With Toronto-Dominion Bank pulling the trigger and announcing a hefty dividend hike last week, the burning question is which Canadian bank will be next.
Canaccord Genuity analysts today offered some suggestions.
Mario Mendonca and Lemar Persaud think that Bank of Nova Scotia could be next, with a dividend increase in the fiscal second quarter, which runs between February and April.
They expect to see National Bank significantly boosting its dividend next quarter, and Royal Bank to follow before the end of fiscal 2011.
The predictions were made as Canaccord raised its targeted price-to-earnings ratio for the banks. Canaccord generally starts with a group multiple of 12.0 to 12.5 times and assigns premiums and discounts based on how the banks stack up relative to the key themes for the year ahead.
But this year, Mr. Mendonca and Mr. Persaud believe bank multiples will be higher, as many first-quarter results are coming in better than expected amid strong performance in a number of business segments, including loan growth, margins, trading, and underwriting. "Combined with better-than-expected dividend increases and pro forma capital ratios, we believe there is sufficient support for bank multiples to break through 12.0-12.5 times."
They raised their group target price-to-earnings ratio to 13.0 times.
Upside: Canaccord rates Bank of Montreal , National Bank and TD all as a "buy," while Bank of Nova Scotia , CIBC and Royal Bank are all rated a "hold."
Price targets were raised as follows: BMO $73 (up $3); BNS $66 (up $2); CM $93 (up $3); NA $89 (up $4); RY $66 (up $1); TD $97 (up $3).
Petrominerales Ltd. is expected to complete a secondary listing in Colombia, giving local pension funds an opportunity to diversify into the new listing, said TD Newcrest analyst Jamie Somerville. This "could potentially provide upward pressure on Petrominerales' share price," he said, adding that the company's fourth-quarter financial results were better than he expected.
Upside: Mr. Somerville raised his price target by $2 to $44 but maintained a "hold" rating.
Rising commodity prices are not much of an issue for George Weston Ltd. , as it has already announced price increases and its special relationship with its largest customer (Loblaw) provides a cushion in case costs keep rising, said CIBC World Markets Inc. analyst Perry Caicco. Meanwhile, the bakery still has plenty of cash and he believes investors can look forward to "an eventual string of special dividends."
Upside: Mr. Caicco raised his price target by $2 to $77 and maintained a "sector performer" rating.
Major Drilling Group International Inc. , the largest pure-play drilling company in the world, stands to benefit further from the resurgence in the resource sector, said TD Newcrest analyst Steven Green. "We believe we are now in an environment similar to that of 2006-07, with easy access to capital for resource juniors/explorers and cashed-up major/intermediate miners ramping up drilling programs, which should lead to considerable pricing gains and margin expansion for drillers," he said.
Upside: Mr. Green raised his price target by $17 to $65.
Newalta Corp. has further upside potential given the stock is only halfway back to pre-recession returns on its existing asset base and commodity prices are higher, argued Canaccord Genuity analyst Sara Elford. Meanwhile, valuation multiples remain comfortably below past cycle highs and the company is positioned to start to reap the benefits of recent capital expenditures, she added.
Upside: Ms. Elford raised her price target by $2.50 to $16.50.
- Bank of Montreal$77.110.00(0.00%)
- National Bank of Canada$43.770.00(0.00%)
- Toronto-Dominion Bank$54.540.00(0.00%)
- Bank of Nova Scotia$60.890.00(0.00%)
- Canadian Imperial Bank of Commerce$100.280.00(0.00%)
- Royal Bank of Canada$76.080.00(0.00%)
- George Weston Ltd$109.230.00(0.00%)
- Major Drilling Group International Inc$4.910.00(0.00%)
- Newalta Corp$5.060.00(0.00%)
- Updated November 30 4:00 PM EST. Delayed by at least 15 minutes.