The Alberta Advantage is Gone January 30, 2019 Presented by: Angus - - PowerPoint PPT Presentation

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The Alberta Advantage is Gone January 30, 2019 Presented by: Angus - - PowerPoint PPT Presentation

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Strathcona County Strategic Planning Session The Alberta Advantage is Gone January 30, 2019 Presented by: Angus Watt Advisory Group Research provided by: Stfane Marion, Chief Economist & Strategist, National Bank Disclaimer

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Strathcona County – Strategic Planning Session

The Alberta Advantage is Gone

January 30, 2019 Presented by: Angus Watt Advisory Group

Research provided by: Stéfane Marion, Chief Economist & Strategist, National Bank

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National Bank Financial – Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF Inc.), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF Inc. NBF Inc. is a member of the Investment Industry Regulatory Organization of Canada (IIROC), the Canadian Investor Protection Fund (CIPF), and a subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX:NA). ** The securities or sectors mentioned herein are not suitable for all types of investors. Please consult your investment advisor to verify whether the securities or sectors suit your investor’s profile as well as to obtain complete information, including the main risk factors, regarding those securities or sectors. *** The information contained herein has been prepared by Angus Watt, an Investment Advisor with National Bank Financial; the

  • pinions expressed do not necessarily reflect those of National Bank Financial.

**** While opinions expressed are based on analysis and interpretation of historical data believed to be accurate the underlying data is not necessarily guaranteed as to accuracy. *****The information contained herein was obtained from sources which we believe to be reliable. However, this information is not guaranteed by National Bank Financial Inc., and may be incomplete.

Disclaimer

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Global

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5 10 15 20 25 30 2004 2006 2008 2010 2012 2014 2016 2018

Worst year in a decade for global equities

MSCI AC annual price return

% NBF Economics and Strategy (data via Refinitiv)

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47.5 48.0 48.5 49.0 49.5 50.0 50.5 51.0 51.5 52.0 52.5 53.0 53.5 54.0 2016 2017 2018 2019

China: Manufacturing contracts but overall economy still growing

Markit Manufacturing PMI and Composite PMI)

Index Expansion Contraction

Manufacturing Composite

NBF Economics and Strategy (data via Bloomberg)

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6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

China: Central bank eases

Reserve requirement for small banks

% NBF Economics and Strategy (data via Refinitiv)

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+ Only 7 of the previous 13 episodes were accompanied or followed by a recession + A bear market usually unfolds only after a recession begins (1973 and 2000) + A flat or negative yield curve is usually a result of a recession not the start + Never occurs when you have full employment

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Does a Bear Market Bring on a Recession?

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Aging Work Force

How long before the fall?

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*Strathcona- 39 is average age

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Housing

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2.7 2.7 3.5 5.3 8.8 5.5 5.7 6.7 10.2 18.6

2 4 6 8 10 12 14 16 18 20 Washington Dallas Chicago Los Angeles New York Edmonton Calgary Vancouver Montreal Toronto

Canada: Extreme concentration

Share of national output accounted by top-5 metropolitan areas: Canada vs. the U.S.

% of national GDP NBF Economics and Strategy (data via BEA and Statistics Canada)

46.2% 23.1%

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Housing Sector impact on GDP

The Housing sector represents nearly 20% of Canadian GDP

Source: Statistics Canada, NBF analysis

Housing activity as a % of GDP (2017)

Housing Expenditures New home construction Renovations Ownership transfer cost

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Alberta, 2016 Median after-tax income

Total income less income tax

ATB The Owl, January 15, 2019 (Source: Statistics Canada Table 11-10-0190-01)

*Strathcona- $160,655 / $120,000

*

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Metropolitan Area Index Level Dec 2018 % change m/m % change y/y % change From peak Peak Date

Composite 11 224.07

  • 0.3%

2.5%

  • 1.0%

2018-09 Victoria 208.79

  • 0.4$

6.0%

  • 0.5%

2018-09 Vancouver 285.36

  • 1.2%

1.4%

  • 2.9%

2018-07 Calgary 178.27

  • 0.6%
  • 2.6%
  • 5.4%

2014-10 Edmonton 177.48

  • 1.4%
  • 1.9%
  • 5.6%

2007-09 Winnipeg 208.16

  • 0.9%
  • 0.5%
  • 1.6%

2018-09 Hamilton 234.06

  • 0.4%

4.4%

  • 1.5%

2017-08 Toronto 244.85 0.2% 3.7%

  • 4.0%

2017-07 Ottawa-Gatineau 161.54 1.0% 5.9% 0.0% 2018-12 Montreal 175.10 0.4% 4.4% 0.0% 2018-12 Quebec 182.30

