4% compared to a year earlier on a 29% decrease in business jet deliveries. We had forecast a 6% decline. • EBITDA excluding Other income increased 13% to $364 million, representing 13.1% of revenue and a 190bp improvement year-over- year. The improvement was attributable to higher selling prices, a more favourable product mix and lower S&GA. BBD.B-T: Price Company Profile 10 10 A global corporation headquartered in Canada, Bombardier manufactures 8 8 transportation solutions ranging from regional aircraft and business jets to rail 6 6 transportation equipment. Its revenues for 4 4 the fiscal year ended January 31, 2009 were Please see the final pages of US$19.7 billion and its shares are traded on this document for important 2 2 the Toronto Stock Exchange (BBD.B). 2006 2007 2008 disclosure information.
  4. 4. April 3, 2009 Action Notes 4 of 75 Equity Research • Included in the EBITDA result is a write-down of used business jet inventory values which we estimate represented approximately 70 bps of margin. • Bombardier received 6 net orders in the quarter including 19 net business jet cancellations and 25 net Q400 orders, down from the 204 net orders received in Q4/08. These figures were revised downwards by 11 net orders from data disclosed on February 5th. Exhibit 1: Bombardier Inc. – Q4/09 Financial Performance Q3/F09 Growth Millions of U.S. Dollars except per share amounts Q4/F09 Q4/F08 Growth Revenues Aerospace 2,777 2,893 (4%) (2%) Transportation 2,652 2,377 12% 21% 5,429 5,270 3% 8% EBITDA (before Other expense (income)) Aerospace 364 256 42% 32% Margin 13.1% 8.8% 4.3% 3.4% EBITDA Excluding One-time items & EOAPC 364 323 13% (6%) Margin Excluding One-time Items & EOAPC 13.1% 11.2% 1.9% (0.4%) Transportation 215 135 59% 37% Margin 8.1% 5.7% 2.4% 0.7% Margin Excluding One-time Items 8.1% 5.7% 2.4% 0.7% 579 391 48% 34% Total Margin 10.7% 7.4% 3.2% 1.8% Margin Excluding One-time Items & EOAPC 10.7% 8.7% 2.0% (0.3%) EBIT (before Other expense (income)) Aerospace 255 157 62% 45% Margin 9.2% 5.4% 3.8% 2.7% Transportation 185 107 73% 53% Margin 7.0% 4.5% 2.5% 1.0% 440 264 66.7% 47.5% Total Margin 8.1% 5.0% 3.1% 1.7% Income (loss) for the period 309 218 42% 169% Margin 5.7% 4.1% 1.6% 3.2% Earnings per Share - Basic & Diluted From Continuing Operations $0.17 $0.12 42% 183% Net Income (loss) $0.17 $0.12 42% 183% Net Debt to Total Capitalization -13.1% -19.3% Total Debt to Trailing EBITDA 2.0x 3.2x Average US$/C$ exchange rate 0.816 1.007 (19.0%) (6.7%) Regional Jets Deliveries 19 19 0% (41%) Net Orders 0 31 (100%) 300% Regional Turbo-props Deliveries 18 19 (5%) (25%) Net Orders 25 19 32% 20% Business Jets Deliveries 54 76 (29%) (0%) Net Orders (19) 154 (112%) (57%) Source: Company reports, TD Newcrest estimates.
  5. 5. April 3, 2009 Action Notes 5 of 75 Equity Research Transportation: • Transportation revenue increased 12% to $2.7 billion, slightly below our forecast of 17% growth, but still representing a strong result in our view. U.S. dollar appreciation was estimated to have reduced growth by approximately 12%. • EBITDA excluding Other income increased 59% to $215 million and margin by 240bps to 8.1%. Management attributed the improvement to better contract execution, increased overhead absorption and a declining impact from several low margin contracts. • Order intake remained strong at $2.6 billion, representing a 1.0x book-to-bill. This is slightly below the 1.4x book to bill ratio reported over the previous eight quarters. Order backlog declined $6.2 billion from a year earlier, largely due to unfavourable currency movements and a contract cancellation. Balance Sheet: • Bombardier reported negative FCF of $91 million compared to $924 million a year earlier. Aerospace FCF declined $825 million, significantly more than expected and accounting for 83% of the decrease. Transportation FCF declined in-line with estimates at $165 million. The decline in Aerospace was attributable to a build-up in aircraft inventories arising from higher cancellations and deferrals, and a decrease in customer advances. • The company reported cash of $3.5 billion at year-end with no debt maturities until May 2012. Required debt and capital lease repayments over the next three years total $29 million. The amount available under current facilities is $760 million. • Included in inventory at year-end were 19 new and 29 used aircraft valued at $448 million and compared to the $176 million in inventory at the end of Q3/09. • Bombardier estimated its calendar 2009 pension funding requirements at $400 million, compared to $332 million in 2008. This is a relatively moderate increase as a result of the offsetting impacts of a lower discount rate on liabilities and weak return on plan assets in 2008. Outlook • FY10 business jet deliveries are expected to be 25% below FY09, compared to the 10% reduction indicated on February 5th. Bombardier’s Learjet unit continues to face the deepest cuts, but Challenger and Global aircraft will also be affected. • The magnitude of additional reductions was not surprising, and remains relatively small in comparison to those announced by direct competitors. Gulfstream has guided to a 38% year-over-year decline and Cessna recently announced a second round of production cuts (unquantified) subsequent to its initial 20% reduction. We have assumed a year-over-year decline of 30% in our forecast (vs 18% previously). • Management guided to “single-digit”, constant-currency revenue growth within the Transportation segment. This compares to estimated Q4/09 and FY09 constant-currency growth of 24%. The EBIT margin target of 6% for the year was re-iterated. • FCF is expected to continue to be weak during the first half of the year, before improving during the second half. As comparables become easier and the inventory build-up is reduced, year-over-year declines in FCF are expected to moderate relative to Q4/09. • Maintenance capital spending will be reduced where possible, but there is no plan to reduce capital expenditures related to new aerospace development projects. Valuation Bombardier is currently trading at 5.4x estimated FY10 EPS and estimated 6.8x FY11 EPS. On an EBITDA basis, it is currently trading at 2.3x FY10 and 2.9x FY11 respectively. This compares to comparables which are trading at 9.4x 2009 and 9.7x 2010 EPS, and 5.4x and 5.8x 2009 and 2010 EBITDA respectively.
