National Bank – The best performing bank

National Bank Of Canada is a leading financial institution, ranking amongst the six largest commercial banks in Canada. National Bank offers a wide range of banking and financial services, including corporate and investment banking, securities brokerage, insurance, wealth, and retirement management. 

By geography, Quebec is its largest market accounting for more than 60% of its total revenues. The bank also has an international footprint constituting 15% of total revenues and other Canadian provinces comprising nearly 25% of total revenues.

National Bank’s business can be divided into – Personal and commercial banking which accounts for nearly 40% of National Bank’s revenue, followed by financial markets (25%), wealth management (24%), and US specialty finance and international (11%). It had over $350 billion of total assets as of April-end. National Bank’s experience of 160 years and client-centric integrated financial service offerings have made it a preferred choice amongst clients. 

It has branches in almost every province of Canada. It is one of Canada’s largest integrated financial service providers, with convenient self-banking channels, 401 branches, 929 banking machines across Canada, and a large-scale digital presence. In addition, it also has 94 wealth management service outlets across Canada.

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Key Investment Data

 

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Revenue Growth & Market Exposure

National Bank is a Canadian super regional bank with a leading franchise in Quebec. The bank caters to individual customers, small and medium-sized enterprises, and large corporations. It offers specialized services in the international markets as well.

National Bank is the most preferred financial service provider for its clients, especially SMEs. The bank continues to heavily invest in its platforms to deepen client relationships, combining advisory services and technology to create a more personalized approach.

National Bank is favorably placed to leverage from its leading position in Quebec and increasing market presence across Canada. Its personal and commercial banking has a strong presence in central and other markets in the country and meets the financial needs of close to 2.6 million individuals and more than 141,000 businesses. 

National Bank’s expertise in specialized markets should help it expand in the growing commercial markets. The bank’s digital transformation is also bearing fruit. Its wealth management business is firmly established across Canada and is gaining from favorable markets and net inflows. Its U.S. Specialty Finance and International business further complement the growth of its domestic operations. 

National Bank’s investments are directed towards fueling organic growth in its core markets, enhancing the client experience, and generating positive operating leverage. The bank’s U.S. specialty finance and international businesses, Credigy (U.S.) and ABA Bank (Cambodia) continue to provide attractive growth potentials with performances exceeding expectations. 

The bank witnessed a strong performance in the second quarter of 2021 amid an improving economic environment. National Bank also reported growth in loan and deposit volumes as well as an increase in non-interest income. Both AUA and AUM increased by 28% YoY.

Dividends

National Bank has shown a dividend growth of 8.6% CAGR over the last decade. It has a very reasonable payout ratio of 38% and a current dividend yield of more than 3%.

National Bank is a Dividend Aristocrat with a proven history of attractive dividend yield and consistent annual dividend growth. It last raised its dividend by more than 9% in 2019. 

National Bank has set a medium-term target to achieve a 5%-10% growth in EPS and maintain a payout ratio of 40%-50%. Its credit quality also remains strong. 

National Bank reported a CET1 ratio of 12.2% and an efficiency ratio of ~53%, giving it the flexibility to invest in its businesses and returning capital to shareholders. The bank has successfully grown its revenues and EPS each by 6%+ CAGR, respectively, in the last decade.

National Bank is focusing on driving growth organically and increasing customer satisfaction across all its segments. The bank is well-positioned to gain from its balanced mix of businesses and a diversified revenue base. 

National Bank’s Wealth Management segment is the leading franchise in Quebec with a strong foothold across Canada while its Financial Markets business provides a diversified earnings stream. Quebec market should gain driven by improving economic fundamentals and affordable housing prices. 

National Bank’s International segment is also expected to deliver double-digit earnings growth in FY2021. The bank is targeting mid to high single-digit PTPP growth during the year.

Competition

The Canadian personal and commercial banking segments are highly competitive. National Bank is the sixth-largest bank and competes with other leading Canadian banks like TD Bank, Royal Bank, Scotiabank, CIBC, and Bank of Montreal. 

Bank of Montreal is the eighth largest bank in North America by assets, while CIBC caters to 11 million individual, small business, commercial, corporate and institutional clients in Canada, the U.S. and around the world.

Scotiabank is a leading international financial services provider with a rich history of 185 years and Bank of Montreal is the eighth largest bank in North America by assets.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified58.22131.18186.7713.3313.339.983.290043.900044.3210.140067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified66.9986.27156.6111.1111.116.723.660040.600043.1612.890077Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified62.4281.0398.0913.0613.066.274.440057.200043.6010.120067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified53.30127.9983.2814.0414.0410.453.310046.500044.247.550057Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified57.25149.1366.3912.5712.5712.673.920049.100045.848.550067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified59.2996.3932.6512.9812.987.752.950038.000042.849.790067Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional61.4635.123.0711.0611.063.263.300036.500041.169.290077Tollbooth - UnregulatedYESYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional37.1942.221.8511.5111.514.193.790043.500041.603.790014Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Resilient franchise and diversified earnings stream supported National Bank’s performance in the last year.

Given its strong reputation as a “super-regional Canadian bank”, National Bank should continue to benefit from the resilient Quebec economy. Its growing focus in international markets should further strengthen the business mix.

National Bank should also increase dividend payouts as the central bank is expected to lift capital return restrictions on banks.

A diversified and agile franchise, strong capital levels, and prudent allowances for credit losses position the bank well to seize growth opportunities in a recovering economy.

National Bank (NA) Historical PE
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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.