Laurentian Bank of Canada – Value Analysis (TORONTO:LB) : November 20, 2017

Capitalcube gives Laurentian Bank of Canada a score of 25.

Our analysis is based on comparing Laurentian Bank of Canada with the following peers – National Bank of Canada, Canadian Western Bank, Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal and Toronto-Dominion Bank (NA-CA, CWB-CA, CM-CA, RY-CA, BNS-CA, BMO-CA and TD-CA).

Fundamental Overview

Laurentian Bank of Canada has a fundamental score of 25 and has a relative valuation of UNDERVALUED.

Fundamental Score

Company Overview

  • It trades at a lower Price/Book multiple (1.14) than its peer median (1.65).
  • The market expects LB-CA‘s earnings to grow at about the same rate as its chosen peers and also does not seem to expect much improvement in its below peer median returns.
  • LB-CA has relatively low profit margins and median capital efficiency.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • LB-CA‘s return on equity currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • While LB-CA‘s revenues growth has been below the peer median in the last few years, the market still gives the stock a P/E ratio that is around peer median and seems to see the company as a long-term strategic bet.
  • The company seems to be over-investing in a business with median returns.

Drivers of Margin

  • LB-CA‘s pre-tax margin suggests relatively high operating costs.
  • The company’s net interest income (net interest income/total revenues) of 63.24% is around peer median suggesting that LB-CA‘s lending operations does not benefit from any differentiating pricing advantage. In addition, LB-CA‘s pre-tax margin is less than the peer median (22.60% compared to 34.56%) suggesting relatively high operating costs.
  • The company’s proportion of fee based income (i.e. non interest income/total revenues) of 36.76% is around peer median. In addition, LB-CA‘s proportion of overhead costs (i.e. non interest expense/total revenues) of 67.33x is also around peer median — suggesting no cost advantage on fee-based overhead operations.
Drivers of Margins

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Differentiated; High Cost, Commodity; High Cost, Commodity; Low Cost

Company Profile

Laurentian Bank of Canada is a banking institution that offers financial services across Canada. It offers its products to a network of independent financial intermediaries through B2B Trust, as well as full-service brokerage solutions through Laurentian Bank Securities. The company operates through the following segments Personal & Commercial, B2B Bank, Laurentian Bank Securities and Capital Markets. Personal & Commercial segment caters to the financial needs of business clients across Canada and retail clients in Québec. The Bank serves retail clients mainly through a network of branches and ATMs, providing a full range of savings, investment and financing products. The B2B Bank segment supplies banking and financial products to independent financial advisors and non-bank financial institutions across Canada. The Laurentian Bank Securities and Capital Markets business segment provides full-service brokerage services to retail and institutional clients and manages bank-related capital market activities. This segment’s Institutional Fixed Income division has a particularly strong presence in government and corporate underwriting, as well as in secondary markets. Its institutional services group largely serves small and mid-sized money managers and brokerage firms. The Other segment includes the activities of the Bank’s various corporate support sectors, mainly treasury, credit, finance, risk management, technology, operations, corporate affairs and human resources. Treasury operations such as securitization activities, liquidity management and other corporate activities are reported in this segment. Laurentian Bank of Canada was founded by Monsignor Ignace Bourget on May 26, 1846 and is headquartered in Montreal, Canada.