  6. 6. April 3, 2009 Action Notes 6 of 75 Equity Research Exhibit 2: Bombardier Inc. – Comparables Table Share Price Earnings Per Share EBITDA CAGR P/E EV/EBITDA Shares O/S Mkt Cap Five-year EV/Revenue Net debt to TTM EBITDA Backlog to TTM Company Symbol 2-Apr-09 2008 2009E 2010E 10E vs. 08 2008 2009E 2010E P/Book Trailing 2008 2009E 2010E (millions) (millions) CAGR Revs Trailing Capitalization Margin Revenue Aerospace Companies CAE Inc. ($CAD) CAE $7.96 255.0 $2,029.5 4.7% $0.77 $0.68 $0.67 (2.7%) 10.4x 11.7x 11.9x 1.8x 6.0x 5.9x 6.2x 6.2x 1.4x 18.8% 23.9% 1.9x The Boeing Company ($US) BA $37.20 726.1 $27,012.0 3.8% $6.12 $5.01 $4.94 13.0% 6.1x 7.4x 7.5x NA 5.7x 5.7x 4.4x 4.5x 0.5x <0% 9.0% 5.3x € 1.95 € 1.20 € 1.30 European Aeronautic & Defense (€) EAD € 9.45 814.8 € 7,698.8 7.5% (11.1%) 4.8x 7.9x 7.2x 0.7x 0.3x NA NA NA 0.0x <0% 10.3% 9.3x Embraer SA ($US) ERJ $15.12 185.1 $2,799.0 NA $2.24 $2.36 $2.66 (1.1%) 6.7x 6.4x 5.7x 1.3x 3.5x 3.5x 3.9x 3.6x 0.3x <0% 9.6% 3.3x Textron Inc. ($US) TXT $7.13 242.9 $1,732.2 7.8% $3.17 $1.07 $1.51 (16.4%) 2.2x 6.7x 4.7x 0.7x 7.2x 7.3x 11.1x 10.4x 0.9x 81.8% 12.0% 1.6x 6.0% -3.7% 6.1x 8.0x 7.4x 1.1x 4.6x 5.6x 6.4x 6.2x 0.6x 50.3% 13.0% 4.3x Diversified Companies General Electric Corp. ($US) GE $10.74 10,569.0 $113,511.1 6.2% $1.72 $0.97 $0.91 (11.4%) 6.2x 11.1x 11.8x 1.1x 16.4x 16.5x NA NA 3.0x 80.6% 18.3% 0.9x € 1.90 € 4.88 € 4.79 Siemens Corp. (€) SIE € 44.95 914.2 € 41,093.4 0.8% 21.1% 23.7x 9.2x 9.4x 1.5x 8.7x 9.3x 6.2x 6.3x 0.7x 34.9% 8.1% NA € 1.39 € 1.39 € 1.52 Finmeccanica SpA (€) FNC € 9.78 578.2 € 5,651.4 14.9% 14.5% 7.0x 7.0x 6.4x 0.9x 5.0x 5.0x 4.1x 3.8x 0.6x 36.2% 12.0% 2.9x United Technologies Corp. ($US) UTX $45.94 942.3 $43,289.0 13.6% $4.90 $4.20 $4.45 (5.6%) 9.4x 10.9x 10.3x 2.7x 5.6x 5.6x 6.5x 6.3x 0.9x 31.0% 15.2% 1.0x Average 8.9% 4.6% 11.6x 9.6x 9.5x 1.6x 8.9x 9.1x 5.6x 5.5x 1.3x 45.7% 13.4% 1.6x EX-GE 9.8% 10.0% 13.4x 9.1x 8.7x 1.7x 6.4x 6.6x 5.6x 5.5x 0.7x 34.0% 11.8% 1.9x Rail Transportation Companies Alstom (€) ALO € 42.17 287.0 € 12,103.4 (4.6%) € 3.93 € 4.40 € 3.82 0.7% 10.7x 9.6x 11.0x 4.9x 6.0x 5.7x 5.0x 5.6x 0.6x <0% 10.1% 2.6x Vossloh AG (€) VOS € 79.54 13.9 € 1,104.7 5.7% € 6.30 € 6.26 € 6.77 3.2% 12.6x 12.7x 11.7x 2.3x 5.4x 5.4x 5.5x 5.1x 0.8x <0% 13.8% 0.9x Ansaldo STS (€) STS € 11.92 100.0 € 1,192.0 6.8% € 0.78 € 0.80 € 0.85 6.3% 15.4x 14.9x 14.1x NA 7.7x 7.7x 7.2x 6.8x 0.9x <0% 11.8% 2.8x 2.6% 3.4% 12.9x 12.4x 12.3x 3.6x 6.4x 6.3x 5.9x 5.8x 0.8x <0% 11.9% 2.1x Bombardier Inc. ($US) BBD/B C$ 3.35 1754.1 C$ 5,876 4.9% $0.56 $0.50 $0.40 (8.8%) 4.8x 5.4x 6.8x 2.1x 3.6x 2.4x 2.3x 2.9x 0.2x <0% 9.8% 2.4x Bombardier Aerospace 13.2% 2.4x Bombardier Transportation 6.4% 2.5x Average All Bombardier Comparables (ex-outliers, greater than 1 standard dev. (minimum of 25%) from mean) 0.1% 8.2x 9.4x 9.7x 1.5x 6.1x 6.4x 5.4x 5.8x 0.8x 34.0% 11.5% 2.4x Bombardier reports all financial results in U.S. Dollars. Share Price in Canadian Dollars. Amounts for Embraer SA are based on U.S. listed ADR. Data for comparables obtained from Bloomberg, except for BBD.B and CAE which are TD Newcrest estimates. Source: Company reports, Bloomberg, TD Newcrest Estimates Justification of Target Price We are reducing our 12-month price target on Bombardier to US$4.00 and maintaining our BUY recommendation. Our price target is based on the average value arrived at through applying an 8.0x multiple to