$TD $RBC $BMO $BNS $CM - Canadian banking industry analysis

Google analytics Comparing the popularity of the google searches, using the insights query found here, it is clear that TD is most searched for. The focus of this research will be the Canadian markets, but it is important to consider the distribution of searches worldwide. In Mexico, there is a heavy concentration of searches for Scotiabank. In the US, TD dominates searches, as well as in the UK. RBC and TD are both around 45% of searches in India. There is an extreme concentration of searches for Scotiabank in Peru, and it is the only instance where there are more searches than in Canada for all 5 banks. Overall, the relative distribution over 14 years is this: Fig.1 Bank Average Interest over time, google searches (Index) TD 79 RBC 36 Scotiabank 24 CIBC 21 BMO 20 ​ This doesn't tell us much other than that TD is likely present in the US at some scale, as well as Scotiabank in Peru. Most data from Finviz, specifically from this query: finviz.com All five banks have managed to keep their Price/FCF below five, even during the post Covid bubble. This forces a deeper analysis to be carried out. Amazingly, all of their P/E ratios fall between 12 and 15. The figure below corresponds to these values. Fig 2. ​ Bank P/E Price/FCF TD 12.66 0.59 RBC 14.59 1.18 Scotiabank 14.50 2.31 CIBC 13.65 1 BMO 13.99 1.28 Average 13.878 1.272 Now a difference between a P/E or P/FCF of 2 is not grounds for elimination from consideration for almost any cases. However, it should be noted that TD appears to be the most favorable from these preliminary figures. The next three values to be analyzed relate to earnings and sales. Here, we start to see some differences between the banks, with TD managing to grow earnings significantly more than the other banks in the past 5 years. Fig 3. Bank P/S EPS growth last 5y Sales growth past 5y Scotiabank 3.36 -1.30% 7.9% RBC 5.22 3.1% 8.9% BMO 4.46 2.8% 12.1% CIBC 3.43 -1.5% 8.8% TD 4.58 8.8% 7.5% Average 4.21 2.38% 9.04% ​ TD is a clear winner in this section. It would be ideal to bring the P/S down, but because the P/FCF is so high for all of the banks, it is not a worry. TD is the only bank managing to become more efficient as they scale, which potentially shows an effective management team, or increasingly more profitable businesses, or both. It is possible that the earnings increase may be a result of a lack of attention to other obligations or competitive endeavors, which could possibly hurt them in the future. CIBC and Scotiabank have managed to decrease earnings as they have increased sales, possibly hinting at ineffective management, or defective operations. It is also possible that the lower earnings are a result of restructuring, which could be positive in the future. All of these values will have to be analyzed much closer. The analyst does suggest that a new measure be conceived to gauge growth sustainability. The value would be determined by dividing EPS growth over a period, x, over Sales growth, over that same period, x. The measure could be called the income growth sustainability measure, and is formatted as follows: IGSM = EPS growth in the past x / Sales growth in the past x years Where at least one value must be positive for the calculation to be effective. The value produced is unitless The ideal value is 1, and deviations outside the range of 0.5 and1.5 are to be considered unsustainable. This value is only rough estimate, and would have to be refactored t in order to be used commercially because it produces inaccurate values the further you stray from 1 (a value of 2 is clearly unsustainably, as well as a value of-1 with positive earnings). Using the newly constructed equation, the figure below can be constructed. Fig 4. ​ Bank IGSM TD 1.17 RBC 0.34 Scotiabank 0.16 CIBC -0.17 BMO 0.23 Again, TD clearly has the most sustainable growth. An average is not computed here because of the nature of this value, and it will not be used to determine any conclusions. A better evaluation of sustainable growth must be formulated. No securities analysis is complete without analyzing the balance sheet. All of the companies have a P/Cash ratio between 0.23-0.25, so those values do not need to be discussed on a relative basis. Current ratios, D/E measures, and P/B are considered in the following figure. Some of this information has to be sourced from SEDAR. Just press “ctrl f” and type in “annual” to get to the reports. Other data is from Macrotrends, probably the best source of long term information on the internet. Fig 5. Bank Current ratio Debt to equity Price to book TD 0.93 0.13 1.68 RBC 0.90 0.11 2.02 Scotiabank 1.05 0.41 1.49 CIBC 1.03 0.12 1.46 BMO 0.98 0.14 1.42 Average 0.98 0.182 1.614 All of the values, except for RBCs P/B and Scotiabanks debt to equity fall within range of their peers. Objectively, these values are ridiculously strong, but nonetheless, we are looking for a winner among winners. The last rudimentary fundamentals to be considered are some alternative financial ratios that work best when relatively compared. This is the largest section. We will be looking at all of the ROx’s, as well as PM and OM. Fig 6. Bank ROE ROI ROA Operating Margin Profit margin TD 13.50% 5.20% 0.70% 56.90% 36.30% RBC 14.30% 4.00% 0.70% 60.00% 36.10% Scotiabank 10.40% 17.30% 0.60% 51.20% 23.50% CIBC 10.90% 16.00% 0.50% 54.30% 25.40% BMO 10.30% 5.40% 0.50% 59.10% 24.20% Average 11.88% 9.58% 0.6% 56.3% 29.10% For the returns, Scotiabank and CIBC slightly ahead of the other three because of their exceptionally high ROI. For operating margins, RBC and BMO are