Scotia Capital, 2 March 2011
• BMO cash operating EPS increased 17% to $1.32, in line. Earnings were driven by very solid results with P&C Canada earnings increasing 10%, Private Client increasing 38% (21% excluding insurance), and BMO Capital Markets increasing 21% with P&C the U.S. earnings weak, declining 15%. Trading revenue was the fourth best quarter ever.
• Underlying earnings were stronger than headlines by an estimated $0.05 per share due mainly to a prior period tax charge in U.S. business segment of BMO Capital Markets.
• Operating ROE: 15.9%, RRWA: 1.81%, Tier 1 Capital: 13.0%.
Implications
• The bank indicated that it anticipates a common equity issue of less than $400 million (20 bp capital) prior to close for M&I, and estimated its Tier 1 Common under Basel III at 6.4%.
• BMO's dividend payout ratio is 53% on 2011E EPS versus the target range of 45%-55%; thus, a dividend increase in 2011 is unlikely.
Recommendation
• Increasing our 2011E and 2012E EPS to $5.30 and $5.90 from $5.20 and $5.75, respectively, due to solid operating results. One-year target is unchanged at $68.
• We maintain our 2-Sector Perform rating.
;
• BMO cash operating EPS increased 17% to $1.32, in line. Earnings were driven by very solid results with P&C Canada earnings increasing 10%, Private Client increasing 38% (21% excluding insurance), and BMO Capital Markets increasing 21% with P&C the U.S. earnings weak, declining 15%. Trading revenue was the fourth best quarter ever.
• Underlying earnings were stronger than headlines by an estimated $0.05 per share due mainly to a prior period tax charge in U.S. business segment of BMO Capital Markets.
• Operating ROE: 15.9%, RRWA: 1.81%, Tier 1 Capital: 13.0%.
Implications
• The bank indicated that it anticipates a common equity issue of less than $400 million (20 bp capital) prior to close for M&I, and estimated its Tier 1 Common under Basel III at 6.4%.
• BMO's dividend payout ratio is 53% on 2011E EPS versus the target range of 45%-55%; thus, a dividend increase in 2011 is unlikely.
Recommendation
• Increasing our 2011E and 2012E EPS to $5.30 and $5.90 from $5.20 and $5.75, respectively, due to solid operating results. One-year target is unchanged at $68.
• We maintain our 2-Sector Perform rating.