estimated FD EPS for the four quarters ending January 2011 and a 4.5x multiple to estimated EBITDA. We have revised our target multiples downwards slightly to reflect heightened aerospace cyclicality. Key Risks to Target Price Financial fragility of airline customers, aircraft financing availability, sustained long-term strength in oil prices, appreciation of the Canadian dollar, unusual effects on consumer confidence in travel, cost overruns on major projects, subordinate voting share structure (The Beaudoin family owns a majority of the multi-voting A shares, which have account for approximately 64% of total shareholder votes). Investment Conclusion We continue to recommend investors BUY shares in Bombardier. Historical precedents indicate that investments in capital equipment stocks such as Bombardier underperform at this point in the economic cycle. However, historically, Bombardier has traded at significantly higher valuations at this point in the cycle, arguably leaving limited downside risk based on current expectations. We maintain that following additional negative industry news flow over the next six months, investors will shift their focus to the valuation and downside protection provided by the Transportation segment earnings potential.
  7. 7. April 3, 2009 Action Notes 7 of 75 Equity Research Exhibit 3: Bombardier Inc. – Historical and Forecasted Operating and Financial Metrics $US millions except per share amounts F2007 F2008 F2009 F2010E F2011E Revenues Manufacturing 10,512 12,508 14,779 14,467 13,117 Services 2,738 3,016 3,117 3,415 3,778 Other 1,632 1,982 1,825 1,456 1,423 Total Revenues 14,882 17,506 19,721 19,339 18,318 Cost of Sales 12,667 14,607 16,049 15,577 14,965 Gross Profit 2,215 2,899 3,672 3,761 3,353 Selling, General & Administrative 929 1,408 1,558 1,586 1,563 Research & Development 173 139 171 177 177 Amortization 518 512 555 570 577 Earnings before IT and Special Items 595 840 1,388 1,429 1,036 Special Items (42) (100) 23 - - Operating Income From Continuing Operations (EBIT) 553 740 1,411 1,429 1,036 Net Income (loss) 268 317 1,008 904 736 Earnings (loss) per share: Basic and diluted From continuing operations $0.12 $0.16 $0.56 $0.50 $0.40 Net income (loss) $0.14 $0.26 $0.56 $0.50 $0.40 Continuing Operations Excluding One-time Items $0.12 $0.25 $0.56 $0.50 $0.40 Aerospace Statistics (units) Aircraft Deliveries Regional Jets 64 62 56 52 45 Growth (42%) (3%) (10%) (7%) (13%) Turboprops 48 66 54 62 55 Growth 71% 38% (18%) 15% (11%) Total Regional Aircraft 112 128 110 114 100 Growth (19%) 14% (14%) 4% (12%) Business Jets 212 232 235 164 133 Growth 8% 9% 1% (30%) (19%) Other Aircraft 2 1 4 4 4 Transportation Statistics ($mlns.) Orders Manufacturing 7,800 7,700 6,300 5,985 7,302 Services 2,500 2,400 2,200 1,782 2,156 System & Signalling 1,500 1,200 1,400 1,120 1,344 11,800 11,300 9,900 8,887 10,802 Growth 61.8% (4.2%) (12.4%) (10.2%) 21.5% Revenues Manufacturing 4,066 4,894 6,663 6,901 6,639 Growth (7%) 20% 36% 4% (4%) Services 1,404 1,474 1,529 1,893 2,218 Growth 6% 5% 4% 24% 17% System & Signalling 1,116 1,425 1,564 1,242 1,209 Growth 17% 28% 10% (21%) (3%) 6,586 7,793 9,756 10,037 10,066 Growth (1%) 18% 25% 3% 0% Source: Company reports, Bloomberg, TD Newcrest Estimates