slightly above average, where Scotiabank is lagging behind. TD and RBC have exceptionally higher profit margins. Culminating the rudimentary analysis is a large comparison of Figures 2-6, excluding 4. For each figure, a “winner” can be determined, and a “loser” can be determined. Here are the overall rankings for each figure. For figure 2, TD is the most attractive in both fields. CIBC is the second most attractive for both fields. The first two fall below the average P/E, but because of the limited deviation between banks, this is not a huge accomplishment. The next two rankings are subjective. BMO and RBC are tied for third. Their percent difference between PEs and P/FCFs are quite similar for both of them, and each value carries similar importance. Scotiabank is fourth In figure three, TD is again the winner. Their sustainable growth is extremely attractive, despite having a higher P/S than the average. BMO is second for the same reasons, and RBC is third because of their high P/S. Scotiabank and CIBC are tied for fourth because they both have similar P/S ratios and their Sales growth to eps growth are similar. For figure 5, CIBC is the slight winner. Most values are very similar, but CIBC is in the top two for all categories. Second is BMO, lagging slightly behind CIBC with their CR and D/E, but winning the P/B category. Third is TD. Fourth is RBC because of their higher than average P/B. Last is scotiabank with the highest D/E ratio despite having stronger values in other fields. Scotiabank is in last because this value is almost four times the next highest D/E, whereas the highest P/B is only ~25% greater than the best P/B ratio. In judging figure 6, a higher priority is placed on profit margin. Giving equal weighting to ROE, ROI and ROA, TD is the winner of figure 6. RBC is very close behind. CIBC is third, and Scotiabank is fourth. BMO is last. Fig 7. The results of the preliminary relative analysis Bank Figure 2 ranking Fig 3 ranking Fig 5 ranking Fig 6 ranking Overall TD 1 1 3 1 1 RBC =3 3 4 2 3 Scotiabank 4 =4 5 4 5 CIBC 2 =4 1 3 2 BMO =3 2 2 5 4 Clearly, TD was the most attractive followed by CIBC. Market analysis. Data is mostly from stockhouse. This section will analyze more sensitive factors of each company, such as short position, large and insider transactions, volatility, and other factors related to the current situation of the company. It will be split into individual sections for each bank, as well as a composite section comparing some factors. Lets begin with TD. TD has a market cap of 150 billion, which is quite large for even american companies. Their beta is 0.9, which will hopefully draw speculation away. They have a dividend yield of 3.825%. Not a lot of insider information is available, but most insiders have historically bought below 60 and sold at 70. The current price is 65, but is extremely attractive. Bank Market cap Beta Yield Short interest Sales Assets TD 150.24b 0.9 3.825% 0.33% 43b 1.7t BMO has a market cap of 74 billion, just about half that of TD. They have a beta of 1.17, which is higher than desired. They have a yield of 3.71% and a short interest of 0.59%. Their yield is slightly lower than TD, despite having the higher beta. Recent insider purchases have been below $90, and a number of sales have happened above 100. Bank Market cap Beta Yield Short interest Sales Assets BMO 74b 1.17 3.71 0.59% 25b 0.95t CIBC has a market cap of 59 billion. Their beta is 1, and their yield is 3.34. Short interest is 0.98%. There have been a number of insider sales above 100, and insider purchases below this number. Bank Market cap Beta Yield Short interest Sales Assets CIBC 59b 1 3.34 0.98% 18b 0.73t RBC has a market cap of 134 billion. Their beta is 0.79, which makes them quite attractive if considering their dividend. Their yield is 3.34. Short interest is 0.34%. The buy/sell line is at around 80 for insiders. Bank Market cap Beta Yield Short interest Sales Assets RBC 134b 0.79 3.64 0.34% 47b 1.62t Overall Bank Market cap Beta Yield Short interest Sales Assets Overall TD 150.24b 0.9 3.825% 0.33% 43b 1.7t 3 BMO 74b 1.17 3.71% 0.59% 25b 0.95t 5 Scotiabank 74b 0.85 4.64% 0.34% 31b 1.14t 1 RBC 134b 0.79 3.64% 0.34% 47b 1.62t 2 CIBC 59b 1 3.34% 0.98% 18b 0.73t 4 Average 98b 0.942 3.83 0.516 32.8b 1.23t Scotiabank has a market cap of 74 billion. Their beta is 0.79, which makes them quite attractive if considering their dividend. Their yield is 3.34. Short interest is 0.34%. Scotiabanks buy/sell line is around 75 with a lot of deviation. ​ ​ All five institutions have some attractive things and some ugly things in this table, relatively speaking. Scotiabank's yield is offset by the low ranking it got in the previous relative analysis. TD has the most attractive yield other than that, and the low short interest is reassuring. RBCs low beta is very attractive, as well as their large sales and massive asset pool. They are the second most attractive entry in the table after Scotiabank. TD is third at a relatively neutral position. CIBC is fourth and BMO is fifth because of BMOs large beta. Legal, regulatory, and other news releases, various sources. TD: Making acquisitions. No recent regulatory information No recent legal news BMO: Recently sold asset management business No regulatory No legal RBC: No recent news No recent legal No recent regulatory Scotiabank: Recently released an unpopular compensation plan for executives Recently announced the gradual allocation of 10b for funding CMHC initiatives No recent legal No recent regulatory CIBC: Recently issued 1b of debentures. No recent legal No recent regulatory

