TSX Commentary

Thomson Reuters Corp. (TRI) – $33.92 – Making the Turn; Upgrading to Top Pick
Top Pick (prev. Outperform), Average Risk, Price Target: $43.00 (prev. $41.00)
RBC CM is upgrading TRI from Outperform to Top Pick. The upgrade reflects very attractive risk-adjusted return potential within RBC CM’s coverage universe over the next 12-18 months. TRI has the potential to benefit from: (i) a decade of headwinds finally abating for investors looking out over the next 2-3 years; (ii) two catalysts emerging in H1/10 to drive the next leg up for the stock; and (iii) attractive upside looking into 2011 with or without further multiple expansion. Applying a 9.5x FTM EV/EBITDA multiple to RBC CM’s below-consensus 2011E EBITDA estimate of $3,921MM (vs. a current multiple of 10.0x and a pre-Reuters historical range of 9.5x – 12.5x) generates a ~US$40 share price exiting 2010. Although RBC CM believes upside in the shares over the next 12 – 18 months is not predicated on further multiple expansion, each 0.5x expansion in multiple equates to US$3/share in RBC CM’s NAV estimate. RBC CM further highlights the following Thomson Reuters attributes: (i) a revenue model that is 86% recurring/subscription-based and 90% electronic, software and services; (ii) a diversified revenue mix with thirteen business segments; and (iii) growing global exposure with 58% of revenues generated in the Americas followed by EMEA (32%) and Asia (10%).