ROYAL BANK OF CANADA $56 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $78.4 billion; Price-to-sales ratio: 2.1; Dividend yield: 3.6%; SI Rating: Above Average) is Canada’s largest bank, with total assets of $655.0 billion.
Royal is seeing strong demand for loans because of low interest rates. As well, improving financial markets have helped its capital-markets division attract new business. This division, which Royal has steadily expanded in the past few years, helps companies raise capital by selling shares and issuing debt. It now provides 25% of the bank’s total revenue.
In the year ended October 31, 2009, Royal’s revenue rose 34.9%, to $29.1 billion from $21.6 billion in the prior year. Earnings rose 6.7%, to $4.9 billion from $4.4 billion. However, earnings per share fell 3.0%, to $3.28 from $3.38, on 7% more shares outstanding. The 2009 figures exclude a $1-billion writedown of goodwill related to Royal’s U.S. operations. Its U.S. and international banking division supplies roughly 10% of its revenue.
Loan-loss provisions jumped 114.0% in 2009, to $3.4 billion from $1.6 billion. This mostly reflects the poor U.S. housing market and rising mortgage defaults. The weak economy is also pushing up credit-card defaults in Canada and the U.S.
Because of the rising loan-loss provisions, bad loans now account for 1.86% of Royal’s total loans. That’s up from 0.96% a year earlier.
Royal will probably earn $4.32 a share this year. The stock trades at 13.0 times that estimate.
Royal Bank is a buy.
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