Scotia Capital, 4 March 2010
RY cash operating earnings declined 16% YOY to $1.03 per share, in line with expectations. Operating ROE was 18.0% with RRWA of 2.32%.
Implications
• Earnings were driven by strong Canadian Banking results with wholesale earnings resilient. Credit quality improved in the quarter with lower loan loss provisions and lower gross impaired loan formations. Partially offsetting the strong operating results was a weak overall net interest margin that is expected to reverse itself in the remainder of 2010.
Recommendation
• We are trimming our 2010 and 2011 EPS estimates to $4.65 per share and $5.35 per share from $4.75 per share and $5.50 per share, respectively, due to slightly lower than expected net interest margin. Our one-year price target is unchanged at $75.
• We maintain our 1-Sector Outperform rating on the shares of Royal Bank based on its superior longer-term earnings growth prospects given the strength of its retail and wealth management businesses and its uniquely positioned capital markets platform (U.K. and U.S. presence). The bank has significant earnings recovery potential from its U.S. retail business. RY has high profitability and capital ratios.
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RY cash operating earnings declined 16% YOY to $1.03 per share, in line with expectations. Operating ROE was 18.0% with RRWA of 2.32%.
Implications
• Earnings were driven by strong Canadian Banking results with wholesale earnings resilient. Credit quality improved in the quarter with lower loan loss provisions and lower gross impaired loan formations. Partially offsetting the strong operating results was a weak overall net interest margin that is expected to reverse itself in the remainder of 2010.
Recommendation
• We are trimming our 2010 and 2011 EPS estimates to $4.65 per share and $5.35 per share from $4.75 per share and $5.50 per share, respectively, due to slightly lower than expected net interest margin. Our one-year price target is unchanged at $75.
• We maintain our 1-Sector Outperform rating on the shares of Royal Bank based on its superior longer-term earnings growth prospects given the strength of its retail and wealth management businesses and its uniquely positioned capital markets platform (U.K. and U.S. presence). The bank has significant earnings recovery potential from its U.S. retail business. RY has high profitability and capital ratios.