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$TD $RBC $BMO $BNS $CM - Canadian banking industry analysis

bullish

Google analytics

Comparing the popularity of the google searches, using the insights query found here, it is clear that TD is most searched for. The focus of this research will be the Canadian markets, but it is important to consider the distribution of searches worldwide. In Mexico, there is a heavy concentration of searches for Scotiabank. In the US, TD dominates searches, as well as in the UK. RBC and TD are both around 45% of searches in India. There is an extreme concentration of searches for Scotiabank in Peru, and it is the only instance where there are more searches than in Canada for all 5 banks. Overall, the relative distribution over 14 years is this:

Fig.1

Bank Average Interest over time, google searches (Index)
TD 79
RBC 36
Scotiabank 24
CIBC 21
BMO 20

This doesn't tell us much other than that TD is likely present in the US at some scale, as well as Scotiabank in Peru.

Most data from Finviz, specifically from this query: finviz.com

All five banks have managed to keep their Price/FCF below five, even during the post Covid bubble. This forces a deeper analysis to be carried out. Amazingly, all of their P/E ratios fall between 12 and 15. The figure below corresponds to these values.

Fig 2.

Bank P/E Price/FCF
TD 12.66 0.59
RBC 14.59 1.18
Scotiabank 14.50 2.31
CIBC 13.65 1
BMO 13.99 1.28
Average 13.878 1.272

Now a difference between a P/E or P/FCF of 2 is not grounds for elimination from consideration for almost any cases. However, it should be noted that TD appears to be the most favorable from these preliminary figures.

The next three values to be analyzed relate to earnings and sales. Here, we start to see some differences between the banks, with TD managing to grow earnings significantly more than the other banks in the past 5 years.

Fig 3.

Bank P/S EPS growth last 5y Sales growth past 5y
Scotiabank 3.36 -1.30% 7.9%
RBC 5.22 3.1% 8.9%
BMO 4.46 2.8% 12.1%
CIBC 3.43 -1.5% 8.8%
TD 4.58 8.8% 7.5%
Average 4.21 2.38% 9.04%

TD is a clear winner in this section. It would be ideal to bring the P/S down, but because the P/FCF is so high for all of the banks, it is not a worry. TD is the only bank managing to become more efficient as they scale, which potentially shows an effective management team, or increasingly more profitable businesses, or both. It is possible that the earnings increase may be a result of a lack of attention to other obligations or competitive endeavors, which could possibly hurt them in the future. CIBC and Scotiabank have managed to decrease earnings as they have increased sales, possibly hinting at ineffective management, or defective operations. It is also possible that the lower earnings are a result of restructuring, which could be positive in the future. All of these values will have to be analyzed much closer.

