For the second quarter 2016, net income fell by nearly 12% compared with the same period in 2015, and a key measure of profitability-its return on equity-slumped to 12.1%, or 3% lower than it was a year earlier. The stock has climbed 1.33% in the past week and plunged -6.71% in the last 4 weeks, historically the stock illustrate that its six months performance stands at 10.25% while its year to date performance is at 22.38%. Fortunately, Scotiabank was able to eke out some gains on its bottom line, and the company also announced a big stock buyback program that adds to its already substantial return of capital to shareholders through dividends. Its net income shot up by a remarkable 12% year over year, primarily because of strong deposit and loan growth in its primary market of Latin America. Scotiabank said profit excluding some items was C$1.48 a share, beating the C$1.42 average estimate of 14 analysts surveyed by Bloomberg. The lender, Canada’s third-largest by assets, took a C$278 million restructuring charge in the quarter, more than its May 2 guidance of C$275 million. The increase was partially offset by higher non-interest expenses and provision for credit losses. Puerto Rico emerged as a potential risk, but exposure to the energy markets still appears to be the primary concern.
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The bank is also planning to shrink its Canadian retail footprint – which now consists of 1,006 branches – by about four or five per cent over the next two years.
The president, Brian Porter, said loan losses in the energy sector are expected to decline next quarter. “Combined, these efforts should result in notable improvements in our productivity”.
The Bank of Montreal (TSX:BMO), CIBC (TSX:CM), TD Bank (TSX:TD) and Royal Bank (TSX:RY) – which reported their quarterly earnings last week – all saw their provisions for credit losses rise in the quarter. Meanwhile, Bank of Nova Scotia’s stock has price targets in the range of $45.02 to $55.34 by different brokerage firms. The stock presently has a consensus rating of “Buy” and an average target price of $64.90.
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Moreover, its core operations are performing well and, as a result, once there is an uptick in economic growth and oil finally rebounds, I expect to see Bank of Nova Scotia’s performance improve considerably. Until the energy market fully recovers, some of those who follow the stock will worry that Scotiabank’s healthy condition could face a longer-term threat if the Canadian economy weakens in response.
