BMO Capital Markets, 11 December 2006
Scotiabank reported fourth quarter cash earnings of $898 million, or $0.90 per share, compared to $934 million, or $0.93 per share, in the last quarter and $809 million, or $0.80 per share in the fourth quarter of last year. All three quarters had unusual items, including this quarter with the bank reversing $60 million of general allowance. Excluding these items, the appropriate operating comparison is $0.86 this quarter, $0.88 last quarter, and $0.77 in the same quarter of last year. Results were slightly lower than our expectations of $0.88.
Overall though this was a great year for Scotiabank, and we would describe the quarter's results as strong, despite the minor earnings miss. The majority of growth in the quarter came from the International segment where acquisition activity has been high. The performance of the Domestic Banking and Scotia Capital segments was reasonable. Management provided a very bullish earnings outlook for 2007 - in the $3.80-4.00 range. As is the case for most other banks, our forecasts are towards the bottom end of this range.
Domestic Banking reported earnings of $345 million, up 6% over the quarter and 4% over the year. Results were just a shade below our expectations. Revenue growth was reasonable but expenses growth was affected by project spending and the impact of the acquisition of Maple Trust. This was offset by unusually low provisions in commercial banking. We expect to see better expense trends, but somewhat higher loan losses in 2007. It will be interesting to see how Scotia performs over the next 12 months as all banks seem to be refocusing on retail and wealth management.
International Banking results came in at $271 million, down 6% over the quarter but up 53% over the year. Results were somewhat stronger than our expectations. Currency headwinds were offset by the positive impact of good results out of Mexico and the bank's relatively recent acquisitions in Peru, El Salvador, Costa Rica and the Dominican Republic. The decline in earnings from the third quarter simply reflects the VAT refund in that quarter. This was a great year for International, with earnings up 32%. Mexico contributed about three quarters of the earnings increase. Management appeared very confident that earnings trends out of these regions would continue to be favourable in 2007 and is certainly very open to pursuing additional acquisition opportunities. We note that the scope of future acquisitions will be in similar geographies but will likely be broadened to include insurance and wealth. We are forecasting earnings growth of about 13% with strong fundamental growth offset by higher taxes in Mexico.
Scotia Capital reported earnings of $236 million, down 16% over the quarter and roughly flat from the fourth quarter of last year. Strong capital markets and investment banking revenues were offset by lower securities gains and lower interest recoveries. Trading revenues, at $254 million, were strong. The segment continues to operate with net recoveries. We think that this is modestly below the run rate of earnings for 2007.
Our cash EPS estimates for 2007 and 2008 remain unchanged at $3.80 and $4.05. As is the case with our other bank forecasts, our 2007 forecast is at the bottom end of the range of management guidance. We are assuming a continued benign credit environment in North America and forecast that the International operations of Scotiabank will more than earn through higher taxes in Mexico. Both seem very reasonable assumptions.
We recently downgraded Scotiabank to Underperform from Market Perform. We continue to believe that the bank has an excellent international banking footprint, and competitive franchises in wholesale and domestic banking. However, we note that we are now in the later stages of a remarkably good credit cycle and that the international businesses have had an excellent run. While we see little specific signs that either of these situations will deteriorate anytime soon, we believe that there is better value elsewhere. We note that investors can buy TD or CIBC (both rated Outperform) at cheaper multiples with lower risk, and similar medium term growth profiles.
Scotiabank reported fourth quarter cash earnings of $898 million, or $0.90 per share, compared to $934 million, or $0.93 per share, in the last quarter and $809 million, or $0.80 per share in the fourth quarter of last year. All three quarters had unusual items, including this quarter with the bank reversing $60 million of general allowance. Excluding these items, the appropriate operating comparison is $0.86 this quarter, $0.88 last quarter, and $0.77 in the same quarter of last year. Results were slightly lower than our expectations of $0.88.
Overall though this was a great year for Scotiabank, and we would describe the quarter's results as strong, despite the minor earnings miss. The majority of growth in the quarter came from the International segment where acquisition activity has been high. The performance of the Domestic Banking and Scotia Capital segments was reasonable. Management provided a very bullish earnings outlook for 2007 - in the $3.80-4.00 range. As is the case for most other banks, our forecasts are towards the bottom end of this range.
Domestic Banking reported earnings of $345 million, up 6% over the quarter and 4% over the year. Results were just a shade below our expectations. Revenue growth was reasonable but expenses growth was affected by project spending and the impact of the acquisition of Maple Trust. This was offset by unusually low provisions in commercial banking. We expect to see better expense trends, but somewhat higher loan losses in 2007. It will be interesting to see how Scotia performs over the next 12 months as all banks seem to be refocusing on retail and wealth management.