The analyst does suggest that a new measure be conceived to gauge growth sustainability. The value would be determined by dividing EPS growth over a period, x, over Sales growth, over that same period, x. The measure could be called the income growth sustainability measure, and is formatted as follows:

IGSM = EPS growth in the past x / Sales growth in the past x years

Where at least one value must be positive for the calculation to be effective. The value produced is unitless The ideal value is 1, and deviations outside the range of 0.5 and1.5 are to be considered unsustainable. This value is only rough estimate, and would have to be refactored t in order to be used commercially because it produces inaccurate values the further you stray from 1 (a value of 2 is clearly unsustainably, as well as a value of-1 with positive earnings). Using the newly constructed equation, the figure below can be constructed.

Fig 4.

Bank IGSM
TD 1.17
RBC 0.34
Scotiabank 0.16
CIBC -0.17
BMO 0.23

Again, TD clearly has the most sustainable growth. An average is not computed here because of the nature of this value, and it will not be used to determine any conclusions. A better evaluation of sustainable growth must be formulated.

No securities analysis is complete without analyzing the balance sheet. All of the companies have a P/Cash ratio between 0.23-0.25, so those values do not need to be discussed on a relative basis. Current ratios, D/E measures, and P/B are considered in the following figure. Some of this information has to be sourced from SEDAR. Just press “ctrl f” and type in “annual” to get to the reports. Other data is from Macrotrends, probably the best source of long term information on the internet.

Fig 5.

Bank Current ratio Debt to equity Price to book
TD 0.93 0.13 1.68
RBC 0.90 0.11 2.02
Scotiabank 1.05 0.41 1.49
CIBC 1.03 0.12 1.46
BMO 0.98 0.14 1.42
Average 0.98 0.182 1.614

All of the values, except for RBCs P/B and Scotiabanks debt to equity fall within range of their peers. Objectively, these values are ridiculously strong, but nonetheless, we are looking for a winner among winners.

The last rudimentary fundamentals to be considered are some alternative financial ratios that work best when relatively compared. This is the largest section. We will be looking at all of the ROx’s, as well as PM and OM.

Fig 6.

Bank ROE ROI ROA Operating Margin Profit margin
TD 13.50% 5.20% 0.70% 56.90% 36.30%
RBC 14.30% 4.00% 0.70% 60.00% 36.10%
Scotiabank 10.40% 17.30% 0.60% 51.20% 23.50%
CIBC 10.90% 16.00% 0.50% 54.30% 25.40%
BMO 10.30% 5.40% 0.50% 59.10% 24.20%
Average 11.88% 9.58% 0.6% 56.3% 29.10%

For the returns, Scotiabank and CIBC slightly ahead of the other three because of their exceptionally high ROI. For operating margins, RBC and BMO are slightly above average, where Scotiabank is lagging behind. TD and RBC have exceptionally higher profit margins.

Culminating the rudimentary analysis is a large comparison of Figures 2-6, excluding 4. For each figure, a “winner” can be determined, and a “loser” can be determined. Here are the overall rankings for each figure.

For figure 2, TD is the most attractive in both fields. CIBC is the second most attractive for both fields. The first two fall below the average P/E, but because of the limited deviation between banks, this is not a huge accomplishment. The next two rankings are subjective. BMO and RBC are tied for third. Their percent difference between PEs and P/FCFs are quite similar for both of them, and each value carries similar importance. Scotiabank is fourth

In figure three, TD is again the winner. Their sustainable growth is extremely attractive, despite having a higher P/S than the average. BMO is second for the same reasons, and RBC is third because of their high P/S. Scotiabank and CIBC are tied for fourth because they both have similar P/S ratios and their Sales growth to eps growth are similar.

For figure 5, CIBC is the slight winner. Most values are very similar, but CIBC is in the top two for all categories. Second is BMO, lagging slightly behind CIBC with their CR and D/E, but winning the P/B category. Third is TD. Fourth is RBC because of their higher than average P/B. Last is scotiabank with the highest D/E ratio despite having stronger values in other fields. Scotiabank is in last because this value is almost four times the next highest D/E, whereas the highest P/B is only ~25% greater than the best P/B ratio.

