Something unusual is going on with Bank of Nova Scotia’s (BNS-T +0.26%increase) share price this year: It’s outperforming.

That may come as a relief to long-suffering shareholders who have seen the share price trail the other Big Six bank stocks by an average of 49 percentage points over the past five years, to the end of 2023. And it could offer nimble investors a reason to look again at a bank stock that stands out for looking cheap.

Okay, we are talking about a mere two months of peer-beating gains, which might not be enough to establish a clear trend. As well, slim gains of just 1.7 per cent over this period, to Thursday’s close, doesn’t exactly establish Scotiabank as a ripping momentum play just yet.

Still, it is one of only three Canadian big bank stocks in positive territory in 2024 – Canadian Imperial Bank of Commerce and top-performer National Bank of Canada (NA-T +0.74%increase) being the other ones. It is well ahead of Bank of Montreal (BMO-T +0.19%increase), Toronto-Dominion Bank (TD-T -0.22%decrease) and Royal Bank of Canada (RY-T +0.11%increase), which have slumped 6.8 per cent, 5.3 per cent and 2 per cent, respectively, this year.

Even a glimmer of hope that Scotiabank may be on the way to delivering satisfying returns is worth exploring, because this is a stock whose beaten-up valuation offers rebound potential.

Where is this glimmer of hope coming from? The bank’s latest quarterly financial results, released this week, delivered several upbeat figures that maybe pointing the way toward good times.

Adjusted profit, the figure widely used by analysts because it reflects a bank’s regular operations, was $1.69 per share. That was above the $1.61 that analysts, on average, had been expecting, according to Refinitiv.

Another impressive figure: Profit from the bank’s international banking division increased by 35 per cent from the previous quarter, giving investors a reason to embrace Scotiabank’s operations in Mexico, Colombia, Chile and Peru.

Some of the bank’s nerdier financial metrics also looked promising. Revenue from Scotiabank’s Canadian banking division expanded faster than expenses, resulting in positive operating leverage.

And the bank’s net interest margin, which reflects profit from mortgages and other loans, increased during the quarter, offsetting flatlining lending activity.

In particular, margins increased to a multiyear high of 2.56 per cent in the Canadian banking division during the quarter, up from 2.26 per cent in the same period last year.

The difference, a substantial 0.3 of a percentage point, marks the biggest year-over-year increase of the past five quarters and translates into fatter profits on the bank’s Canadian assets of $445-billion.

“This isn’t a strategic turning point for the bank – there is still a long road ahead – but it could be a financial turning point,” Paul Holden, an analyst at CIBC Capital Markets, said in a note.

The best part about Scotiabank’s financial results is that they follow low expectations among investors.

The share price is roughly where it was a decade ago. In terms of valuation, the stock trades at just 10.7 times trailing earnings, making it the cheapest among the Big Six on this metric. Based on estimated 2024 earnings, the stock’s price-to-earnings ratio is 10, which trails the peer average.

The stock also sports the highest dividend yield among the biggest banks, at 6.5 per cent. That’s well above an average of 4.8 per cent among its five peers, and adds to Scotiabank’s neglected appearance – and its appeal for investors counting on a sustained rebound.

These are early days, of course, and the rebound will have to navigate several potential obstacles. Banking in emerging market economies can be volatile, especially during an era with high interest rates and a strong U.S. dollar.

As well, Mr. Holden warns that Scotiabank is more sensitive than its peers to loan losses when the credit cycle is on a downswing. That could weigh on its profits, given that Canadian banks are setting aside big bucks in anticipation of defaults from rising mortgages and wobbling commercial real estate.

Lastly, the bank is operating under a relatively new chief executive officer, Scott Thomson, who unveiled a fresh strategic direction in December. You can’t blame investors for taking a wait-and-see approach until the plans start showing results.

But if Scotiabank’s outperforming stock is any indication, some investors may be gaining confidence in the bank’s ability to turn things around.

