Bank of Nova Scotia $47 – Toronto symbol BNS

BANK OF NOVA SCOTIA $47 (Toronto symbol BNS; SI Rating: Above average) is Canada’s third-largest bank, with assets of $314.0 billion.

In its fourth fiscal quarter ended October 31, 2005, earnings grew 15.9%, to $0.80 a share (total $811 million) from $0.69 ($705 million) a year earlier, due to gains in retail, wealth management and international operations. Excluding onetime items, the bank earned $0.77 a share in the latest quarter. Revenue rose 9.6%, to $2.74 billion from $2.5 billion.

In the past five years, Bank of Nova Scotia has spent over $800 million on international acquisitions, mostly in the Caribbean and Latin America. These operations now provide about a third of its net income. This makes it the most international of Canada’s big five banks.

Bank of Nova Scotia is still expanding its overseas operations. In December 2005, it agreed to pay $390 million for an 80% stake in one of Peru’s top banks. It plans to merge this new investment with its existing operations in Peru to form that country’s third-largest bank.

The bank has also agreed to buy $20 billion U.S. worth of car loans over the next five years from General Motors’ finance division. Bank of Nova Scotia did not disclose how much it will pay for these loans, but they could add about $0.05 a share to its annual profits.

Earnings in fiscal 2006 should rise to $3.35 a share, and the stock trades at 14.0 times that figure. The bank raised its quarterly dividend for the fourth time in two years, from $0.34 to $0.36. The new annual rate of $1.44 yields 3.1%. Bank of Nova Scotia’s growing cash flows and investments in fast-growing overseas economies make it our top choice for new bank investment.

Bank of Nova Scotia is a buy.

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