TSX Commentary

Canadian Oil Sands Trust (COS.UN) – $28.59 – We’re Warming Up to COS
Sector Perform, Average Risk, Price Target: $35.00
RBC CM is “warming up” to Canadian Oil Sands Trust (COS), in part because it believes the market overhang associated with ConocoPhillips’ decision to sell its 9% stake in Syncrude is on the road to resolution. Year-end results are expected after market close on Jan. 28. Overall, RBC CM forecasts 4Q CFPU of $0.76, in line with COS’s sell-side survey of $0.76 ($0.64 – $0.84 range). COS has already declared a fourth-quarter 2009 distribution of $0.35 per Unit; RBC CM pegs its first-quarter cash flow distribution at $0.45 per Unit (vs. consensus of $0.44 per Unit). At current levels, COS is trading at a 2010 debt-adjusted cash flow multiple of 9.5x (vs. 7.8x for RBC CM’s integrated and oil sands peer group) and a cash flow multiple of 9.2x (vs. 7.4x for RBC CM’s peer group). In the context of RBC CM’s unchanged base NAV of $34.48 per unit, which incorporates an 8.5% after-tax discount rate and escalated US$85/bbl WTI oil price in 2012 and beyond, COS is trading at a P/NAV ratio of 0.83x, which is in line with RBC CM’s integrated oil and oil sands peer group. RBC CM is maintaining its Sector Perform, Average Risk rating and one-year target price of $35 per Unit pending fourth quarter results. The target price reflects a 90% weighting toward a multiple of 1.0x RBC CM’s base NAV of $34.48 per Unit and a 10% weighting toward a 2011 debt-adjusted cash flow multiple of 9.6x at mid-cycle prices.