The nice part about investing in a stock mired in low expectations is that any improvement is good news. For Bank of Nova Scotia to become the best-performing bank stock, it may only need to become a better bank.

Monday March 4

Japan capital spending

Earnings include: Advantage Oil & Gas Ltd.; Wajax Corp.

—

Tuesday March 5

China, Japan and Euro zone services and composite PMI

(9:30 a.m. ET) Canadian S&P Global Services PMI for February.

(9:45 a.m. ET) U.S. S&P Global Services/Composite PMI for February.

(10 a.m. ET) U.S. ISM services PMI for February.

(10 a.m. ET) U.S. factory orders for January. The Street is projecting a decline of 3.0 per cent from December.

Earnings include: Aecon Group Inc.; Ag Growth International Inc.; Bird Construction Inc.; CrowdStrike Holdings Inc.; E-L Financial Corp.; First National Financial Corp.; Franco-Nevada Corp.; Nuvei Corp.; Pet Valu Holdings Ltd.; Ross Stores Inc.; Target Corp.

—

Wednesday March 6

China trade surplus and foreign reserves

Euro zone retail sales

Germany trade surplus

(8:15 a.m. ET) U.S. ADP National Employment Report for February. Estimate is an increase of 150,000 jobs from January.

(8:30 a.m. ET) Canadian labour productivity for Q4.

(9:45 a.m. ET) Bank of Canada policy announcement with press conference to follow

(10 a.m. ET) Canada’s Ivey PMI for February.

(10 a.m. ET) U.S. Job Openings & Labor Turnover Survey for January.

(10 a.m. ET) U.S. wholesale inventories for January.

Earnings include: Canfor Corp.; Curaleaf Holdings Inc.; Constellation Software Inc.; Descartes Systems Group Inc.; Linamar Corp.; Peyto Exploration & Development Corp.; Strathcona Resources Ltd.; Tourmaline Oil Corp.

—

Thursday March 7

ECB monetary policy announcement

Germany factory orders

(8:30 a.m. ET) Canada’s merchandise trade balance for January.

(8:30 a.m. ET) Canadian building permits for January.

(8:30 a.m. ET) U.S. initial jobless claims for week of March 2. Estimate is 215,000, which is flat from the previous week.

(8:30 a.m. ET) U.S. goods and services trade deficit for January.

(8:30 a.m. ET) U.S. productivity for Q4. Consensus is an annualized rate rise of 3.1 per cent.

(10 a.m. ET) U.S. Fed Chair Jerome Powell testifies before the Senate Banking Committee.

(9 a.m. ET) U.S. President Joe Biden delivers State of the Union address.

Earnings include: Ballard Power Systems Inc.; Broadcom Inc.; Chartwell Retirement Residences; Costco Wholesale Corp.; Denison Mines Corp.; Enghouse Systems Ltd.; Ero Copper Corp.; Freehold Royalties Ltd.; Hammond Power Solutions Inc.; Oracle Corp.; Paramount Resources Ltd.

—

Friday March 8

Japan household spending and bank lending

Euro zone GDP

Germany PPI and industrial production

(8:30 a.m. ET) Canadian employment for February. The Street expects an increase of 0.1 per cent, or 21,400 jobs, from January with the unemployment rate rising 0.1 per cent to 5.8 per cent and average hourly wages up 5.3 per cent year-over-year.

(8:30 a.m. ET) U.S. nonfarm payrolls for February. Consensus is an increase of 190,000 from January with the unemployment rate steady at 3.7 per cent and average hourly earnings up 0.2 per cent (or 4.5 per cent year-over-year).

Earnings include: Algonquin Power & Utilities Corp.; AltaGas Ltd.; Kelt Exploration Ltd.

April Nymex natural gas (NGJ24) on Friday closed -0.025 (-1.34%).

