BANK OF NOVA SCOTIA $56(Toronto symbol BNS; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.0 billion; Market cap: $56.0 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.5%; TSINetwork Rating: Above Average; www.scotiabank.com) is Canada’s third-largest bank, with assets of $526.7 billion.
The bank recently agreed to buy the 82% of DundeeWealth Inc. (Toronto symbol DW) that it does not already own. Dundee- Wealth manages investments and operates a brokerage. The company also owns the Dynamic family of mutual funds, and provides financialplanning and investment advice. The deal will double the size of Bank of Nova Scotia’s mutualfund business, and make it Canada’s fifth-largest mutual-fund company.
Bank of Nova Scotia will pay $2.3 billion in cash and stock for the rest of DundeeWealth. If Dundee- Wealth shareholders approve, the sale should close in the first half of 2011. The new operations should add $0.12 a share to the bank’s annual earnings in the third year following the purchase.
To put these figures in context, the bank earned $4.2 billion in fiscal 2010, up 19.5% from $3.5 billion in 2009. Earnings per share rose 18.1%, to $3.91 from $3.31, on more shares outstanding. The bank gets a third of its earnings from its overseas operations, and unfavourable foreign exchange rates held back its 2010 earnings by $0.28 a share.
Lower loan-loss provisions were the main reason for the higher earnings. The bank set aside $1.2 billion to cover bad loans in fiscal 2010, down 29.0% from $1.7 billion. It is also benefiting from rising loan demand and fewer writedowns of securities it holds. Revenue rose 7.2%, to $15.5 billion from $14.5 billion.
The bank should earn $4.46 a share in 2011, excluding DundeeWealth. The stock trades at 12.6 times that estimate.
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