Â© Reuters. Scotiabank stocks: probably a reliable long-term investment
The Bank of Nova Scotia (BNS), also known as Scotiabank, could be a great investment for investors looking to add stability to their portfolios.
It is a Canadian bank that serves 25 million customers around the world. It operates through four segments: Canadian Banking, International Banking, Global Banking and Markets, and Global Wealth Management.
We are bullish on the Bank of Nova Scotia. (See the top analyst stocks on TipRanks)
What we like about BNS
The Bank of Nova Scotia is one of the âBig Fiveâ Canadian banks. As a result, it operates in an oligopoly as Canada’s third-largest bank in terms of assets and market capitalization.
Canadian banks have a reputation for being among the most resilient in the world. In times of economic crisis, they tend to be less volatile than the overall market.
Therefore, betting on a bank like the SNB is a relatively safe way to get rich in the long run.
We will value BNS using a dividend discount model. To demonstrate the value of the stock, we will use a one-step DDM. Our assumptions are as follows:
Equity risk premium: 4.7% Risk-free rate: 1.55% Beta: 0.83 Cost of equity: 5.45% Infinite growth rate: 2.1% (fixed on the yield on bonds of US State at 30) Dividend per share: $ 2.84
Fair value = 2.84 (0.0545 – 0.021)
Fair value = $ 85.78 per share
As you can see, the SNB is trading at fair value if we just assume a growth rate of 2.1% using the current discount rate. We think it’s likely to grow faster than that.
As the economy finally returns to pre-pandemic levels, interest rates are expected to rise eventually. This is especially true if inflation continues to rise for longer than expected.
We expect Scotiabank to benefit from higher interest rates going forward. This is because he will receive higher interest payments on government treasury bills on customer deposits.
In addition, he will be able to charge more for the loans. This will potentially lead to higher net interest margins if the company’s cost of borrowing does not rise as quickly.
Additionally, we love that BNS owns Tangerine Bank, which is its fully online subsidiary. The opening of accounts and the request for financial products is very simple and fast. Tangerine seems well positioned to capture young people who prefer to do almost everything online. Since Tangerine is owned by BNS, Tangerine customers can use BNS ATMs to withdraw or deposit money.
Finally, Scotiabank presented itself as âCanada’s most international bankâ due to its acquisitions mainly in Latin America and the Caribbean, as well as in Europe and parts of Asia.
This international expansion may open the bank to more potential risks. However, it also increases the possibility of higher growth.
The Taking of Wall Street
For Wall Street, the Bank of Nova Scotia has a moderate buy consensus rating, based on five buys and four holdbacks awarded in the past three months. The Bank of Nova Scotia’s average price target of $ 69.09 implies upside potential of 11.5%.
Scotiabank is a safe and reliable investment that appears well positioned to benefit from rising rates, a growing shift to online banking and international growth.
Disclosure: At the time of publication, Stock Bros Research does not have a position in any of the titles mentioned in this article.
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