Bank of Nova Scotia $51 – Toronto symbol BNS

BANK OF NOVA SCOTIA $51 (Toronto symbol BNS; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is the third-largest bank in Canada, with assets of $379.0 billion.

Bank of Nova Scotia has few operations in the U.S. It prefers to focus on developing countries in Latin America and Asia where it has a better chance to improve its market share. Its operations outside of Canada now supply 30% of its earnings.

A good example of the bank’s strategy is its recent $90 million purchase of a 68% stake in Dehring Bunting & Golding Ltd., one of Jamaica’s largest brokerage firms. Bank of Nova Scotia plans to use its retail branches in the Caribbean to promote Dehring’s services.

To put that price in perspective, the bank earned $0.89 a share (total $897 million) in its fourth fiscal quarter ended October 31, 2006, up 11.3% from $0.80 a share ($811 million) a year earlier. Revenue rose 11.1%, to $3.0 billion from $2.7 billion, partly due to acquisitions. Stable interest rates also spurred strong demand for home mortgages and other loans.

Despite the costs to integrate these new businesses, as well as expanding its domestic branch network, the bank’s efficiency ratio in the quarter fell to 56.9% from 57.8%.

Bank of Nova Scotia will continue to focus on its overseas operations, particularly in fastgrowing countries like India and China.

Although it is the first Canadian bank to open a branch in China, it will probably look to form partnerships with local Chinese banks to cut its risk.

The shares have gained 25% in the past six months, and now trade at 13.4 times the $3.81 a share it will probably earn in fiscal 2007. The $1.68 dividend yields 3.3%.

Bank of Nova Scotia is a buy.

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