On Monday, the bank of Nova Scotia (NYSE: BNS) became the fifth bank to declare quarterly results that surpassed analysts’ expectations. The growing trend has caught the market by surprise mainly due to the fact that these banks have large exposure to energy loans. Given the weakness in the crude oil price, the performance of the banks is commendable. In the case of Nova Scotia, the third-quarter earnings and revenue surpassed Wall Street’s estimates comfortably. Thus, we believe that the share price would remain upbeat during the last quarter of fiscal 2016. The share price of Nova Scotia bank ended Wednesday’s trading session at $53.18.
The Toronto, Ontario-based company reported third-quarter revenue of C$6.64 billion, compared to C$6.12 billion in the third quarter last year. The reported revenue was higher than the Thomson Reuters estimate of C$6.57 billion.
For the quarter ended July 2016, Nova Scotia recorded a third-quarter net income of C$1.96 billion, up from C$1.85 billion in the corresponding quarter of 2015. On a per-share basis, the third-quarter earnings of Nova Scotia increased to C$1.54, from C$1.45 per share in the similar quarter of 2015. Excluding charges, the Q3 2016 earnings of C$1.55 per share were higher than Wall Street’s estimates of C$1.48 per share.
The third-quarter net income of the Canadian banking segment increased C$67 million y-o-y to C$930 million. The international banking segment’s net income grew 9% y-o-y to C$527 million. The global banking segment’s net income was C$421 million, up C$42 million compared to last year.
The net interest income for Q3 2016 was C$3.60 billion, compared to C$3.52 billion in Q3 2015. The non-interest income for the third-quarter increased C$238 million to C$3.04 billion, from C$2.77 billion in the similar period of 2015.
At the end of the third quarter, the bank’s exposure to energy loans declined to 3.3% of the total loans of C$16.1 billion. During the previous quarter, the energy loans stood at 3.4% of the total loans of C$16.3 billion. During Q3 2016, the bank also set aside C$37 million to cover bad energy loans. It was far lower than the $150 million provisions made in the previous quarter. On an overall basis, the provision for loan losses decreased C$181 million to $571 million, from C$752 million in the second quarter.
Strong internal capital generation enabled the bank to record an impressive Common Equity Tier 1 ratio of 10.5%, up from10.1% in the earlier quarter.
Technically, the stock has broken the resistance at 52. So, we can expect that level to act as support from here on. The MACD is rising further into the bullish zone. Thus, we can expect the share price of Nova Scotia to reach the next resistance level at 60.
From a binary trader’s point of view, a one-touch call option looks like the best choice. It is needless to say that the strike price for the call option should not exceed $60. Likewise, to improve the probability of success in the trade, it would be better if the contract remains valid until the final week of September.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