International Banking results came in at $271 million, down 6% over the quarter but up 53% over the year. Results were somewhat stronger than our expectations. Currency headwinds were offset by the positive impact of good results out of Mexico and the bank's relatively recent acquisitions in Peru, El Salvador, Costa Rica and the Dominican Republic. The decline in earnings from the third quarter simply reflects the VAT refund in that quarter. This was a great year for International, with earnings up 32%. Mexico contributed about three quarters of the earnings increase. Management appeared very confident that earnings trends out of these regions would continue to be favourable in 2007 and is certainly very open to pursuing additional acquisition opportunities. We note that the scope of future acquisitions will be in similar geographies but will likely be broadened to include insurance and wealth. We are forecasting earnings growth of about 13% with strong fundamental growth offset by higher taxes in Mexico.
Scotia Capital reported earnings of $236 million, down 16% over the quarter and roughly flat from the fourth quarter of last year. Strong capital markets and investment banking revenues were offset by lower securities gains and lower interest recoveries. Trading revenues, at $254 million, were strong. The segment continues to operate with net recoveries. We think that this is modestly below the run rate of earnings for 2007.
Our cash EPS estimates for 2007 and 2008 remain unchanged at $3.80 and $4.05. As is the case with our other bank forecasts, our 2007 forecast is at the bottom end of the range of management guidance. We are assuming a continued benign credit environment in North America and forecast that the International operations of Scotiabank will more than earn through higher taxes in Mexico. Both seem very reasonable assumptions.
We recently downgraded Scotiabank to Underperform from Market Perform. We continue to believe that the bank has an excellent international banking footprint, and competitive franchises in wholesale and domestic banking. However, we note that we are now in the later stages of a remarkably good credit cycle and that the international businesses have had an excellent run. While we see little specific signs that either of these situations will deteriorate anytime soon, we believe that there is better value elsewhere. We note that investors can buy TD or CIBC (both rated Outperform) at cheaper multiples with lower risk, and similar medium term growth profiles.
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• Blackmont Capital maintained Scotiabank at Buy.
• Desjardins Securities maintained Scotiabank at Buy; the target price was increased from $54.50 to $57.00.
• Merrill Lynch maintained Scotiabank at Neutral. The target price is $51.00.
• National Bank Financial maintained Scotiabank at Sector Perform. The target price is $58.00.
• TD Securities maintained Scotiabank at Buy; the target price was increased from $56.00 to $57.00.
• Desjardins Securities maintained Scotiabank at Buy; the target price was increased from $54.50 to $57.00.
• Merrill Lynch maintained Scotiabank at Neutral. The target price is $51.00.
• National Bank Financial maintained Scotiabank at Sector Perform. The target price is $58.00.
• TD Securities maintained Scotiabank at Buy; the target price was increased from $56.00 to $57.00.
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Financial Post, Duncan Mavin, 9 December 2006
Bank of Nova Scotia delivered record annual earnings yesterday on the back of surging profits from its expanding international operations.
The bank announced profits for 2006 of $3.5-billion, up from $3.2-billion last year. Fourth quarter earnings were $890-million or 89 cents per share, up from $803-million or 80 cents a share in the same period in 2005.
Total revenue for 2006 was $11.6-billion, up $922-million from the previous year.
Chief executive Rick Waugh said the record annual results were achieved on the back of a strategy of "diversifying across businesses and geographies."
Scotiabank has expanded throughout much of Latin and Central America and the Caribbean. The bank has spent more than $1-billion on acquisitions in Peru, El Salvador, Costa Rica and the Dominican Republic this year alone.
The strategy appears to be paying off as Scotiabank's international division delivered profits of $1-billion, up $254-million or 32% from last year. The bank earns about 30% of its profits from outside of Canada.
Rob Pitfield, head of Scotiabank's international division, said he is looking for more banks to buy in markets where Scotiabank already has a presence. He said the bank will also consider acquiring businesses with "complementary" operations like insurance or wealth management.
Scotiabank is "aggressively" expanding its existing international banking network by adding more than 150 branches to its overseas operations next year, as well as more than 100 new automated banking machines.
Analysts were generally impressed by results from Scotiabank's international operations, but they were less enthusiastic about its domestic bank which turned in flat results.
"International carries the quarter," said UBS Investment Research analyst Jason Bilodeau. But, he said, "Domestic trends are modest."
Scotiabank's domestic franchise reported net income of $1.3-billion in 2006, $26-million or 2% higher than last year.
