TD Securities issues REDUCE on LB
From today's Action Notes from TD Newcrest...
We are downgrading our investment recommendation to REDUCE from Hold and lowering our
12-month target price to $24.50 from $28 given our lower forecast book value and a new target
P/B multiple of 0.84x (down from 0.93x). Q4/03 figures were disappointing - operating eps of
$0.31 were $0.09 below our forecast, the gain on sale of branches to TD was below our
expectations, while the restructuring charge was greater than anticipated and the incentive
bonus was a surprise. We believe the ROE targets set by management (5% in 2004, 8% in
2005 and 10% in 2006) do not justify the 0.97x P/B LB currently trades at. On the positive side,
LB’s B.O.D. revealed its intention to maintain the dividend/share at $1.16/year, provided that
management’s financial targets are attained and strong capital ratios are maintained. However,
while we believe 2004 objectives should be reached relatively easy, 2005's are dependent on
8% to 10% revenue growth - a target we believe could turn out to be aggressive.