RBC-DS analyst sees potential for upside to BNS... Following Tuesday’s release of fourth-quarter results that largely fell in line with his expectations, RBC Dominion Securities analyst Darko Mihelic sees the potential for upside to earnings for Bank of Nova Scotia and called its valuation “relatively attractive.”
However, he maintained a “sector perform” recommendation for its shares, seeing “three impediments to a strong investment thesis.”
“1. The International Banking segment has too much economic uncertainty in the region combined with an unknown strategic plan. 2. It is difficult to see net interest income growing at the same rate as peers given its NIM sensitivity. 3. We view its credit reserves as relatively weaker than peers ahead of a recession,” Mr. Mihelic said.
Scotia reported adjusted earnings per share of $2.06 for the quarter, narrowly higher than the $2 forecast from both Mr. Mihelic and the Street.
“International Banking had stronger than expected earnings as did Canada P&C and Global Banking and Markets,” he said. “Our estimates change to reflect Q4/22 actual results, and we hold NIMs [net interest margins] constant in Q1/23 and expand thereafter for Canada and International Banking. We also reduce our net interest income expectation in Corporate for the remainder of our forecast period.”
With that view, he cut his core EPS estimate for 2023 to $8.48 from $8.69 and 2024 to $9.05 from $9.12. However, he raised his target for Scotia shares to $86 from $83 based on an updated valuation. The average is $78.82.