Lowering Our Valuation Slightly for Bank of Nova Scotia Following Earnings, Shares Still Cheap

Bank of Nova Scotia is the third-largest Canadian-based bank by assets and one of six Canadian banks that collectively hold almost 90% of the nation's banking deposits. It is known as Canada’s most international bank as it derives a little over half of its revenue from Canada, over 40% from international operations (primarily Latin America, namely Mexico, Peru, and Chile), and a single-digit percentage from the United States. Its domestic operations are more concentrated in mortgages and auto lending, with leading market share in autos. The bank has been expanding its domestic wealth operations significantly with its acquisitions of MD Financial and Jarislowsky Fraser, making it the third-largest active manager in Canada. The bank has been reworking its Latin America footprint, making acquisitions in markets it likes (Chile, Colombia) while reducing exposure to businesses and geographies that are less favorable as it attempts to consolidate better share within the area. The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks, as we've seen during the pandemic. While theoretically beneficial, the bank's international exposure has tended to be more of a headwind than tailwind.