Bank of Nova Scotia BNS

Narrow-moat-rated Bank of Nova Scotia reported decent fiscal second-quarter earnings. Adjusted earnings per share were CAD 1.90, solid year-over-year growth compared with adjusted EPS of CAD 1 in the same period a year ago. Provisioning was the major swing factor, coming in at a cost of CAD 496 million this quarter compared with CAD 1.8 billion in the second quarter of 2020. This aligns with our view that the Canadian banks will be fine and that better results should be the norm in 2021. We still expect the return of fee growth and much lower provisions to drive solid earnings growth for the rest of the year, while the lack of a boost from lower provisioning will make for tougher comps for the Canadian banks in 2022. Fee income growth has been particularly good for peers, but Scotiabank’s growth was not as stellar. The bank’s international segment remains under some pressure, and fee growth for the global markets segment faces tough comps from last year and was not setting new highs. We expect international fees to continue to recover, although some of Scotia’s international footprint is recovering slower than its Canadian market. Adjusted expenses were down 1% and are generally better than we expected. After adjusting our projections, we are increasing our fair value estimate to CAD 77/USD 64 per share from CAD 71/USD 56.