26 August 2011

National Bank Q3 2011 Earnings

Scotia Capital, 26 August 2011

• NA cash operating EPS increased 10% YOY to $1.72 in line with expectations. Earnings were supported by extremely low PCLs of 15 bp (40+ bp for bank group) and security gains of $0.11/share or 6% of earnings. Retail earnings were up 6% YOY, with Wealth up 28% YOY and Wholesale up 13% YOY.

• ROE: 17.5%, RRWA: 2.29%, CET1: 8.0%.


• Reported EPS was $1.84 including $0.07/share reversal of ACLs, $0.13/share tax recovery, $0.03/share charge in severance pay (Wellington West), and $0.05/share charge for litigation provisions.


• Slightly increasing our 2011E EPS to $6.95 due to the slight beat this quarter. 2012E EPS unchanged at $7.60. One-year share price target unchanged at $90. NA, we believe, is fully valued and is currently trading at 9.3x or 93% relative to the bank group (85% historical mean since 1984) on our 2012E EPS. The higher relative P/E is reflective of the bank's improved operating performance versus the bank group. However, based on profitability and business mix, we feel that the relative P/E multiple is capped at 90%-95%, thus fully valued. Maintain 3-Sector Underperform.