  8. 8. April 3, 2009 Action Notes 8 of 75 Equity Research Greg Barnes Bonita To (Associate) Metals & Minerals Recommendation: HOLD↓ Prior: BUY Risk: HIGH Cameco Corp. 12-Month Target Price: C$24.00↓ (CCO-T, CCJ-N) C$22.10 Unchanged 12-Month Total Return: 9.7% Downgrade to Hold - Uranium Price Forecast Lowered Market Data (C$) Current Price $22.10 Event 52-Wk Range $14.33-$44.38 We have lowered our uranium price forecast for 2009 and 2010 on lower spot Mkt Cap (f.d.)($mm) $8,402.4 Dividend per Share $0.24 prices – the spot price hit a three-year low on March 30. Dividend Yield 1.1% Avg. Daily Trading Vol. (3mths) 1,935,728 Impact Financial Data (C$) Negative: Our lower uranium price forecast has negatively impacted our Fiscal Y-E Dec Shares O/S (f.d.)(mm) 380.2 estimates for Cameco. We are maintaining our C$24.00 target price, however, Float Shares (mm) 380.2 due to share price appreciation since mid-February, we have downgraded our Net Debt ($mm) $943.8 recommendation to HOLD from Buy. Net Debt/Tot Cap 7.8% NAVPS (current)(f.d.) $17.27 Working Cap ($mm) $1,208.0 Details Estimates (C$) Year 2007A 2008A 2009E 2010E We have lowered our uranium price forecast for 2009 and 2010 on lower spot EBITDA ($mm) 900.0 1,142.0 731.0 1,157.0 prices – the spot price hit a three-year low on March 30. The downward trend EBITDA (old)($mm) 900.0 1,142.0 798.0 1,215.0 in the spot uranium price is continuing, although at a slower rate. Earlier this EPS (f.d.) 1.52 1.59 1.27 2.06 week, Ux Consulting dropped its spot price to US$42.00/lb down US$0.50/lb EPS (f.d.)(old) 1.52 1.59 1.43 2.19 from the previous week. The spot price is now at it slowest level since May CFPS (f.d.) 1.84 2.20 1.36 2.39 CFPS (f.d.)(old) 1.84 2.20 1.52 2.52 2006. Spot demand remains very weak although some “bargain hunting” buying has been evident over the past few weeks. What buying there is EPS (f.d.) Quarterly Estimates (C$) Year 2007A 2008A 2009E 2010E remains highly discretionary. We have lowered our 2009 uranium price Q1 0.10 0.40 0.35 -- forecast to US$50/lb (previously US$60/lb). Our lower forecast is based on a Q2 0.51 0.39 0.30 -- weaker year-to-date price, which has averaged US$47/lb versus our forecast Q3 0.74 0.41 0.32 -- of US$60/lb. With few near-term catalysts (utility buying remains highly Q4 0.17 0.47 0.30 -- discretionary and speculative buying has disappeared), we do not expect a Valuations significant move higher in uranium prices over the course of 2009, barring a Year 2007A 2008A 2009E 2010E major supply interruption. We continue to believe that the longer-term supply EV/EBITDA 10.5x 8.3x 12.9x 8.2x P/E (f.d.) 14.5x 13.9x 17.4x 10.7x picture is very challenged with the majority of new supply dependant upon P/CFPS (f.d.) 12.0x 10.0x 16.3x 9.2x two mega-projects (Cigar Lake and Olympic Dam expansion) for which no Supplemental Data (US$) production clarity is evident – in our view, it could be the second half of the Year 2007E 2008A 2009E 2010E next decade before these two projects add meaningfully to supply. Uranium ($/lb) 98.54 63.83 50.00 65.00 Prev. forecast 98.54 63.83 60.00 70.00 All figures in C$, unless otherwise specified. CCO-T: Price Company Profile 70 70 Cameco is the world's largest uranium 60 60 producer. While mainly known for its 50 50 uranium and conversion businesses, the company also operates in two other business 40 40 groups that include electricity generation and 30 30 gold production. Please see the final pages of 20 20 this document for important 10 10 2006 2007 2008 disclosure information.
