Tuesday, May 16, 2006

UBS Analyst Upgrades RBC, Scotiabank, TD

The Globe and Mail, Angela Barnes, 16 May 2006

UBS Securities Canada Inc. has upgraded its ratings on three of the big banks, increasing Royal Bank of Canada, Bank of Nova Scotia and Toronto-Dominion Bank to "buy" from "neutral." UBS left its "neutral" recommendations on Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada unchanged.

RBC "has finally pulled back ... offering a slightly more attractive entry point on a platform with considerable near-term operating momentum, and a very solid outlook," analyst Jason Bilodeau said in a report written early yesterday.

Scotiabank is one of the cheapest names in the group, he said. Its first-quarter results lacked some of the momentum seen elsewhere, "but a series of incremental deals, a viable international growth strategy, strong management and exceptional capital levels support an attractive medium-term outlook," he said.

Mr. Bilodeau said TD continues to be affected by challenges with its TD Banknorth Inc. subsidiary and, more recently, a conservative outlook from management at TD Ameritrade Holding Corp. "However, we continue to believe in the medium-term strategy at BNK [Banknorth] and see the TWE/AMTD [TD Waterhouse-Ameritrade] combination as a driver of significant operating upside through year-end and into '07," the analyst said. "Meanwhile, the domestic operations continue to perform well," he added.

Bank stocks have been under pressure of late and as of last Friday had dropped nearly 6 per cent in the past two months. Valuations have as a result pulled back materially, Mr. Bilodeau said. He sees upside for the group as it heads into what he expects will be a generally positive second quarter.

Mr. Bilodeau also boosted the 12-month price targets for five of the bank stocks. He increased the target for Scotiabank to $54 a share from $53, for CIBC to $94 from $93 and for RBC to $55 from $54. Meanwhile, the target for TD rose to $75 from $74 and for National Bank to $69 from $68. BMO's target was left unchanged at $71.
Investment Executive, James Langton, 15 May 2006

UBS Securities Canada Inc. is bumping up its ratings on Royal Bank, TD Bank and Bank of Nova Scotia, and is generally speaking positively about the group ahead of the banks reporting their second quarter earnings.

The firm notes that its fundamental outlook on the bank sector hasn’t changed, and it still sees some fundamental challenges on the horizon, but recent weakness merits an upgrade. “Canadian banks have been weak, off nearly 6% on two months and have underperformed year-to-date amid rate/inflation concerns and recently a weak equity market,” UBS says in a new report. “However, our fundamental outlook is largely unchanged, we continue to see some operating headwinds as we move through [the second half], while valuations have pulled backed materially. Heading into what should be generally positive [second quarter] news flow, we see room for upside.”

UBS says that the current quarter should be generally positive news. “Some moderation in loan growth and continued gradual uptick in credit costs are expected. However, we see some opportunity for better [net interest margins] in a higher rate environment and strong capital markets and trading activity, along with good wealth management growth, should provide lift again this quarter.”

The firm says that Royal Bank has the best near-term operating momentum and solid outlook, and is finally trading at more reasonable valuation. Scotiabank is one of its favoured platforms for the medium-term, with room for a healthy dividend hike this quarter. And, adds that TD Bank’s near-term challenges are distracting from its attractive medium-term growth prospects.

It also still sees operating upside at CIBC. “Results at CIBC could impress again this quarter on the back of continued productivity enhancements, but the stock has held in relatively well as one of the best recent performers in the group,” it notes.
Credit Suisse, 15 May 2006

• Credit Suisse downgraded Scotiabank to Neutral
• Credit Suisse upgraded RBC to Outperform