Nat-gas prices on Friday settled moderately lower.  The outlook for above-average U.S. winter temperatures to persist is weighing on nat-gas prices.  On Friday, NOAA said warm spring weather for the central and eastern U.S. regions will last into the middle of the month, which will curb heating demand for nat-gas and keep supplies elevated.  

Nat-gas prices have collapsed this year and plunged to a 3-1/2 year nearest-futures low (H24) this week as an unusually mild winter curbed heating consumption for nat-gas and pushed inventories well above average.  The U.S. Climate Prediction Center said there is a greater than 55% chance the current El Nino weather pattern will remain strong in the Northern Hemisphere through March, keeping temperatures above average and weighing on nat-gas prices.  AccuWeather said El Nino will limit snowfall across Canada this season in addition to causing above-normal temperatures across North America.

Nat-gas prices are also under pressure Friday from the announcement by the Freeport LNG nat-gas export terminal in Texas that one of its three production units will remain shut down until at least the middle of March after extreme cold in Texas damaged equipment.  The unit’s closure will limit U.S. nat-gas exports and increase U.S. nat-gas inventories.

Lower-48 state dry gas production Friday was 100.2 bcf/day (+0.4% y/y), according to BNEF.  Lower-48 state gas demand Friday was 87.3 bcf/day (+3.8% y/y), according to BNEF.  LNG net flows to U.S. LNG export terminals Friday were 14.1 bcf/day (+1.1% w/w), according to BNEF.

An increase in U.S. electricity output is positive for nat-gas demand from utility providers.  The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended February 24 rose +1.7% y/y to 75,613 GWh (gigawatt hours), although cumulative U.S. electricity output in the 52-week period ending February 24 was unchanged y/y at 4,101,977 GWh.

Thursday’s weekly EIA report was mixed for nat-gas prices as nat-gas inventories for the week ended February 23 fell -96 bcf, a larger draw than expectations of -85 bcf but a much smaller draw than the five-year average for this time of year of -143 bcf.  As of February 23, nat-gas inventories were up +12.3% y/y and were +26.5% above their 5-year seasonal average, signaling ample nat-gas supplies.  In Europe, gas storage was 63% full as of February 26, above the 5-year seasonal average of 47% full for this time of year.

Baker Hughes reported Friday that the number of active U.S. nat-gas drilling rigs in the week ending March 1 fell by -1 rig to 119 rigs, moderately above the 2-year low of 113 rigs posted September 8.  Active rigs have fallen back since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).

 Published: 3/1/2024 5:22 PM ET 

Canadian stocks turned in a fine performance on Friday with investors indulging in some hectic buying at several counters from across various sectors.

U.S. and European markets closed higher, and the mood was bullish on Bay Street as well amid 0ptimism about interest rate cuts by Federal Reserve and some other central banks, including the European Central Bank.

Firm crude oil and bullion prices triggered strong buying in energy and materials sectors. Technology, healthcare and real estate stocks were among the other major gainers.

The benchmark S&P/TSX Composite Index ended with a gain of 188.74 points or 0.88% at 21,552.35, a near 2-year closing high. The index gained about 0.65% in the week.

On the economic front, data showed the manufacturing activity contracted for a tenth straight month in February, although at the slowest pace in the current sequence. The S&P Global Canada Manufacturing PMI rose to 49.7 in February, from 48.3 in the previous month.

Healthcare stocks Bausch Health Companies (BHC.TO) and Chartwell Retirement Residences (CSH.UN.TO) gained about 5% and 1.9%, respectively.

Energy stocks Kelt Exploration (KEL.TO), Precision Drilling Corporation (PD.TO), Tamarack Valley Energy (TVE.TO), Shawcor (MATR.TO), Canadian Natural Resources (CNQ.TO), International Petroleum Corp (IPCO.TO) and Suncor Energy (SU.TO) gained 3 to 4%.

New Gold Inc (NGD.TO) soared nearly 10%, topping the list of gainers in the Materials Index. Oceanagold Corp (OGC.TO) and Equinox Gold Corp (EQX.TO) advanced 8.5% and 7.25%, respectively.

