TSX Commentary

Tim Horton’s (THI) – $31.51 – Let The Games Begin! Q4/09 and Investor Day Preview
Outperform, Average Risk, Price Target: $38.00
Tim Hortons will report its Q4 results on Thursday. RBC CM expects solid results along with a 10% dividend increase and a renewed share buy-back. The results should show a modest acceleration in same store sales trends in Canada to 3.0% from 2.7% in the first nine months of the year, boosted by price increases in the key Ontario market and by the unseasonably warm weather in the period. RBC CM is forecasting EPS of $0.51, 10% above Q4/08 and in-line with consensus. On March 4 and 5, THI management will host its first investor conference since the 2006 IPO, and based on the agenda, it appears that THI will address virtually all of the topics that are uppermost in investors’ minds. Since mid-November, markets have begun pricing in the anticipated earnings recovery in the sector, boosted by better than expected Q4 results from a number of names. Meanwhile, THI’s share price has been relatively flat, widening its discount to the group from 0.9x three months ago to 1.6x currently. Given THI’s relative earnings growth outlook, profitability, returns on equity and capital employed, dividend yield and cash flow profile, RBC CM expects the valuation gap to normalize over time.