  • 0.4%
  • 0.1%
  • 0.8%

2018-08 Halifax 147.56 0.1% 0.0%

  • 1.6%

2018-07

Teranet-National Bank National Composite House Price IndexTM

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Year Average Home Value 2007 $509,000 2014 $460,000 2016 $451,985

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Strathcona County Housing Price History

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Bank Report

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6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 2002 2004 2006 2008 2010 2012 2014 2016 2018

Canada: Cheapest valuation in a decade for Canadian banks

Forward P/E of the S&P/TSX banks

NBF Economics and Strategy (data via Refinitiv) ratio

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Mortgage growth at multi-decade lows

Regulation tightening and rising rates have pushed mortgage grown to multi-decade lows

Bank of Canada, NBF analysis *Note: Canadian residential mortgage credit data is seasonally adjusted

Canadian Resi Mortgage Credit Crown – Industry (YoY)*

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Provisions for Corporate Loans Loss Ratios

Consensus forecasts imply double-digit growth in loan losses over the next two years and a return to 2016 loan loss ratios (i.e. oil shock)

PCL Ration (bps)

Source: Company financials, Thomson Reuters, NBF analysis

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Oil & Gas Lending Exposure

Most banks have reduced their oil & gas lending exposure since 2016

Source: Company financials, NBF analysis

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Builders or Traders?

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+ Polymer Corp was a Canadian success story in the 60’s and 70’s + Finest blends of synthetic rubber in the world + Most PhD's per capita in Canada…scientists from all over the world came to Canada to work + Federal government put the Sarnia plant on the back of the $10 bill

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What happens when Canadian companies stop flying the flag? Polymer Corp

What Happens when Canadian companies stop flying the flag, Matthew Bellamy The Globe and Mail, January 11, 2019

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+ Polymer Corp was a Canadian success story in the 60’s and 70’s + Finest blends of synthetic rubber in the world + Most PhD's per capita in Canada…scientists from all over the world came to Canada to work + Federal government put the Sarnia plant on the back of the $10 bill + Alberta’s Nova Corp bought Polymer in 1988, flipped it to Germany’s Bayer two years later + Sarnia’s population has declined since then…projects stalled

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What happens when Canadian companies stop flying the flag? Polymer Corp

What Happens when Canadian companies stop flying the flag, Matthew Bellamy The Globe and Mail, January 11, 2019

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+ Started as part of Alberta Energy Company, sold to Albertans + Continues to buy natural gas assets in the US + November 2018 purchased Houston based Newfield Exploration for US$5.5 billion + Creating 60% of production in US + “Headquarterless model” with 3 location in Denver, Houston and Calgary

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Encana Corp – “Headquarterless Model” What happens when Canadian companies stop flying the flag?

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+ Due to limited investment opportunities in Canada it is dropping Canada from its name + Open to the world for business, growth is focused primarily in the US + Recently purchased US$13 billion natural gas transporter Columbia Pipeline Group

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TC Energy (formerly TransCanada Corp) What happens when Canadian companies stop flying the flag?

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+ Two world class gold companies (Barrick Gold and Goldcorp) have or are about to be sold + Head offices will be reduced to figure heads + We sold out our aluminum, nickel, steel and copper companies in previous decades

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Canada What happens when Canadian companies stop flying the flag?

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Strathcona County Overview Population 98,044 urban / 1.4 mill metro Age 39.2 (41 Canada) 25,000 under 19 / 13,000 over 65 Household Size 2.7 (2.6 AB / 2.4 Cda) Average Household Income $188,347 50.7% of households $125,000+ Demographics 10.2% immigrant population 82% European origin Housing 89.1% own 60.9% with mortgage / avg cost $1,601 10.1% rent / avg cost $1,550

Source: Strathcona County Economic Update, 2016 census results

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65% business 35% residential

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Strathcona County Overview

Extraction Manufacturing Science Construction Trucking Engineering

Leading Industries

Source: Strathcona County Economic Update, 2016 census results

Tax Rate

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Vision for AIH + Potential for $30 billion in NEW capital investments in Alberta’s Industrial Heartland by 2030 under the right investment conditions The Next Investment Wave

Source: Strathcona County Economic Update, 2016 census results

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+ We have to find a way to be builders and competitors … or we will be left behind + We need to:

+ Have competitive tax rates + Speed up the regulatory process(es) + Attract professional workers + Support our families + Support our universities and post secondary institutions + Build strong not-for-profits, arts, airports

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Strathcona County / Alberta / Canada What does it take to raise our flag?

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Malcolm Mayes, Edmonton Journal - January 5, 2019

Alberta’s Golden Goose is gone …

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780 412-6644 angus.watt@nbc.ca anguswatt.com angus.watt@nbc.ca

Questions

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