Royal Bank of Canada $88 – Toronto symbol RY

ROYAL BANK OF CANADA $88 (Toronto symbol RY; SI Rating: Above average) is the largest of Canada’s big five banks, with total assets of $469.5 billion.

In its fourth fiscal quarter ended October 31, 2005, Royal set aside $591 million to cover possible lawsuit settlements related to its involvement with U.S. energy trader Enron Corp. It also set aside $203 million more to cover costs at its U.S. insurance operations related to three major hurricanes.

These charges cut Royal’s net income from continuing operations in the fourth quarter by 21.9%, to $0.82 a share (total $543 million) from $1.05 ($687 million) a year earlier. If you disregard all unusual charges, per-share earnings grew 18.3%, to $1.68 from $1.42. Revenue rose 4.3%, to $4.8 billion from $4.6 billion.

Royal’s U.S. operations, which account for about a quarter of its total income, are enjoying the benefits of last year’s restructuring. Income from this division more than doubled in the latest quarter, mostly due to strong demand for residential mortgages.

The bank is building its European operations. It agreed to buy UK-based wealth management firm Abacus Financial Services for an undisclosed sum. Abacus has just $41 billion U.S. in assets under administration, which is modest in relation to Royal’s $1.8 trillion (Canadian). But the deal gives Royal access to Abacus’ high net worth clientele.

The stock has tripled since 2000, but still trades at just 13.5 times the $6.52 a share it should earn in fiscal 2006. The $2.56 dividend yields 2.9%.

Royal Bank is a buy.

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