30 May 2012

Scotiabank Q2 2012 Earnings

TD Securities, 30 May 2012

Yesterday, before the open, the bank reported Core Cash (f.d.) EPS of $1.18 versus TD Securities at $1.15 and consensus of $1.15.


Neutral. It was a reasonable quarter, in our view, with some gives/takes in the underlying composition. Domestic P&C was strong and Wealth was steady while Wholesale was a bit outsized. International was a bit light, but it continues to post strong growth. Credit was also very well behaved. We trimmed our estimates slightly mainly around the outlook for Wholesale, and our Target Price is down slightly. Against that, with the recent weakness in the stock, we see compelling returns from current levels. Concerns around the outlook for global growth are likely to offer some headwinds for the stock in the immediate term, but Scotiabank remains one of the best fundamental stories in the space, in our view. We reiterate our Action List Buy rating.


Continued work on delivering expense leverage. There was a fair amount of acquisition-related noise, but on a segment basis Domestic P&C saw good operating leverage, and management expects it to continue in H2/12. International is struggling to get there consistently, but management continues to suggest that investment spending has leveled off and has now indicated some specific cost cutting measures will hit in H2/12 to deliver positive operating leverage on the year. If successful, this could be an important lever supporting our constructive view on International growth and return prospects.