Bank of Nova Scotia (BNS)

Total return at 5 years: 4.9%/year = 1.0% appreciation + 4.0% dividend. The target price ($93) is ex-dividend; the $18 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $159 · Multiples $91) exceeds the market price ($89).

Today — fairly valued: at $89 trades ~1.9% below its value discounted to today (~$91); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($93) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

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 ~$58.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($89) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-8.0%/year) than we project (4.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~CAD 6.7 bn of owner earnings in year 5 (vs ~CAD 12.7 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Equity-level model: common earnings are valued at an earnings multiple, with no enterprise-value bridge (in a bank, deposits and wholesale debt are operating funding, not the shareholder's capital structure). Reporting currency: Canadian dollar; the quote is in U.S. dollars and the conversion is applied once, at the close of the cascade, at the live exchange rate. Year zero is the twelve-month window closed July 31, 2026 — built by levels from the third-quarter report, because the securities regulator's structured database has not yet ingested that quarter or the prior one even though the bank filed them in May and August — normalized by two identified and cited charges, both still inside the window: the CAD 434 million loss (CAD 377 million after tax) on the sale of the banking operations in Colombia, Costa Rica and Panama, closed December 1, 2025, and the CAD 373 million restructuring and severance charge (CAD 270 million after tax) from the fourth quarter of 2025. The CAD 1,422 million fiscal 2025 impairment has already dropped out of the window. Normalized common earnings come to CAD 10.15 billion — CAD 9.51 billion reported plus the two charges — equivalent to a return on tangible common equity of 15.7% on average tangible equity of CAD 64,688 million, the third-quarter-2026 figure. The company publishes medium-term financial targets (diluted earnings per share +7%+, return on equity 14%+, positive operating leverage) but without a specific revenue figure, so the path is anchored to trajectory: revenue grew 7.4% over the nine months of 2026, but that headline carries a favorable currency tailwind and international banking bills 7.7% less at constant currency, so year one starts at 5.5% rather than the reported pace; the 12.1% jump in fiscal 2025 reflects interest-margin repricing and is likewise not extrapolable. The share path is a single one across all three scenarios and falls close to 1.0% a year, below the 1.9% the period-end series reveals: the buyback offer in effect since April 7, 2026 has a declared cap of 15 million shares, close to 1.2% of capital, and in a bank the surplus that funds it is capped by regulatory capital rather than by cash flow. The return on tangible common equity the model shows is the identity between earnings per share and tangible value per share, so it re-derives in full with every re-anchoring.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $93 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $89, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $93 in 5 years plus $18 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $91. Against the current market price ($89), the margin of safety is 1.9% (trades below the maximum → there is margin) and the total return at that price would be 4.9% annually.

• Entry multiple. Above the ceiling of the 10-to-15-times band that corresponds to a bank.
• Exit multiple. 12 times normalized earnings, in the lower half of the banking archetype's band on 4.3% terminal growth and good quality.
• Dividend contribution. The annualized dividend of CAD 4.56 per share contributes most of the estimated return of +5%.
• Value versus price. It trades close to intrinsic value, far from the required margin of safety.

• Return on tangible capital. 15.7% normalized over the twelve-month window through July 2026 and 11.9% reported in fiscal 2025, when it carried the divestiture impairment: against the 10% bar, the current reading falls in the excellent-business band.
• Return on equity. 13.5% adjusted over the nine months ended July 2026, recovered from 9.7% in fiscal 2025 and with the standalone quarter already at 14.2%, but still below the company's own 14% target on a cumulative basis and behind higher-quality Canadian peers.
• Funding cost. Deposit ratings of AA+ (Fitch), Aa2 (Moody's), AA (Morningstar DBRS) and A+ (S&P) — Fitch upgraded it one notch in May 2026 — on a CAD 981 billion deposit base.
• Reinvestment runway. Limited: the loan book grew just 1.2% year over year, and growth has to come from the margin or from wealth management.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

In a bank, revenue breaks down into loan book times spread: net interest margin is the price and loan and deposit volume is the quantity. The four indicators are levels reported in Canadian dollars, the reporting currency. The margin widened 33 basis points in two years from Bank of Canada rate cuts, which lowered deposit costs faster than loans repriced. The common equity tier 1 ratio measures the cushion against the 11.0% regulatory minimum and is what enables the buyback.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Consolidated revenue. 7.4% year over year over the nine months of 2026 against 12.1% in fiscal 2025, and with a favorable currency tailwind: at constant currency international banking bills 7.7% less.
• Loan-book volume. Loans closed the nine months at CAD 770,555 million, 1.2% above a year earlier, with the international banking book down 12% from the Colombia, Costa Rica and Panama transfer; taken together the book was essentially flat, with organic growth in Canada, Mexico and Chile.
• Wealth management. 14% year over year in the second quarter of 2026 with a return on equity of 17.9%: the best-economics segment in the group.
• Per-share growth. The roughly 1% annual net buyback adds a point to per-share earnings growth over the aggregate.

