BNS has upside potential... Stifel analyst Mike Rizvanovic sees an improving operation environment for Canadian banks, pointing to “a notable tailwind around rising rates and benign credit conditions supporting further PCL recoveries that are not fully baked into expectations.”
“Strong excess capital, which varies among the banks, is an added benefit we expect will be deployed into buybacks, with M&A remaining a potential catalyst,” he added. “While we don’t dismiss some notable headwinds in the near term (uncertain economic recovery; inflation risks) and longer term (open banking pressuring fee-based revenue), we believe the Big Six will deliver high-single digit EPS growth in F2023, following a relatively flat F2022 skewed by last year’s sizable PCL recoveries.”
In a research report released Friday, Mr. Rizvanovic, previously at BMO Nesbitt Burns, initiated coverage of the sector, seeing “modest” upside to current price-to-earnings-multiples and expressing a preference for “discounted names among the Big Six.”
He rates BNS as a "buy" with a $104 target. Average: $96.08.
“Our Buy rating is premised largely on a strong recovery in International Banking, as rising rates push up margins, lending volumes recover, and management executes on efficiency improvement following a recent restructuring,” he said. “The de-risking of the loan book in International is also favorable, reducing downside risk and PCL volatility. We also like BNS’ share gains in Canadian mortgage lending, which should drive cross-sell opportunities that management has noted are being captured at an increasing rate. We don’t believe the current 9-per-cent relative P/E discount reflects the bank’s upside potential.”