Fortuna Silver Mines (FVI.TO), Torex Gold Resources (TXG.TO), Sandstorm Gold (SSL.TO), B2Gold Corp (BTO.TO) and Osisko Mining (OSK.TO) surged 6 to 7%.

In the technology sector, Tecsys Inc (TCS.TO) zoomed nearly 9%. Celestica Inc (CLS.TO) climbed 6.4%, Kinaxis Inc (KXS.TO) gained about 6% and Hut 8 Corp (HUT.TO) ended 5.1% up.

Descartes Systems (DSG.TO), Open Text Corp (OTEX.TO), Constellation Software (CSU.TO) and Bitfarms (BITF.TO) gained 1.8 to 2.2%.

SNC Lavalin Inc (ATRL.TO) shares soared 11.5% after the company reported fourth-quarter adjusted net income of $79.5 million, or $0.45 per diluted share, compared to an adjusted net loss of $32.5 million , or $(0.19) per diluted share in Q4 2022.

Ensign Energy Services Inc (ESI.TO) zoomed 14% after the company said its net income for 2023 was $41.2 million, up from $8.1 million in 2022.

Oil prices rose on Friday and were set for weekly gains as markets awaited an OPEC+ decision on supply agreements for the second quarter while weighing fresh U.S., European and Chinese economic data.

Brent futures for May were up 83 cents, or 1.01 per cent, at $82.74 a barrel by 1050 GMT. The April Brent futures contract expired on Feb. 29 at $83.62 a barrel.

U.S. West Texas Intermediate (WTI) for April rose 81 cents, or 1.04 per cent, to $79.07 a barrel.

Both contracts traded more than $1 a barrel higher at their intra-day peaks.

WTI is on track for a 3.4 per cent increase this week, while following the switch in contract months Brent is around 1.4 per cent higher than last week’s settlement price.

Increasing possibilities of Saudi-led OPEC+ continuing with its supply cuts beyond the first quarter, and potentially until the end of 2024, will likely keep oil prices above $80 a barrel, said DBS Bank energy sector team lead Suvro Sarkar.

A decision on extending OPEC+ cuts is expected in the first week of March, sources have said, with individual countries expected to announce their decisions.

A Reuters survey showed the Organization of the Petroleum Exporting Countries pumped 26.42 million barrels per day (bpd) in February, up 90,000 bpd from January.

Strong expectations of Saudi Arabia keeping term prices of crude it sells to Asian customers little changed in April from March levels also underpinned the market on Friday.

On the demand side, Chinese manufacturing activity shrank for the fifth straight month in February, an official survey showed.

Euro zone inflation fell in February according to Eurostat, but both the headline figure and core inflation, which strips out volatile food and fuel prices, just missed analysts’ expectations.

But supporting prices, U.S. personal consumption expenditures (PCE) index showed January inflation in line with economists’ expectations on Thursday, reinforcing market bets for a June interest rate cut.

“The process of disinflation is reassuringly under way, therefore smart money is currently on a June rate cut,” PVM analyst Tamas Varga said in a note on Friday.

The Canadian economy is nearing a soft landing as it resumed growth in the final months of 2023, allowing the country to skirt a recession in what was otherwise a sluggish year.

Real gross domestic product rose at an annualized pace of 1 per cent in the fourth quarter, Statistics Canada said on Thursday, outpacing analyst estimates of 0.8 per cent. The economy rebounded from a 0.5-per-cent slide in the July-to-September period, thus avoiding two consecutive quarters of decline – what some economists refer to as a technical recession.

It also appears that 2024 is getting off to a healthy start. In a preliminary estimate, Statscan said real GDP jumped 0.4 per cent in January, helped by the end of public-sector strikes in Quebec.

