TSX Commentary » National Bank of Canada

National Bank (NA) – $59.73 – Q1/F10 Summary

admin — Fri, 26 Feb 2010 15:38:04 +0000

National Bank (NA) – $59.73 – Q1/F10 Summary
Buy, Intrinsic Value Estimate: $65.00
Veritas states that both on first glance and deeper inspection, it is hard to find too many noteworthy aspects of the National’s solid, steady first quarter. Earnings were in line with Veritas’s expectations, which were themselves slightly above the consensus view. The quarter unfolded pretty much according to script: trading revenues normalized but didn’t melt away, while credit losses increased but didn’t blow out. The bank’s transition from using standardized credit risk calculations to advanced credit risk models for capital purposes, along with internally-generated capital, resulted in a 180bps increase in the Tier 1 capital ratio. Balance sheet and revenue growth was solid if unspectacular. Having missed expectations slightly last quarter, NA delivered just a bit more this quarter – a bit more than last quarter and a bit more than expectations. But, Veritas thinks the results show that the most likely range for NA’s earnings is in the low- to mid-$6/share range this year and mid- to high-$6/share range next year. The bank’s normalized ROE this quarter was 18%, the Tier 1 ratio is 12.5%, and the dividend payout ratio is 40%. Though lower growth deserves a lower multiple, Veritas continues to recommend shares of NA with a $65 intrinsic value.

National Bank of Canada NA The ABCP Debate Continues

admin — Thu, 21 Jan 2010 17:00:33 +0000

Veritas Research: National Bank of Canada (NA) – $58.73 – The ABCP Debate Continues …
Buy, Intrinsic Value Estimate: $65.00
Recent market noise, some of which was picked up by the Globe & Mail, has stated that certain tranches of notes restructured under the Montreal Accord are trading at too-optimistic valuations. Whether or not this is true is difficult to tell. The secondary market for Montreal Accord paper is opaque, and transactions are not reported in a transparent manner as, say, equity transactions are. Veritas states that while they are not specialists in the valuation of complex structured paper, they do not endorse the views espoused by the market participants arguing that recent ABCP transaction prices are too high. Based on the available facts, Veritas believes that the likelihood of a material negative hit to NA at this time is relatively low – likely less than 25bps of Tier 1 ratio, which is currently at 10.7%. In a disaster scenario, Veritas believes that the isolated impact of writing off all the bank’s ABCP exposure including both the committed margin facility backing the restructured notes and lending facilities to clients holding restructured notes is worth about 270bps-300bps of Tier 1 ratio. Thus, Veritas maintains its buy recommendation and $65/share intrinsic value estimate on NA.