Mr.Bilodeau said Scotiabank had made market share gains in Canada. But lower margins and increasing costs are an issue. "The resulting slow growth indicates Scotiabank is not keeping pace with its peers," Mr. Bilodeau said.
RBC Capital Markets analyst Jamie Keating said, "We do not view this as a high-quality [domestic] retail result."
He noted that "peer-like retail revenue growth of 4% was overshadowed by 5% expense growth."
Scotia Capital's earnings grew 14% from last year to $1-billion. The bank said Scotia Capital's results were helped by revenue growth of 10%, as well as a "benign credit environment" resulting in low loan loss provisions.
As expected, Scotiabank said it will increase the dividend on its common shares by 3 cents to 42 cents per common share.
Bank of Nova Scotia delivered record annual earnings yesterday on the back of surging profits from its expanding international operations.
The bank announced profits for 2006 of $3.5-billion, up from $3.2-billion last year. Fourth quarter earnings were $890-million or 89 cents per share, up from $803-million or 80 cents a share in the same period in 2005.
Total revenue for 2006 was $11.6-billion, up $922-million from the previous year.
Chief executive Rick Waugh said the record annual results were achieved on the back of a strategy of "diversifying across businesses and geographies."
Scotiabank has expanded throughout much of Latin and Central America and the Caribbean. The bank has spent more than $1-billion on acquisitions in Peru, El Salvador, Costa Rica and the Dominican Republic this year alone.
The strategy appears to be paying off as Scotiabank's international division delivered profits of $1-billion, up $254-million or 32% from last year. The bank earns about 30% of its profits from outside of Canada.
Rob Pitfield, head of Scotiabank's international division, said he is looking for more banks to buy in markets where Scotiabank already has a presence. He said the bank will also consider acquiring businesses with "complementary" operations like insurance or wealth management.
Scotiabank is "aggressively" expanding its existing international banking network by adding more than 150 branches to its overseas operations next year, as well as more than 100 new automated banking machines.
Analysts were generally impressed by results from Scotiabank's international operations, but they were less enthusiastic about its domestic bank which turned in flat results.
"International carries the quarter," said UBS Investment Research analyst Jason Bilodeau. But, he said, "Domestic trends are modest."
Scotiabank's domestic franchise reported net income of $1.3-billion in 2006, $26-million or 2% higher than last year.
Mr.Bilodeau said Scotiabank had made market share gains in Canada. But lower margins and increasing costs are an issue. "The resulting slow growth indicates Scotiabank is not keeping pace with its peers," Mr. Bilodeau said.
RBC Capital Markets analyst Jamie Keating said, "We do not view this as a high-quality [domestic] retail result."
He noted that "peer-like retail revenue growth of 4% was overshadowed by 5% expense growth."
Scotia Capital's earnings grew 14% from last year to $1-billion. The bank said Scotia Capital's results were helped by revenue growth of 10%, as well as a "benign credit environment" resulting in low loan loss provisions.
As expected, Scotiabank said it will increase the dividend on its common shares by 3 cents to 42 cents per common share.
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Bloomberg, Sean B. Pasternak, 8 December 2006
Bank of Nova Scotia, Canada's third- largest bank by assets, said profit climbed for the 14th straight quarter, led by its international businesses in Mexico and the Caribbean.
Net income rose 11 percent to C$897 million ($781 million), or 89 cents a share, from C$811 million, or 80 cents, a year ago, the Toronto-based bank said today in a statement sent by Canada NewsWire. Revenue rose 9.7 percent to C$3 billion.
Chief Executive Officer Richard Waugh has spent more than C$1 billion on acquisitions abroad in the last year, leading to a 54 percent increase in international banking profit. Almost a third of the bank's profit came from outside Canada, compared with 19 percent in 2000.
``We're now starting to see the cumulative impact of all these smaller acquisitions,'' Jason Bilodeau, a bank analyst at UBS Canada, said before results were released. ``They're starting to have a very positive impact on their international results.''
Scotiabank boosted its quarterly dividend by 7.8 percent to 42 cents a share, the fourth increase in two years. Bank of Montreal and National Bank of Canada also raised their dividends this quarter.
Shares of Scotiabank rose 3 cents to C$51.60 at 4:10 p.m. trading on the Toronto Stock Exchange. They've risen 12 percent this year, compared with a 15 percent gain for the 39-member S&P/TSX Financials Index.
Scotiabank bought two banks in Peru for C$390 million in March, making it the third-largest bank in that country. Scotiabank also agreed in June to buy Corporacion Interfin SA, the owner of Costa Rica's largest private bank, for about C$330 million.