• Recurrence and predictability. Retail and commercial banking with a sticky primary relationship; revenue repeats as long as the book and deposits hold.
• Pricing power. The net interest margin is set more by the rate cycle than by the bank: it moved from 2.16% to 2.49% because of monetary policy, not by choice.
• Barriers to entry. Bank charter, multi-jurisdictional licenses and funding scale: an entrant does not replicate the structure within the relevant horizon.
• Geographic diversification. Four segments and more than twelve countries, but the international half competes without a structural advantage and is being reduced.
• Recession behavior. The provision rose from 0.53% to 0.62% of the average book with only a mild cooling of the Canadian labor market.

• ✓Capital adequacy (CET1)CET1 13.1% (+2.1pp above the minimum)
• ✕Reserve coverage (allowance / loan book)0.95% of the loan book
• ✓Credit quality (net charge-off rate)0.50% annually
• ✓Value creation (ROTCE − 10% bar)+6pp
• ✓Funding (deposit base)Deposits $1,006 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Capital. Common equity tier 1 ratio of 13.3% against an 11.5% regulatory minimum: roughly 180 basis points of headroom.
• Provision coverage. CAD 7,344 million of total provision over CAD 7,608 million of gross impaired loans: 0.97 times coverage.
• Loan-book quality. Gross impaired loans at 99 basis points of the book, four points above the prior quarter.
• Funding. Deposits of CAD 981 billion over assets of CAD 1,522 billion, with high investment-grade ratings.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Allocation measured over the nine months ended July 31, 2026. Of the CAD 4,490 million paid in dividends, about CAD 375 million corresponded to preferred shares and other capital instruments; the common dividend was CAD 4,115 million, close to 56% of common earnings for the period. On top of that come CAD 2,182 million of buybacks, net of CAD 196 million of shares issued. What is retained builds regulatory capital, which is the form reinvestment takes in a bank.

• Capital allocation. Exited three sub-scale markets and sold its consumer finance business in Peru, redirecting capital to the North American corridor. The decisions are consistent with the stated strategy.
• Shareholder return. CAD 6,297 million returned to common shareholders over the nine months of 2026 (CAD 4,115 million of dividends and CAD 2,182 million of buybacks), with the dividend held at CAD 1.14 per quarter.
• Verifiable alignment. Cannot be verified here: the issuer does not file a proxy statement with the U.S. commission and the law prohibits a controlling shareholder.
• Candor about mistakes. The CAD 1,422 million divestiture impairment was disclosed with explicit amount and quantification in the filing.

• The market extrapolates the net interest margin expansion — from 2.16% in fiscal 2024 to 2.49% in the quarter ended July 2026 — into structurally higher earnings.
• Reported fiscal 2025 earnings were depressed by a CAD 1,422 million divestiture impairment that has already rolled out of the twelve-month window, so recent comparisons run against a low base and overstate the improvement.
• The simplification of the international footprint reads as a permanent improvement in the risk profile and capital consumption.
• The dividend yield and capital headroom sustain demand from income investors against a backdrop of falling rates.

There are no missing buyers in this case: the stock trades above the archetype's exit band. The right question is not why it is cheap but what has to happen to justify the price, and the answer is demanding: that the net interest margin hold the 2.49% reached while the provision for credit losses normalizes downward at the same time.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -2%/year (-10% total): the margin of safety protects the downside. The bull (+10%/year, +59% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Rate cycle. All of the earnings improvement depends on a net interest margin that expanded because of Bank of Canada rate cuts.
• Credit cycle. Provision at 0.62% of the average book against 0.53%, with a weaker Canadian labor market and U.S. tariffs.
• Bail-in. The CDIC Act regime allows converting shares and liabilities into common shares if the Superintendent declares the bank non-viable.
• Currency risk. Value is generated in Canadian dollars and the stock is paid for in U.S. dollars: the cross enters into the return.
• Pending acquisition. Purchase of Maple Financial Holdings in Dallas: the bank is the acquirer and states no material impact on earnings and capital.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROTCE 16% above the 10% bar, but the margin is limited (+2%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 3.4 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -8% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +6%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, efficient scale, switching costs, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -8%, within what we project (5%) — the story squares with the numbers.