  9. 9. April 3, 2009 Action Notes 9 of 75 Equity Research Exhibit 1. Metal Price Forecasts 2009E 2010E 2011E 2012E 2013E 2014E LT US$/lb Old New Old New Old New New New New New ↓ ↓ ↓ Aluminum 0.85 0.90 0.90 0.62 0.70 0.80 0.90 0.90 0.90 0.90 ↑ ↑ ↑ Copper 1.40 1.60 2.00 1.70 1.90 2.25 2.50 2.50 2.00 1.75 ↓ Lead 0.55 0.60 0.65 0.54 0.60 0.65 0.60 0.50 0.45 0.45 ↑ Nickel 4.31 5.00 6.00 4.56 5.00 6.00 7.00 6.00 6.00 6.00 ↑ Zinc 0.52 0.60 0.85 0.56 0.60 0.85 1.00 0.80 0.75 0.75 Coal* 125 150 150 125 150 150 125 100 90 90 ↓ ↓ Uranium 60 70 70 50 65 70 70 60 50 50 FX (US$/C$) 0.83 0.85 0.85 0.83 0.85 0.85 0.85 0.85 0.85 0.85 *US$/tonne, fob Source: TD Newcrest. We present changes to our estimates in the Exhibit 2 — our estimates have decreased due to our lower uranium price forecast. Exhibit 2. New Estimates EPS CFPS EBITDA (mm) Old Old Old New New New $1.52 $1.84 $900 2007A $1.52 $1.84 $900 $1.59 $2.20 $1,142 2008A $1.59 $2.20 $1,142 $1.43 $1.52 $798 2009E $1.27 $1.36 $731 $2.19 $2.52 $1,215 2010E $2.06 $2.39 $1,157 Source: TD Newcrest. Valuation Cameco currently trades at an EV/2009 EBITDA multiple of 12.9x and a P/NAV multiple of 1.3x, compared to its large cap peer group average of 8.3x and 0.5x, respectively. Justification of Target Price Our target price is based upon an EV/blended 2009-2010 EBITDA multiple of 9.5x (60% weighting) and a 1.3x multiple to our 10% NAV (40% weighting, adjusted for the market valuation of Centerra). Key Risks to Target Price The main risks facing the company include forecast, financial, technical and political risks. Among other things, these include risks related to uranium prices, input costs, and fuel prices, the governing fiscal and legislative regimes, the timing of key developments, market conditions, capital and operating costs, foreign exchange rates, resources and reserves, operating parameters, permitting, environmental, and staffing and key personnel retention. Our forecast of Cameco’s realized price could be substantially different than that actually realized by the company. Because Cameco is primarily a uranium mining and processing company, it faces heightened environmental risks relative to other mining companies. Cameco is developing two new mines, the Cigar Lake mine in Northern Saskatchewan and the Inkai operation in Kazakhstan that could face development cost overruns or delayed schedules that are inherent in new mine construction. With its available cash and
  10. 10. April 3, 2009 Action Notes 10 of 75 Equity Research credit facilities, we believe there exists heightened M&A risk, which could impact our estimates and valuation for the company. Investment Conclusion We have lowered our recommendation to HOLD (from Buy) while our target price remains unchanged at C$24.00. Our recommendation reflects the limited return to our target price, our benign forecast for the uranium market over the next 12-18 months and our view that M&A risk has increased following management’s statements that it is actively pursuing a C$1-2 billion acquisition. We estimate that following the completion of a C$440 million equity issue in early March, Cameco has approximately C$1.1 billion in available cash and credit facilities with which it could pursue an acquisition. We estimate the company’s net debt/net debt-plus-equity ratio at approximately 13% post the equity issue. We believe that Cameco could pursue acquisitions that would be additive to its production profile within the nearer term. Our model and company guidance suggests that the company’s production profile is effectively flat through 2013 (excluding Cigar Lake) at 20-22 million pounds U3O8 per annum. We also expect that if investors start to look forward to 2010 with a view that economic growth could start to stabilize, Cameco’s defensive attributes could become less attractive.
  11. 11. April 3, 2009 Action Notes 11 of 75 Equity Research Greg Shaw, CFA Joel Douglas, CA (Associate) Oil & Gas Producers Recommendation: BUY Unchanged Risk: HIGH Celtic Exploration Ltd. 12-Month Target Price: C$17.50 (CLT-T) C$13.68 Unchanged 12-Month Total Return: 27.9% Equity Adds To Financial Flexibility Market Data (C$) Current Price $13.68 Event 52-Wk Range $9.19-$21.05 Celtic bought deal financing Mkt Cap (f.d.)($mm) $641.6 Dividend per Share -- Dividend Yield -- Impact Avg. Daily Trading Vol. (3mths) 158367 Neutral Financial Data (C$) Fiscal Y-E December 31 Shares O/S (f.d.)(mm) 46.9 Details Shares O/S (basic)(mm) 43.7 Celtic announced a bought deal to issue 2.75 million common shares, Float Shares (mm) -- including the over allotment, at $13.25 per share that represented a 4% Net Debt ($mm) $146.1 discount to the April 1 closing price. The issue provides gross proceeds of Net Debt/Tot Cap -- $36.4 million that will be initially used to reduce bank debt. The issue is Estimates (C$) expected to close on April 23, 2009. Year 2007A 2008A 2009E 2010E EPS (f.d.) 0.23 1.10 0.37 0.67 CFPS (f.d.) 2.30 3.24 3.05 4.14 On a NAV basis, we believe the equity issue to be largely neutral, while our CFPS (f.d.)(old) -- -- 3.18 4.36 2009E CFPS declines to $3.05 from $3.18 and our 2010E CFPS declines to Oil (b/d) 3,110 3,400 3,340 3,050 $4.14 from $4.36. With the issue, we believe that Celtic improves its financial Gas (MMcf/d) 28.6 46.0 62.4 86.3 flexibility. Post the issue we estimate Celtic will have ~$150 million of net Supplemental Data debt drawn ($120 million proforma Q4/08 bank debt) under the bank facility Year 2007A 2008A 2009E 2010E of $200 million. Proceeds from the issue will ultimately be used to fund their WTI (US$bbl) $72.23 $99.92 $50.00 $70.00 2009E capital program and for general corporate purposes. NYMEX (US$) $6.97 $8.89 $5.00 $7.00 AECO (C$) $6.45 $8.20 $5.15 $7.25 The company continues to focus on its Kaybob Montney development F/X (US$) $0.93 $0.94 $0.81 $0.83 program which provides attractive economics that were further improved with the Alberta Government’s recently announced stimulus incentives for drilling. All figures in C$, unless otherwise specified. We continue to believe the strong incentives for the Kaybob Montney will translate into an expanded program and anticipate Celtic will review its capital program as part of Q1/09 reporting. We have not increased our forecasts at this time. We provide a review of the Celtic Kaybob Montney opportunity on page 2 of this report. Our BUY rating and target of $17.50 remain unchanged. We believe Celtic is well positioned for growth in 2009, with a multi-year development program at Kaybob that provides attractive returns. In addition, Celtic’s active hedging program provides an estimated $41 million of gains in 2009 that supports development drilling. Celtic trades at a P/NAV based on current futures of 100%, compared to the coverage group average of 70%. CLT-T: Price Company Profile 22 22 Celtic Exploration Ltd. (CLT) is a Canadian 20 20 oil and natural gas exploration, development 18 18 and production company with properties in 16 16 southern, east central, west central and 14 14 northern Alberta. The company commenced 12 12 operations in September 2002. Please see the final pages of 10 10 this document for important 8 8 2006 2007 2008 disclosure information.