The bank reported in October that profit at its Scotiabank Mexico unit rose 30 percent to 1.08 billion pesos ($100 million) as the business set aside less money for bad loans.
Profit from domestic consumer banking climbed 3 percent to C$338 million on higher mutual fund and brokerage fees. Investment banking profit rose 2.2 percent to C$236 million.
National Bank Financial analyst Robert Wessel was expecting the bank to earn 90 cents a share, compared with the 88 cent-a- share median estimate of nine analysts surveyed by Bloomberg News.
For the year, Scotiabank had record profit of C$3.58 billion or C$3.55 a share, compared with C$3.21 billion, or C$3.15 a share, a year ago.
Bank of Nova Scotia, Canada's third- largest bank by assets, said profit climbed for the 14th straight quarter, led by its international businesses in Mexico and the Caribbean.
Net income rose 11 percent to C$897 million ($781 million), or 89 cents a share, from C$811 million, or 80 cents, a year ago, the Toronto-based bank said today in a statement sent by Canada NewsWire. Revenue rose 9.7 percent to C$3 billion.
Chief Executive Officer Richard Waugh has spent more than C$1 billion on acquisitions abroad in the last year, leading to a 54 percent increase in international banking profit. Almost a third of the bank's profit came from outside Canada, compared with 19 percent in 2000.
``We're now starting to see the cumulative impact of all these smaller acquisitions,'' Jason Bilodeau, a bank analyst at UBS Canada, said before results were released. ``They're starting to have a very positive impact on their international results.''
Scotiabank boosted its quarterly dividend by 7.8 percent to 42 cents a share, the fourth increase in two years. Bank of Montreal and National Bank of Canada also raised their dividends this quarter.
Shares of Scotiabank rose 3 cents to C$51.60 at 4:10 p.m. trading on the Toronto Stock Exchange. They've risen 12 percent this year, compared with a 15 percent gain for the 39-member S&P/TSX Financials Index.
Scotiabank bought two banks in Peru for C$390 million in March, making it the third-largest bank in that country. Scotiabank also agreed in June to buy Corporacion Interfin SA, the owner of Costa Rica's largest private bank, for about C$330 million.
The bank reported in October that profit at its Scotiabank Mexico unit rose 30 percent to 1.08 billion pesos ($100 million) as the business set aside less money for bad loans.
Profit from domestic consumer banking climbed 3 percent to C$338 million on higher mutual fund and brokerage fees. Investment banking profit rose 2.2 percent to C$236 million.
National Bank Financial analyst Robert Wessel was expecting the bank to earn 90 cents a share, compared with the 88 cent-a- share median estimate of nine analysts surveyed by Bloomberg News.
For the year, Scotiabank had record profit of C$3.58 billion or C$3.55 a share, compared with C$3.21 billion, or C$3.15 a share, a year ago.
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Donw Jones Newswires, Monica Gutschi, 8 December 2006
Bank of Nova Scotia has set even more aggressive targets for its 2007 performance after easily breezing by its 2006 goals.
"The bottom line is, we fully expect to deliver another year of record results," chief executive Rick Waugh said Friday.
He said the bank expects its earnings to grow by 7-12% per share in fiscal 2007, while return on equity should be between 20-23%. Its productivity ratio is expected to fall below 58% and the bank plans to maintain strong capital ratios and credit ratings.
Bank of Nova Scotia had targeted earnings growth of 5-10% per share in 2006, but propelled by strong growth in its international division and wealth management, earnings rose 12.7% per share. Its return on equity of 22.1% in the year was at the top end of its targeted range of 18-22%. Meanwhile, it easily met its goal of maintaining a strong capital ratio in 2006, coming in with a Tier 1 ratio of 10.2%, among the highest of its peers.
Bank of Nova Scotia earned C$897 million or 89 Canadian cents a share in the fourth quarter, up from C$811 million or 80 Canadian cents a year earlier and in line with the Thomson First Call mean earnings estimate of 88 Canadian cents.
Revenue rose to C$3.00 billion from C$2.74 billion a year earlier.
The bank's domestic operations had net income in the quarter of C$335 million, up 3% from the same quarter last year. Its international banking group had net income of C$268 million, up 54% on the back of a series of small acquisitions. However, excluding the impact of foreign exchange, net income rose 63%.
Net income at Scotia Capital rose 2.6% to C$235 million.
Bank of Nova Scotia has set even more aggressive targets for its 2007 performance after easily breezing by its 2006 goals.
"The bottom line is, we fully expect to deliver another year of record results," chief executive Rick Waugh said Friday.
