BANK OF NOVA SCOTIA $51 (Toronto symbol BNS; Conservative Growth Portfolio, Finance sector; Shares outstanding: 990.0 million; Market cap: $50.5 billion; SI Rating: Above average) ranks second among Canada’s five big banks, with assets of $411.7 billion. It has over 1,000 branches and offices in Canada.
In the past few years, Bank of Nova Scotia has focused on building up its operations in developing markets such as Latin America and Asia. International operations now provide 30% of its income.
Demand for banking services is growing strongly in these regions as economic reforms take hold. Bank of Nova Scotia’s expertise gives it an edge over domestic banks in these countries. It lets the bank quickly improve its market share and profits. Recent overseas expansion includes the purchase of 24% of Thailand’s eighth-largest bank, and the opening of four new branches in Malaysia.
In its second quarter ended April 30, 2007, the bank earned $1.03 a share, up 15.7% from $0.89 a year earlier. Revenue grew 14.8%, to $3.1 billion from $2.7 billion. Profits at its domestic retail operations grew 23%, while overseas earnings rose 9%. Strong demand by businesses for loans and advice for mergers and acquisitions led to a 24% jump in profits at the bank’s corporate lending division.
Despite rising loan losses in Mexico, Bank of Nova Scotia’s credit quality is good. Bad loans in the most recent quarter fell to 0.26% of total loans from 0.30% a year earlier. The bank’s efficiency ratio of 53.8%, down from 55.3% a year earlier, makes it the most efficient of the top five banks.
The stock is reasonably priced at just 12.6 times its forecast fiscal 2007 profit of $4.04 a share. The $1.80 dividend yields 3.5%.
Bank of Nova Scotia is a buy.
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