In judging figure 6, a higher priority is placed on profit margin. Giving equal weighting to ROE, ROI and ROA, TD is the winner of figure 6. RBC is very close behind. CIBC is third, and Scotiabank is fourth. BMO is last.

Fig 7. The results of the preliminary relative analysis

Bank Figure 2 ranking Fig 3 ranking Fig 5 ranking Fig 6 ranking Overall
TD 1 1 3 1 1
RBC =3 3 4 2 3
Scotiabank 4 =4 5 4 5
CIBC 2 =4 1 3 2
BMO =3 2 2 5 4

Clearly, TD was the most attractive followed by CIBC.

Market analysis. Data is mostly from stockhouse.

This section will analyze more sensitive factors of each company, such as short position, large and insider transactions, volatility, and other factors related to the current situation of the company. It will be split into individual sections for each bank, as well as a composite section comparing some factors.

Lets begin with TD. TD has a market cap of 150 billion, which is quite large for even american companies. Their beta is 0.9, which will hopefully draw speculation away. They have a dividend yield of 3.825%. Not a lot of insider information is available, but most insiders have historically bought below 60 and sold at 70. The current price is 65, but is extremely attractive.

Bank Market cap Beta Yield Short interest Sales Assets
TD 150.24b 0.9 3.825% 0.33% 43b 1.7t

BMO has a market cap of 74 billion, just about half that of TD. They have a beta of 1.17, which is higher than desired. They have a yield of 3.71% and a short interest of 0.59%. Their yield is slightly lower than TD, despite having the higher beta. Recent insider purchases have been below $90, and a number of sales have happened above 100.

Bank Market cap Beta Yield Short interest Sales Assets
BMO 74b 1.17 3.71 0.59% 25b 0.95t

CIBC has a market cap of 59 billion. Their beta is 1, and their yield is 3.34. Short interest is 0.98%. There have been a number of insider sales above 100, and insider purchases below this number.

Bank Market cap Beta Yield Short interest Sales Assets
CIBC 59b 1 3.34 0.98% 18b 0.73t

RBC has a market cap of 134 billion. Their beta is 0.79, which makes them quite attractive if considering their dividend. Their yield is 3.34. Short interest is 0.34%. The buy/sell line is at around 80 for insiders.

Bank Market cap Beta Yield Short interest Sales Assets
RBC 134b 0.79 3.64 0.34% 47b 1.62t

Overall

Bank Market cap Beta Yield Short interest Sales Assets Overall
TD 150.24b 0.9 3.825% 0.33% 43b 1.7t 3
BMO 74b 1.17 3.71% 0.59% 25b 0.95t 5
Scotiabank 74b 0.85 4.64% 0.34% 31b 1.14t 1
RBC 134b 0.79 3.64% 0.34% 47b 1.62t 2
CIBC 59b 1 3.34% 0.98% 18b 0.73t 4
Average 98b 0.942 3.83 0.516 32.8b 1.23t  

Scotiabank has a market cap of 74 billion. Their beta is 0.79, which makes them quite attractive if considering their dividend. Their yield is 3.34. Short interest is 0.34%. Scotiabanks buy/sell line is around 75 with a lot of deviation.

All five institutions have some attractive things and some ugly things in this table, relatively speaking. Scotiabank's yield is offset by the low ranking it got in the previous relative analysis. TD has the most attractive yield other than that, and the low short interest is reassuring. RBCs low beta is very attractive, as well as their large sales and massive asset pool. They are the second most attractive entry in the table after Scotiabank. TD is third at a relatively neutral position. CIBC is fourth and BMO is fifth because of BMOs large beta.

Legal, regulatory, and other news releases, various sources.

TD:

  • Making acquisitions.
  • No recent regulatory information
  • No recent legal news

BMO:

  • Recently sold asset management business
  • No regulatory
  • No legal

RBC:

  • No recent news
  • No recent legal
  • No recent regulatory

Scotiabank:

  • Recently released an unpopular compensation plan for executives
  • Recently announced the gradual allocation of 10b for funding CMHC initiatives
  • No recent legal
  • No recent regulatory

CIBC:

  • Recently issued 1b of debentures.
  • No recent legal
  • No recent regulatory
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8 min

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Target Price

7/ 10

Confidence

2-6 Months

Timeframe
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