CWB shows Continued strong performance in Q1
On March 8 Canadian Western Bank released it's first quarter results; and it was about the fifth quarter in a row that showed a strong performance.Adjusted cash earnings per share was $0.75 up 23% from 2016.While net income at $62 million was yo 25% from Q1 in 2016.Also CWB showed 11% loan growth including $850 million of business lending assets in an acquisition from Element Financial.This resulted in a $.02 dividend increase up 9% from 2016 to $1.00 per share.
All their financial indicators showed improvement.Net interest margin was 2.52% or up 6 basis points.Gross impaired loans were .57 % of total loans down from .79% in the previous quarter.The provision for credit losses was down as a percentage of average loans to 18 basis points in comparison to 27 basis points in 2016.
Structural Changes
This blog has emphasized the structural changes that have been taking place in CWB since 2015(see Linkedupdale September12,2017 entitled The New Canadian Western Bank). The drop in the price of oil had quite an impact on CWB and they made a number of adjustments.This blog believes that almost all adjustments have had a positive impact on earnings.First they acquired CWB Franchise and CWB Maximum and in this quarter they acquired a part of ECN Capital. Secondly they opened another branch bringing their total to 42 branches.Lastly they started an online banking unit called Motive Financial.As stated in my October 16,2017 blog on Econothon "the nature and geographical distribution of it's business is starting to change".In particular,CWB has increased it's commercial business and loans in Ontario.This trend has continued in Q1.
More Changes to Come
The price of oil has come back to the $63 to $67 price range but CWB shares have dropped to $33 per share.Three months ago the price of oil was about $60-$62 per barrel and now it is in the $63 to $67 per barrel range.This blog sees an average price of $66 per barrel for 2018.This means that the price in the second half may hit $70.But the price of CWB shares have dropped from $38-$40 per share down to $33.The price should come back;but there are a number of things I would recommend if I was their consultant.
(1) It could break out Canadian Western Trust which would contain CWB Optimum Mortgage,CWB Equipment Financing,National Leasing,CWB Maximum Financial,and CWB Franchise Finance.This would give CWT room to grow faster on it's own and offer specialized services.Trusts have less restrictions on their growth.
(2) It should put more investment into Motive Financial including making a small acquisition such as Payfirma or another small fintech.This area is growing faster than most others and will add to adjusted EBITDA.
(3) It should look closely at making another small acquisition from ECN Capital(commercial loans) which still has too much debt.
(4) It should (sometime in 2018) build another branch in southwest Ontario to bring their total to 43 branches.
(5) It should focus more on adding commercial and residential loans in Ontario to increase their concentration of business in Ontario.
Some or all of these changes should result in annualized adjusted cash earnings of $3.00-$3.25 per share.Common shareholders net income could hit $275 million and a price/earnings ratio of 10 to 11 at $35 per share.This makes the New Canadian Western Bank quite a bargain,especially if the price of oil hits $67 to $70 a barrel. use Blogdaleupsome for financial consulting; use Blogdaleupsome for financial analysis
All their financial indicators showed improvement.Net interest margin was 2.52% or up 6 basis points.Gross impaired loans were .57 % of total loans down from .79% in the previous quarter.The provision for credit losses was down as a percentage of average loans to 18 basis points in comparison to 27 basis points in 2016.
Structural Changes
This blog has emphasized the structural changes that have been taking place in CWB since 2015(see Linkedupdale September12,2017 entitled The New Canadian Western Bank). The drop in the price of oil had quite an impact on CWB and they made a number of adjustments.This blog believes that almost all adjustments have had a positive impact on earnings.First they acquired CWB Franchise and CWB Maximum and in this quarter they acquired a part of ECN Capital. Secondly they opened another branch bringing their total to 42 branches.Lastly they started an online banking unit called Motive Financial.As stated in my October 16,2017 blog on Econothon "the nature and geographical distribution of it's business is starting to change".In particular,CWB has increased it's commercial business and loans in Ontario.This trend has continued in Q1.
More Changes to Come
The price of oil has come back to the $63 to $67 price range but CWB shares have dropped to $33 per share.Three months ago the price of oil was about $60-$62 per barrel and now it is in the $63 to $67 per barrel range.This blog sees an average price of $66 per barrel for 2018.This means that the price in the second half may hit $70.But the price of CWB shares have dropped from $38-$40 per share down to $33.The price should come back;but there are a number of things I would recommend if I was their consultant.
(1) It could break out Canadian Western Trust which would contain CWB Optimum Mortgage,CWB Equipment Financing,National Leasing,CWB Maximum Financial,and CWB Franchise Finance.This would give CWT room to grow faster on it's own and offer specialized services.Trusts have less restrictions on their growth.
(2) It should put more investment into Motive Financial including making a small acquisition such as Payfirma or another small fintech.This area is growing faster than most others and will add to adjusted EBITDA.
(3) It should look closely at making another small acquisition from ECN Capital(commercial loans) which still has too much debt.
(4) It should (sometime in 2018) build another branch in southwest Ontario to bring their total to 43 branches.
(5) It should focus more on adding commercial and residential loans in Ontario to increase their concentration of business in Ontario.
Some or all of these changes should result in annualized adjusted cash earnings of $3.00-$3.25 per share.Common shareholders net income could hit $275 million and a price/earnings ratio of 10 to 11 at $35 per share.This makes the New Canadian Western Bank quite a bargain,especially if the price of oil hits $67 to $70 a barrel. use Blogdaleupsome for financial consulting; use Blogdaleupsome for financial analysis
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