  12. 12. April 3, 2009 Action Notes 12 of 75 Equity Research Kaybob Montney Main Focus For 2009 Celtic has identified up to 134 net future drilling locations (46 booked in the 2008 reserves) on 5 identified Montney pools, including at Kaybob South and KayFox where Celtic received downspacing approval to 5 wells per section in 2009. Celtic estimates all-in costs of roughly $3.2 million per Hz Montney well with up to 11 multi-stage fracture stimulations per Hz well. Montney wells are generally expected to recover 2-3 bcf/well and have average first year production of roughly 1.9 mmcf/d. Celtic currently plans a 2009 corporate drilling program of 45-50 wells (80% Hz wells) that will largely be focused on the Montney opportunity. Celtic plans to have 4 rigs on its Greater Kaybob properties over spring break-up, with 3 rigs dedicated to Montney opportunities and the other rig dedicated to Bluesky opportunities. Throughout break-up we believe Celtic could drill four to seven wells with these rigs (1 Bluesky well). Celtic management has indicated the service providers have agreed only to charge for operated time during break-up. The economics with Celtic’s Hz Montney wells have improved significantly as a result of the Alberta Government’s March 2009 announcement that was geared to stimulate drilling activity by providing drilling incentives and new production incentives. Exhibit 1 illustrates the government’s new production incentive improves after tax rate of return by 30% based on a NYMEX price of US$5.00/mcf (15% increase based on a NYMEX price of US$4.00/mcf). Exhibit 1. Kaybob Montney Well Economics Celtic Kaybob Montney 250.0% 200.0% 150.0% AT ROR 100.0% 50.0% 0.0% $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 Nymex Price ($/mcf) Pre NWRR Post NWRR Source: GeoScout, TD Newcrest Under the drilling incentive program Celtic is eligible for drilling credits of $200 per meter for wells drilled between April 1, 2009 and March 31, 2010, with the drilling credits to offset Celtic’s corporate crown royalties payable between April 1, 2009 and March 31, 2011. With an average measured depth of 3,700 meters per Kaybob Hz Montney well, Celtic is eligible for royalty credits of $740,000 per Hz well (on average). Based on a $3.2 million cost per well, this represents roughly 23% of the cost of the well. Combined with the new well royalty savings, Celtic is positioned to save up to 44% of the cost of each Hz Kaybob Montney well based on a NYMEX price of US$5.00/mcf. Our calculation assumes full recovery of the drilling incentive credits. On our forecasts and based on Celtic’s maximum royalty credit (50%) we estimate Celtic could potentially save $48 million in royalties between April 1, 2009 and December 31, 2010 under the drilling incentive program. This implies Celtic would need to drill roughly 240,000 meters, which equates to roughly 65 Hz Montney wells (average 3,700 meters/well) before March 31, 2010 (note the drilling incentive credit does not just apply to
  13. 13. April 3, 2009 Action Notes 13 of 75 Equity Research Montney wells). Again we note Celtic’s current capital budget targets 45-50 wells in 2009, of which 80% will be Hz wells. Estimate revisions The announced bought deal to issue 2.75 million common shares, including the over allotment, represents a 6% increase in the fully dilutes shares outstanding. With an issue price of $13.25/share, the equity issue provides proceeds of $36.4 million that will likely be used initially to repay debt. The purpose of the issue is to fund capital development activities and for general corporate purposes. Exhibit 2. Celtic Exploration: Estimate Revisions 2009E 2010E New Old Change New Old Change Oil Bbl/d 3,340 3,340 0% 3,050 3,050 0% Gas Mmcf/d 62.4 62.4 0% 