The economy has slowed markedly since the Bank of Canada implemented a rapid series of interest-rate hikes to curb demand and bring inflation under control. Outside of 2020, when COVID-19 slammed the economy, real GDP growth of 1.1 per cent in 2023 amounted to the slowest year of expansion since 2016.

Canada’s economic performance looks even weaker after accounting for the strongest population growth in decades, resulting in a decline in per-capita output.

But in aggregate, the economy is managing to eke out growth, boosting the odds that central bankers will pull off a rare soft landing – bringing inflation to heel without a significant rise in unemployment.

The annual inflation rate has ebbed to 2.9 per cent, taking it ever closer to the Bank of Canada’s 2-per-cent target, and analysts expect the central bank to start lowering interest rates around the middle of the year.

“The Canadian economy showed some life in the final quarter of 2024,” James Orlando, senior economist at Toronto-Dominion Bank, wrote in a client note. Even so, “the narrative on the Canadian economy remains the same: High interest rates are weighing on economic growth.”

Canada seems to be getting a big boost from a strong U.S. economy. Exports of goods and services rose at an annualized pace of 5.6 per cent in the fourth quarter. Statscan said the increase was driven by exports of crude oil and bitumen, among other products.

Consumer spending rose at a 1-per-cent-annualized rate, although Statscan noted that per-capita consumption fell for the third consecutive quarter. The increase in aggregate spending “was led by higher spending on new trucks, vans and utility vehicles as supply chain issues continued to ease and back orders were fulfilled,” the report said.

Elsewhere, there was ample weakness in Thursday’s report. Real business investment fell for the sixth time over the past seven quarters, and businesses also slowed their accumulation of inventories, which created a drag on growth.

Final domestic demand – a metric that includes household and government consumption, along with capital investments – fell at an annualized rate of 0.7 per cent. Several analysts said this is an indication that economic conditions are frail in Canada and that overall numbers are being propped up by a resilient U.S. economy.

“The domestic economy appears to be weakening as high interest rates weigh on consumers and businesses,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a client note. “The growth that was seen in the fourth quarter didn’t come from within Canada’s borders and is particularly uninspiring given the population growth seen at the end of last year.”

Many private-sector economists reiterated on Thursday that they expect the Bank of Canada to begin lowering its benchmark interest rate in June, although some investors think there’s a slight chance of that happening in April.

The central bank will make its next interest-rate decision on March 6. Analysts widely expect the bank to hold its policy rate steady at 5 per cent – the highest level since 2001 – for the fifth consecutive meeting.

Bank of Canada Governor Tiff Macklem said in January that his rate-setting governing council is pivoting to a discussion of how long to hold rates at current levels. At the same time, central bankers are hesitant to lower rates too early, in the event that looser monetary policy leads to an acceleration in consumer prices.

Recent economic growth is proving stronger than Bank of Canada projections. “In our view, this will keep the BoC erring slightly on the hawkish side and wait for more evidence that inflation pressures are moderating enough,” Citibank economists Gisela Hoxha and Veronica Clark said in a report. They expect a first rate cut in July.

The household savings rate – the percentage of disposable income left after spending – was 6.2 per cent in the fourth quarter, down slightly from 6.3 per cent in the third quarter. This is much higher than it was before the pandemic, and it suggests people are squirrelling away more money to service their debts, or in anticipation of doing so at a later date, Mr. Mendes said.

ATCO Ltd. (ATCO or the Company) today announced adjusted earnings in 2023 of $432 million ($3.82 per share), which were $9 million ($0.11 per share) higher compared to $423 million ($3.71 per share) in 2022. Fourth quarter adjusted earnings in 2023 of $127 million ($1.13 per share) were $17 million ($0.16 per share) higher compared to $110 million ($0.97 per share) in the fourth quarter of 2022.

Read more at newswire.ca

Toronto-Dominion BankTD-T +0.24%increase chief executive officer Bharat Masrani said that the bank has identified the weaknesses in its anti-money laundering procedures, and that the lender is investing heavily in improving those processes.

