How Much Are Scotiabank Shares Worth?

31 May 2016


Lately, I have been pondering on Scotiabank equity, namely: should I keep it or get rid of it? It is a top rated financial institution and many boast of owning it. A large part of the decline in the stock was due to it going ex-dividend ($0.40 per share) on March 9th, 2016 and ($0.70 and $1.10 per share) on December 9th, 2015. Despite this decline Scotiabank continues to be one of the highest and most stable dividend paying stocks on the Trinidad and Tobago Stock Exchange.

While SBTT’s share price reached a high of $62.55 on June 8th 2015, current prices are as low as $53.91 as seen below.

Chart 1: One Year Historical Prices for Scotiabank T&T Limited

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Despite this, after a quick stock valuation, I believe that SBTT is in fact fairly valued at $60.60, mainly because its dividends are stable but not growing. If I bought SBTT on December 31, 2015 and kept it to April 30th, 2016, I would have lost $3.32 or 8.90%. But at the same time I would have gained from earning dividends in the amount of $0.40. Also, if I sold my shares on April 30th, 2016, would I be able to re-acquire it sometime in the future? The Trinidad and Tobago Stock Exchange is relatively buy-to-hold type stock exchange.
But, if I waited until the end of December 2016, I may benefit from future dividends. In 2015, SBTT paid as much as $1.90 per share, the same as in 2013 and 2014. So, if SBTT continues to keep this trend, I may earn as much as $1.90 in dividends in 2016. This is really something to look forward to. Also, I would hope for a medium term gain in 3 years, rather than a 1 year short term loss.
The price of SBTT as at April 30, 2016 was $56.43. At a valuation of $60.60, SBTT is still fairly valued, as its current price is only 7.40% above intrinsic value. I recommend a hold on this stock. The $60.60 valuation was based on an average of 3 valuation models, namely the Dividend Discount Model, Price Earnings Ratio and Enterprise Value per share.

The Dividend Discount Model values the share price by discounting predicted dividends to present value. The Price Earnings ratio shows the current share price relative to its earnings per share. The Enterprise Value (EV) is calculated as the sum of the SBTT’s market capitalization plus debt less cash and investments.
SBTT’s valuation using the Dividend Discount Model was $58.32, and as high as $65.95 using the PE model and as low as $57.55 using the EV model as seen below. The average of these 3 models is $60.60 as seen in the Valuation table (linked) and below.

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You still want to exit.

If I were to trade SBTT, what would I get for it? See the year to date Volume at Price chart below. I’d hope that I could sell it at more than $61.94, which it started 2016 at. The median trading price for SBTT is lower, or around $57+, but only as high as $62.00, but at low volumes. I’d opt to ride out the downtrend and seek a good return through dividend yield. Dividend yield is the dividend expressed as a percentage of a current share price.

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Further analysis reveals that the earnings on SBTT have also been flat. Net income increased by a mere 1.10% or $6.20Mn from $559.92Mn in 2014 to 566.14Mn in 2015. A few points in their annual report popped out at me. SBTT repaid its debt early in the amount of $618Mn and it currently has no debt securities in issue. This is good, as earnings will not have to be forked out to repay debt and there should be more income to distribute to shareholders in the future, ceteris paribus. I would ride out the recession with this stock.

Note:

Neither Firstline Securities nor Kristal Williams has received compensation for this blog publication or have any business relationship with any company whose stock is mentioned.
Nothing in this blog should be construed as investment advice. Please consult your financial advisor. This is not a solicitation to buy or sell any securities, neither is this tax advice.

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