He said the bank expects its earnings to grow by 7-12% per share in fiscal 2007, while return on equity should be between 20-23%. Its productivity ratio is expected to fall below 58% and the bank plans to maintain strong capital ratios and credit ratings.
Bank of Nova Scotia had targeted earnings growth of 5-10% per share in 2006, but propelled by strong growth in its international division and wealth management, earnings rose 12.7% per share. Its return on equity of 22.1% in the year was at the top end of its targeted range of 18-22%. Meanwhile, it easily met its goal of maintaining a strong capital ratio in 2006, coming in with a Tier 1 ratio of 10.2%, among the highest of its peers.
Bank of Nova Scotia earned C$897 million or 89 Canadian cents a share in the fourth quarter, up from C$811 million or 80 Canadian cents a year earlier and in line with the Thomson First Call mean earnings estimate of 88 Canadian cents.
Revenue rose to C$3.00 billion from C$2.74 billion a year earlier.
The bank's domestic operations had net income in the quarter of C$335 million, up 3% from the same quarter last year. Its international banking group had net income of C$268 million, up 54% on the back of a series of small acquisitions. However, excluding the impact of foreign exchange, net income rose 63%.
Net income at Scotia Capital rose 2.6% to C$235 million.
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RBC Capital, 8 December 2006
First Impression
• Underlying EPS In Line at 89¢, Up 10% YoY. Cash EPS of 90¢ was helped by a $60MM general loan loss release (4¢) but BNS also recorded a 3¢ hit from non-core AcG-13 hedge mark-to-market. International was above our expectation to offset weakness in wholesale. Retail was in line. The tax rate at 26% (teb) was as expected, as was the underlying loan loss (i.e., excluding the general release), all to suggest we detect no reason to change estimates at this juncture. BNS valuation is still rich by our P/E estimates – hence our Sector Perform rating.
• Domestic Bank In Line (1/3 of Earnings). Cash net income of $342MM (we estimated $337MM) was up 4% YoY. An $11MM YoY decline in the loan loss drove half (2%) of the growth. Peer-like retail revenue growth of 4% was overshadowed by 5% expense growth. Spread was down again – this may not improve until we have a steeper yield. We do not view this as a high-quality retail result.
• Wholesale Low (1/3 of Earnings). Wholesale cash net income at $235MM missed our $285MM estimate, and $279MM in Q3/06. The primary factor was a $45 million swing in loan loss from recovery last quarter to expense this quarter, the first of significance in over 8 quarters. BNS’ trading business was solid and in line with our estimate. Securities gains again exceeded our estimate, but came in below the prior quarterly average (although most of these gains are housed in the “other” segment). Impaired loan development was benign.
• International Stronger Than Expected (1/3 of Earnings). With income of $269MM relative to our $234MM estimate, International looked very strong. Revenue jumped 26% YoY on acquisitions (Peru and Costa Rica) – and broad-based organic growth. Loan losses remained very low, helping the division earn through higher taxes.
;
First Impression
• Underlying EPS In Line at 89¢, Up 10% YoY. Cash EPS of 90¢ was helped by a $60MM general loan loss release (4¢) but BNS also recorded a 3¢ hit from non-core AcG-13 hedge mark-to-market. International was above our expectation to offset weakness in wholesale. Retail was in line. The tax rate at 26% (teb) was as expected, as was the underlying loan loss (i.e., excluding the general release), all to suggest we detect no reason to change estimates at this juncture. BNS valuation is still rich by our P/E estimates – hence our Sector Perform rating.
• Domestic Bank In Line (1/3 of Earnings). Cash net income of $342MM (we estimated $337MM) was up 4% YoY. An $11MM YoY decline in the loan loss drove half (2%) of the growth. Peer-like retail revenue growth of 4% was overshadowed by 5% expense growth. Spread was down again – this may not improve until we have a steeper yield. We do not view this as a high-quality retail result.
• Wholesale Low (1/3 of Earnings). Wholesale cash net income at $235MM missed our $285MM estimate, and $279MM in Q3/06. The primary factor was a $45 million swing in loan loss from recovery last quarter to expense this quarter, the first of significance in over 8 quarters. BNS’ trading business was solid and in line with our estimate. Securities gains again exceeded our estimate, but came in below the prior quarterly average (although most of these gains are housed in the “other” segment). Impaired loan development was benign.
• International Stronger Than Expected (1/3 of Earnings). With income of $269MM relative to our $234MM estimate, International looked very strong. Revenue jumped 26% YoY on acquisitions (Peru and Costa Rica) – and broad-based organic growth. Loan losses remained very low, helping the division earn through higher taxes.