Investors have been waiting for details on the expected fines or other penalties stemming from probes by regulators and law-enforcement agencies, including the U.S. Department of Justice, that derailed its takeover of Tennessee-based First Horizon Corp. While discussing first-quarter earnings results that topped analyst expectations, Mr. Masrani said that he cannot yet publicly share the nature of the gaps in its anti-money laundering procedures.

“I know there are questions relating to the bank’s investments in our risk and control infrastructure, including in our AML program. We are making comprehensive enhancements. This is a priority for the bank, and we take our responsibility to live up to our high standards,” Mr. Masrani said during a conference call with analysts.

He said that TD has hired hundreds of employees across the company to support its risk and control operations.

“We know what the AML issue is, and we’re making progress is fixing it every day.”

In January, The Globe reported that TD is implementing a companywide action plan to strengthen its anti-money laundering controls and risk management practices, and that it had hired new senior executives to oversee the overhaul.

On Thursday, TD reported first-quarter profit that beat analysts’ estimates as the lender booked record revenue in its capital markets division, offsetting rising provisions for loans that could default.

The bank earned $2.8-billion, or $1.55 per share, in the three months that ended Jan. 31. That compared with $1.58-billion, or $0.82 per share, in the same quarter last year.

Adjusted to exclude certain items, including costs related to the restructuring charges announced last quarter and its acquisition of New York-based investment bank Cowen, TD said it earned $2.00 per share. That topped the $1.89 per share analysts expected, according to data from the London Stock Exchange Group.

The bank booked $213-million in after-tax restructuring charges, adding to the $266-million it posted for the program last quarter. Last year, any of the banks trimmed expenses through measures including job cuts and real estate reductions. TD expects to post savings of about $400-million pre-tax in 2024.

The lender is targeting a 3 per cent reduction in its workforce through initiatives including employee severance and other personnel-related costs and reducing its real estate footprint.

“TD posted earnings that were ahead of expectations on the back of impressive operating leverage (likely aided by the ongoing restructuring charges) and a boost from capital markets,” Jefferies analyst John Aiken said in a note to clients. (Operating leverage is the industry’s term for revenue outpacing expenses.)

On Thursday, CIBC and Toronto-Dominion Bank were the final major Canadian banks to report earnings for the fiscal first quarter. The rest of the Big Six banks reported earlier this week, with Bank of Nova Scotia, Royal Bank of Canada and National Bank of Canada beating analyst expectations, while Bank of Montreal missed estimates.

In the quarter, TD set aside $1-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $67-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses. In the same quarter last year, TD had set aside $690-million in provisions.

Total revenue rose 12 per cent in the quarter to $13.7-billion as expenses decreased 1 per cent to $8-billion.

Canadian personal and commercial banking profit was $1.79-billion, up 3 per cent from a year earlier, as revenue growth offset by higher expenses and provisions.

Profit from the bank’s U.S. arm fell 43 per cent to $670-million as a decrease in the earnings contributed from TD’s investment in Charles Schwab weighed on results.

The wealth management and insurance division’s profit was flat at $555-million of profit as higher insurance service expenses offset a rise in revenue.

Capital markets profit fell 38 per cent to $205-million on higher expenses related to the integration of TD’s Cowen acquisition. But revenue jumped 32 per cent to $1.78-billion on higher activity through Cowen, as well as a boost in equity commissions, lending revenue from syndicated and leveraged finance, trading and underwriting fees.

Canadian Utilities Limited (Canadian Utilities or the Company) today announced adjusted earnings in 2023 of $596 million ($2.21 per share), which were $59 million ($0.22 per share) lower compared to $655 million ($2.43 per share) in 2022. Fourth quarter adjusted earnings in 2023 of $192 million ($0.71 per share), were $12 million ($0.05 per share) higher compared to $180 million ($0.66 per share) in the fourth quarter of 2022.

Read more at newswire.ca