86.3 86.3 0% Production 13,750 13,750 0% 17,440 17,440 0% % Gas % 76% 76% 83% 83% Revenue* $mln $190 $190 0% $329 $329 0% Revenue* $/boe $37.93 $37.93 0% $51.72 $51.72 0% Capital expenditures $mln $130 $130 0% $170 $170 0% Cash Flow $mln $132 $131 1% $182 $180 1% CFPS (f.d.) $/share $3.05 $3.18 -4% $4.14 $4.36 -5% Net Debt $mln $137 $168 -19% $126 $158 -21% Net Debt/CF x 1.0x 1.3x -19% 0.7x 0.9x -22% Commodity prices WTI US$/bbl $50.00 $50.00 $70.00 $70.00 AECO $/mcf $5.15 $5.15 $7.25 $7.25 Source: TD Newcrest Exhibit 3. Celtic Exploration: Cash Flow Sensitivities CFPS - 2009E (FX fixed at $0.81) CFPS - 2010E (FX fixed at $0.83) WTI (US$/Bbl) WTI (US$/Bbl) $5.40 $40.00 $45.00 $50.00 $55.00 $60.00 $6 $60.00 $65.00 $70.00 $75.00 $80.00 $4.65 $2.77 $2.79 $2.81 $2.84 $2.86 $6.25 $3.29 $3.41 $3.52 $3.63 $3.74 AECO (C$/Mcf) AECO (C$/Mcf) $4.90 $2.89 $2.92 $2.94 $2.96 $2.99 $6.75 $3.60 $3.72 $3.83 $3.94 $4.05 $5.15 $3.02 $3.04 $3.05 $3.09 $3.11 $7.25 $3.91 $4.03 $4.14 $4.25 $4.36 $5.40 $3.14 $3.17 $3.19 $3.21 $3.24 $7.75 $4.22 $4.34 $4.45 $4.56 $4.67 $5.65 $3.27 $3.29 $3.32 $3.34 $3.36 $8.25 $4.53 $4.65 $4.76 $4.87 $4.98 Net Debt to Cash Flow - 2009E Net Debt to Cash Flow - 2010E WTI (US$/Bbl) WTI (US$/Bbl) $0.15 $40.00 $45.00 $50.00 $55.00 $60.00 $0 $60.00 $65.00 $70.00 $75.00 $80.00 $4.65 1.2x 1.2x 1.2x 1.2x 1.2x $6.25 1.1x 1.1x 1.0x 0.9x 0.9x AECO (C$/Mcf) AECO (C$/Mcf) $4.90 1.2x 1.1x 1.1x 1.1x 1.1x $6.75 0.9x 0.9x 0.8x 0.8x 0.7x $5.15 1.1x 1.0x 1.0x 1.0x 1.0x $7.25 0.8x 0.7x 0.7x 0.6x 0.6x $5.40 1.0x 1.0x 0.9x 0.9x 0.9x $7.75 0.7x 0.6x 0.6x 0.5x 0.5x $5.65 0.9x 0.9x 0.9x 0.9x 0.8x $8.25 0.5x 0.5x 0.5x 0.4x 0.4x Source: TD Newcrest Valuation Base NAV Multiples Company Share Price (Futures) P/NAV Operational NAV Subjective Target Celtic $13.68 $13.65 100% 1.03x 1.19x 1.15x $17.50 Group Average 77% 1.05x 1.09x 1.15x Source: TD Newcrest
  14. 14. April 3, 2009 Action Notes 14 of 75 Equity Research Justification of Target Price Our valuation methodology reflects a combination of an after-tax NAV assumption (adjusted for Celtic's growth profile), which, in turn, is combined with an operational component to achieve a base target price ($15.48), and further adjusted for subjective factors, to arrive at our final target of $17.50/share. The subjective adjustment reflects factors such as management performance and potential execution obstacles, which can result in up to a 20% adjustment to the base target. Our NAV component generally represents roughly 60% of the base target, with the operational component representing the balance of the base target. Exhibit 4. Target Price Components Subjective, Subjective $2.30 13% NAV, NAV Operational Operational, $10.00 57% 30% $5.20 Note: Target components may not add as the target is rounded to the nearest $0.25. Source: TD Newcrest Key Risks to Target Price Key risks associated with this target price include those business risks of the company and industry, including but not limited to: loss of key employees, drilling success, volatile commodity prices and operating costs, product supply and demand, government regulations and taxes, exchange rates, interest rates, environmental and weather concerns, and unfavorable tax legislation. Specific risks to Celtic include asset concentration of the capital program in the Kaybob region. Investment Conclusion Our BUY rating and target of $17.50 remain unchanged. We believe Celtic is well positioned for growth in 2009, with a multi-year development program at Kaybob that provides attractive returns. In addition, Celtic’s active hedging program provides an estimated $41 million of gains in 2009 that supports development drilling. Celtic trades at a P/NAV based on current futures of 100%, compared to the coverage group average of 70%.
