Friday, August 27, 2010

National Bank Q3 2010 Earnings

  

• BMO raises target price to C$71 from C$70; rating outperform
• Canaccord Genuity raises price target to C$69 from C$68
• Credit Suisse raises target price to C$69 from C$68
• Macquarie cuts price to C$67 from C$68; rating neutral
• RBC raises price target to C$74 from C$71; rating sector perform.
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Scotia Capital, 27 August 2010

Event

• NA reported a 12% decline in operating EPS to $1.57, above expectations. Earnings were better than expected due to very strong retail earnings, which increased 15% sequentially, high security gains, and lower loan loss provisions at 18 bp, which offset the weak results from Financial Markets (significant decline in trading revenue).

Implications

• Retail earnings increased 32% YOY and 15% QOQ to $162M. Retail earnings were driven by revenue (increased 6% YOY) and volume growth, a decline in LLPs, and controlled expenses (flat YOY).

• Financial Markets earnings declined 42% YOY to $98M due to a collapse in trading revenue. Trading revenue was $89M, down from $168M a year earlier and $150M in the previous quarter.

Recommendation

• We are increasing our 2010E EPS to $6.25 from $6.15 due to the beat this quarter. However, we are reducing our 2011E EPS to $6.80 from $6.90 due to a lower economic growth outlook and moderating net interest margin as the prospect for higher interest rates is delayed. Our one-year share price target is unchanged at $70. We maintain our 2-Sector Perform rating.
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