May 2006 Financial News

Scotiabank Releases Half Year Results

May 24, 2006

Scotiabank (T&T) Limited (SBTT) continued to show the consistency which many have associated as a trademark with the local bank. In its unaudited half-year results SBTT reported an impressive EPS of $1.224, which represents an improvement of 39.4% over the corresponding period last year (hy- 05: $0.878). Based on the results posted, the Directors have resolved to pay a first interim dividend of $0.23 cents per share, a 21% improvement over the amount paid for the same period last year ($0.19). This brings the dividends for the year to date to $0.46.

The improvement in earnings was driven by growth at the top line especially Net Interest Income, the main income stream. Net Interest Income increased by 23.25% from $199 million to $245.75 million. The top line growth was helped by a relatively small increase in Non-Interest Expenses (9.28%), which pushed the improvement in Income before Taxation to 30% from $145 million to $188 million. SBTT also benefited from a reduction in the effective tax rate, which moved from 29% to 23.5%. The resulting Income after Taxation was $143.8 million, 39.3% higher than the corresponding prior year period ($103.2 million).

Given that the Company has achieved two consistent quarters of growth with earnings in each quarter of over $0.60, the confidence placed in the stock should be maintained. The relatively small available float of shares combined with the impressive growth to date adds to the ability of the shares to trade at a relative premium to the rest of the market. At the current price of $38.48 and the running EPS of $2.279, the shares of SBTT are trading at a multiple of 16.88 times. The initial forecast we targeted for the EPS at the year-end was based on a conservative growth rate of 17%, however, given the half year performance, we have increased the projection rate to 25%. Using the growth rate of 25%, the new estimated EPS for the 2006 financial year is in the range of $2.40 to $2.45, which would translate to a multiple in the 15 times range. Thus, even though the share is trading at a relatively high multiple, we maintain our recommendation as a HOLD.

Jason Gokool
WISE Research Team