Bank of Nova Scotia (BNS)
Bancos — Canadá y América Latina
Scotiabank is the most internationally diversified of the large Canadian banks and comes off two years of simplifying its footprint: it exited Colombia, Costa Rica and Panama and sold its consumer finance business in Peru, redirecting capital to the North American corridor with stakes in KeyCorp and Davivienda Group. The net interest margin expansion — from 2.16% in fiscal 2024 to 2.49% in the quarter ended April 2026 — is already in earnings and also in the price: the stock trades above the exit band that corresponds to a bank. The estimated return is +4% annually and the status is Preserves value.
- Price
- $92.72
- Intrinsic value (5y, base)
- $91
- Total annual return (5y)
- 3.7%
- Status (nominal)
- Preserves value
- Margin of safety
- No margin
The essentials
- The net interest margin expanded 33 basis points in two years (2.16% in fiscal 2024 to 2.49% in the second quarter of 2026) and explains most of the earnings jump; it is balance-sheet repricing, not volume growth.
- Reported 2025 earnings were depressed by a CAD 1,422 million impairment from divestitures that has already rolled out of the twelve-month window, so the recent comparison runs against a low base.
- Capital is ample: a common equity tier 1 ratio of 13.3% against an 11.5% regulatory minimum, with CAD 1,150 million of buybacks in the first half of 2026.
- The dividend yield is 3.6% and the normalized return on tangible common equity is 15%, within the good-business band but below the higher-quality Canadian peers.
Intrinsic value — two valuation methods
Total return at 5 years: 11.2%/year = 6.3% appreciation + 4.9% dividend. The target price ($126) is ex-dividend; the $26 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $215 · Multiples $124) exceeds the market price ($93).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $93 trades ~25.0% below its value discounted to today (~$124); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — Infravalorado: the target price ($126) plus dividends yield above the required average return (10%) — the business compounds.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$80.
Thesis
The business
A Canadian universal bank with an international franchise being simplified. Quality is sound rather than exceptional: normalized return on tangible common equity of 15.2%, ample capital with a common equity tier 1 ratio of 13.3% against a 11.5% minimum, and a deposit base of CAD 981 billion that gives it a funding cost that is hard to match. The weak point is structural profitability: adjusted return on equity of 13.1% in the half-year ended April 2026 — already recovered from the 9.7% of fiscal 2025, which carried the divestiture impairment — still trails the higher-quality Canadian peers and sits below the 14% objective the company itself set for fiscal 2027.
The valuation
Equity is valued on earnings, which is the correct method for a bank: deposits and wholesale debt are operating funding rather than shareholder capital structure, so building an enterprise value bridge would not be appropriate. Normalized net income available to common shareholders for the twelve months ended April 2026 is CAD 9.69 billion, and the base case takes it to CAD 12.30 billion by the fifth year at an exit multiple of 12 times, within the 10 to 15 times band that corresponds to a bank. The result is a value of $126 per share and an estimated return of +11% per year.
The margin of safety
It trades at a real discount to value, though short of the required margin of safety. The math is straightforward: today's entry multiple sits above the ceiling of the band that corresponds to a bank, so the exit valuation implies compression, and that compression eats up nearly all of the earnings growth. The annualized dividend of CAD 4.56 per share, yielding 4.9%, contributes most of the estimated return of +11%. The status is Undervalued.
What to watch
The disconfirmer is the net interest margin. All of the earnings improvement of the last two years comes from repricing from 2.16% to 2.49%, not from loan-book volume, which fell CAD 14 billion in the first half of 2026, mainly from the transfer of Colombia, Costa Rica and Panama — measured year over year the book was essentially flat (CAD 757,434 million versus CAD 756,372 million), with organic growth in Canada, Mexico and Chile. If the Bank of Canada halts the rate-cut cycle and the margin stabilizes, earnings stop growing at the pace the price discounts. The second point is the provision for credit losses, at 0.62% of average net loans in fiscal 2025 against 0.53% the prior year, against a backdrop of a weaker Canadian labor market and U.S. tariffs.
Educational / informational. Does not constitute investment advice.