Canaccord Raises Before Earnings Canaccord Genuity’s Scott Chan raised his earnings expectations for Canadian banks ahead of next week’s start of fourth-quarter earnings season.
The analyst bumped up his adjusted cash earnings per share by an average of 3 per cent on Thursday, though he remains 2 per cent below the consensus on the Street. He also increased his full-year 2021 and 2022 projections by 1 per and 2 per cent, respectively.
“Collectively, we made a number of small adjustments that were net positive: (1) slightly better loan growth (e.g. most Canadian loan categories continued upward movement towards Sept/21; see Fig. 27); (2) margin stability (benefit from steeper yield curve) from modest compression; (3) total PCL ratio lower (mainly for North America; should see performing loan releases moderate from last quarter); (4) higher asset growth in AM/WM supporting Other income; and (5) average FX (lower CDN$ from our prior mark),” he said.
Citing the “expectation of improvement at International (important part of the story) with better momentum into fiscal 2022″, Mr. Chan raised his rating for Bank of Nova Scotia (
) to “buy” from a “hold” recommendation.
He said: “We believe the following factors support our upgrade: (1) International FQ4 adjusted NI target of $500-million should be easily exceeded (FQ3: $493-million) from: (a) better quarter-over-quarter credit, (b) sequential loan growth (delayed one quarter from prior guidance; commodities tailwind), and (c) stable margin (rate hikes in select regions such as Mexico, Chile, Peru supports higher NIM in F2022E); (2) Canadian P&C momentum carries into FQ4 and next year (Q3: PTPP up 15 per cent year-over-year; at upper end of peer range) as Canadian loan growth we track (e.g. mortgages, commercial, auto) should benefit BNS; (3) Asset Management strength (strong relative fund performance likely led to solid net inflows) and benefit from past acquisitions (JF, MD); (4) NCIB announcement of at least 2 per cent of shares; (5) most attractive on P/E (similar to CM) and P/PTPP basis (similar to BMO); (6) BNS shares has significantly lagged peers during the pandemic ; and (7) peer high dividend yield of 4.3 per cent (although one-time catch-up dividend growth should be at low end vs. Group due to F2022E payout ratio of 46 per cent compared to Group at 39 per cent).”
Mr. Chan raised his target for Scotiabank shares to $88 from $83. The average on the Street is $89.98, according to Refinitiv data..
“BNS now offers the highest dividend yield at 4.3 per cent with fiscal 2022 expected payout ratio of 46 per cent (vs. 39-per-cent average),” he said. “BNS stock represents the highest P/E (NTM) discount to historical average amongst the Big-6.”
Also in reaction to his increased earnings expectations, he made these target changes with the expectation capital deployment initiatives, including dividend increases will be revealed concurrently with the earnings reports:
- Bank of Montreal (
, “buy”) to $152 from $149. The average on the Street is $148.79. - Canadian Imperial Bank of Commerce (
, “buy”) to $163 from $161. Average: $162.34. - National Bank of Canada (
, “hold”) to $109.50 from $103.50. Average: $107.32 - Toronto-Dominion Bank (
, “hold”) to $93.50 from $87.50. Average: $97.59.