  15. 15. April 3, 2009 Action Notes 15 of 75 Equity Research Exhibit 5. Corporate Profile Celtic Exploration Ltd. TD Newcrest Ticker CLT-T Rating BUY Target $17.50 Shares Out. 43.7 mln April 2, 2009 Price Risk Return $13.68 High 28% Shares Out. (f.d.) 46.9 mln Celtic Exploration Ltd. (CLT) is a Canadian oil and natural gas exploration, development and production company with properties in southern, east central, west central and northern Alberta. The company commenced operations in September 2002. Share Price High Low Close Commodity Assumptions 2006 2007 2008 2009E 2010E 2008 $21.05 $9.19 $12.61 WTI (US$/Bbl) $66.07 $72.23 $99.92 $50.00 $70.00 2007 $15.23 $10.60 $11.20 Nymex (US$/mmbtu) $6.73 $6.97 $8.89 $5.00 $7.00 Mgmt & Director Ownership 19% FX US$/C$ $0.882 $0.931 $0.943 $0.806 $0.830 Cash Flow Sensitivity Production & Capex 2006 2007 2008 2009E 2010E Liquids Bbl/d 3,280 3,110 3,400 3,340 3,050 2009E Gas Mmcf/d 16.1 28.6 46.0 62.4 86.3 Total BOE/d 5,960 7,870 11,070 13,750 17,440 2010E % Gas % 45% 60% 69% 76% 83% -$0.10 -$0.05 $0.00 $0.05 $0.10 $0.15 $0.20 EV/boe/d $/boepd $100,013 $75,055 $66,069 $56,682 $44,015 Change Per FD Share on Increase in Dev Capex. $mm $173.7 $135.6 $138.4 $130.0 $170.0 WTI (US$1/bbl) AECO (C$0.25/mcf) FX (C$0.01/USD) % of CF % 223% 165% 106% 98% 94% Wells Drilled & Undeveloped Acres Leverage 2006 2007 2008 2009E 2010E 2006 2007 2008 Net Debt/CF x 1.4x 1.7x 1.3x 1.0x 0.7x Gross Wells 83.0 65.0 54.0 Bank Credit Facilit $mm $115.0 $165.0 $200.0 $200.0 $200.0 Net Wells 62.8 56.0 41.1 Undrawn % 3% 17% 15% 31% 37% Net Acres 235,300 248,900 246,600 Financial Results 2006 2007 2008 2009E 2010E Well Data Celtic Peer Avg. Revenue $/BOE $61.27 $55.38 $60.11 $46.08 $51.72 Avg. Time onstream per well Royalties $/BOE $10.90 $11.16 $14.43 $7.20 $10.86 in years. 6.4 4.5 Transportation $/BOE $0.66 $0.87 $0.57 $0.65 $0.68 Time on Production of (Mths): Median Op. Costs $/BOE $10.90 $11.12 $10.21 $9.81 $10.19 Op. Netback $/BOE $38.81 $32.23 $34.90 $28.41 $29.99 Top Well 1.0 14.8 Top 5 Wells 5.6 23.6 G&A* $/BOE $1.42 $1.56 $1.43 $1.28 $1.12 Top 10 Wells 20.4 27.5 EBITDA $/BOE $37.38 $30.67 $33.47 $27.13 $28.87 Production Concentration Risk in: Avg. CFFO $/BOE $35.79 $28.65 $32.22 $26.37 $28.55 Top Well 7% 9% CFFO $mm $77.9 $82.3 $130.6 $132.3 $181.8 Top 5 Wells 17% 22% Per Share $/Share $2.61 $2.32 $3.28 $3.07 $4.16 Top 10 Wells 27% 30% Per Share (f.d.) $/Share $2.48 $2.30 $3.24 $3.05 $4.14 Net Wells Drilled as % of Total Shares Avg (f.d.) mm 31.4 35.8 40.3 43.3 43.9 Producing Wells in: Hedging 2006 2007 2008 2009E 2010E Last 12 mths 6% 13% Gain/(Loss) $/boe $2.29 $2.68 -$4.88 $8.14 $0.00 Last 24 mths 16% 25% % Hedged % n/a n/a 51% 40% 0% Reserve Last 36 mths 26% 41% TP TP RLI EV/TP boe P+P P+P RLI EV/boe Analysis Percent of Production onstream in: mmboe Years $/boe mmboe Years $/boe Last 12 mths 42% 30% 2008 28,946 6.6 $25.27 53,177 12.0 $13.75 Last 24 mths 60% 48% 2007 20,771 6.2 $28.44 33,773 10.0 $17.49 Last 36 mths 69% 64% 2006 14,874 6.5 $40.08 26,267 11.4 $22.69 FD&A ($/boe) TP F&D TP FD&A Recycle P+P F&D P+P FD&A Recycle Productivity/Well (BOE/d) 24 32 2008 $14.89 $19.46 1.7x $7.28 $12.24 2.6x Operated Production (%) 86% 89% 2007 $22.29 $21.45 1.3x $23.53 $19.27 1.5x Average Working Interest 52% 69% 2006 $27.46 $30.62 1.2x $16.49 $19.44 1.8x NAV 2007 2008 Production per Debt Adjusted Share NAV/Share $/Share $9.42 $13.65 14000 0.25 P/NAV % 145% 100% BOEPD/DA Share (f.d.) 12000 Tax Pool $mm $305 $358 0.20 10000 BOEPD 0.15 Acquisition Summary 8000 6000 0.10 Date P+P mmBOE Boe/d Cost ($mm) 4000 0.05 04/29/2008 4.369 1,140 $45 2000 0 0.00 04/05/2005 7.223 901 $40 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Q4/08 10/21/2002 2.1 950 $23 BOEPD BOEPD/DA Share (f.d.) Greg Shaw, CFA 403-292-1204 greg.shaw@tdsecurities.com Joel Douglas, CA (Associate) 403-299-3272 joel.douglas@tdsecurities.com Source: Company Data, TD Newcrest

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