Issue 25 – No Love for Bank of Nova Scotia

Since the beginning of spring, the Bank of Nova Scotia (TSX:BNS) has been significantly underperforming the other Canadian Banks. BNS has lagged its peers by over 10% for two main reasons. The first is the acquisition of MD Financial (MD). The MD transaction is a great deal for BNS and very strategic as it brings a pipeline of high net worth clients to the bank. However, BNS had to significantly pay up for the asset. They paid $2.6 billion, or 7% of AUM, which is the highest multiple we have seen in the industry. The market may be shocked by the price paid and may be focusing on the acquisition being dilutive to EPS for the next two years. In our view, the dilution is very mild for such an asset and BNS has a reputation for efficiently integrating acquisitions. Furthermore, the market seems to be ignoring the upsell opportunities of this new client list.     Continue Reading in PDF