Monday, August 31, 2015

Recommended August Buy: Laurentian Bank of Canada

Ticker LB (Toronto Stock Exchange)
Fiscal Year End October
Recent price (Closing Price on August 10, 2015) CAD $48.98
Market Capitalization CAD $1.40 Billion
52 week range $46.05 – $51.84
Price-to-Earnings (last full year) 9.9
Price-to-Earnings (7 year average earnings) 11.5
Price-to-Book 1.0
Price-to-Book (7 year average Book value) 1.07

Laurentian Bank of Canada is a financial institution based in Montreal. The bank has four main business lines. Its Retail Services are offered through 156 branches in the province of Quebec (and 1 in Ottawa, Ontario), offering a wide line of personal banking services. The Commercial segment operates throughout the country, providing loans and other financing services to small and medium businesses. The bank claims to specialize especially in such niches as real estate developers, agriculture, health professionals and equipment financing. B2B Bank, the third main line, provides banking and investment solutions exclusively through independent financial advisors and non-bank financial institutions. This business in particular has grown significantly through recently acquiring other businesses such as AGF Trust and probably needs some time to adjust to its changes. The fourth segment, Laurentian Securities and Capital Markets, is focused mainly on investment banking and underwriting to small companies.

Laurentian Bank came up for meeting my modified Piotroski score for financial firms, obtaining a score of 5 out of 6. It’s only negative mark comes from issuing more shares compared to the previous year (a fairly recurring occurrence for the company in recent years). I also believe the company to be valued well below its intrinsic value, trading at about 1.07 times its average Book value. Also noteworthy, though it doesn’t factor in my calculations, Laurentian Bank pays a quarterly dividend of $0.56 a share, which translates to a hefty dividend yield of about 4%. The company reported quarterly earnings of $1.16 and $1.34 per share the last two quarters, so the dividend seems very sustainable and should be a reliable source of returns for the next few years.

Laurentian Bank has some acquisitions to digest from the last few years. But as it stands it trades at a substantial discount to its current value, at least compared to what other Canadian banks such as Canadian Western Bank trade at, with the further possibility of growth in its business across the country.

Disclosure: I own shares in Laurentian Bank of Canada

Laurentian Bank Aug 2014 to Aug 2015