Royal Bank of Canada (RY), Toronto-Dominion Bank (USA) (TD), Enbridge Inc (USA) (ENB): 3 Nova Scotia Picks You Must Buy This Month

The Bank of Nova Scotia (USA) (NYSE:BNS) has $740 billion in assets under management (AUM) as of May 2013. The bank believes in holding a well-diversified portfolio of investments. This diversification can be geographical or industrial, which helps in monetizing future growth opportunities. I am analyzing the top three companies of its portfolio, which recently took major steps including expansion efforts and new agreements in order to boost revenue.

Name Percentage of holdings
Royal Bank (NYSE:RY) of Canada 15.85%
The Toronto-Dominion Bank 11.32%
Enbridge (NYSE:ENB) 6.79%

P&C segment and wealth management will increase revenue

Royal Bank of Canada (USA) (NYSE:RY)

The Royal Bank of Canada (NYSE:RY) reported strong growth in Canadian personal and commercial (P&C) segment. This segment includes the whole Canadian retail banking business. It reported earnings of $1.05 billion in the second quarter this year, showing an increase of 12% year-over-year. The main revenue driver was strong growth of 9%, year-over-year, in its loan segment. Residential loans also reported 5% growth, year-over-year. As these loans are at an affordable price, the bank is expecting further growth. Currently, home loans are available with weaker credit, and they are expected to help in the economic recovery. Therefore, it is expecting a further rise of 6-7% in earnings from this segment in the second half of 2013. It is expected that the bank will have earnings growth of $4.36 billion in 2013, compared to $4 billion in 2012.

Wealth management is one of the major segments of the Royal Bank of Canada (NYSE:RY). The company reported earnings of $242 million in its second quarter 2013, as compared to $228 million in same quarter last year. The reason for high revenue growth was higher fee based revenue from rising AUM. Looking at market stability in the U.S. and market appreciation of 5-7%, the bank has further planned to expand this segment by increasing its takeovers range. The company will increase its acquisitions to a maximum $4.9 billion, from $1.90 billion. Earnings are expected to rise by 18%, year-over-year, this year to $902 million.

New agreements will boost market share

The acquisition of Target Corporation (NYSE:TGT)’s credit card operations by The Toronto-Dominion Bank (USA) (NYSE:TD) showed impressive results in the second quarter of 2013. The acquisition added $6 billion in credit card loans to the bank’s portfolio. The bank acquired credit card operations in order to increase its credit card market, especially in North America. Apart from acquisition, it also entered into a seven year agreement in which it will be the sole issuer of Target-branded Visa credit cards for Target Corporation (NYSE:TGT)’s U.S. customers. The Toronto-Dominion Bank (USA) (NYSE:TD) reported revenue increase of $168 million, that is 11%, as compared to its previous quarter, due to this acquisition. It is further planning to invest approximately $60-$80 million quarterly in its low yielding assets by selling its securities.

The Toronto-Dominion Bank (USA) (NYSE:TD) announced its conditional agreement to issue credit cards for Aeroplan, under the loyalty program owned by Aimia. CIBC is the former issuer of credit cards for Aimia. According to agreement, if CIBC matches with the terms of the bank’s deal by August 2013, it can continue to hold its partnership with Aimia. If CIBC continues, the The Toronto-Dominion Bank (USA) (NYSE:TD) will be entitled to $80 million to cover its transaction expenses.

The contract is for ten years, commencing January 2014. The bank would initially pay $95.32 million as an upfront to cover miles purchases annually for three years. The credit cards include extra premium cards for small Canadian owners and travel cards for frequent air travelers. The bank’s current credit card market is $20.8 billion as of May 2013, showing 35% increment year-over-year. This agreement is expected to increase the bank’s credit card market in North America.

With these, the bank’s P&C segment is expected to rise by 15% year-over-year, to $1.5 billion, and 8-10% year-over-year loan growth by the end of 2013.

Expansion and new contract will boost the company’s revenue

Enbridge Inc (USA) (NYSE:ENB) signed a $300 million contract in May 2013 with ConocoPhillips (NYSE:COP) and Total SA (ADR) (NYSE:TOT) E&P, the ConocoPhillips (NYSE:COP) Surmont Partnership, to provide terminal and transportation services. Terminal services can be defined as service rendered to store oil in tanks for a oil company. Under this contract the company will expand its existing infrastructure at Cheecham terminal. It will develop two 450,000 barrel tanks along with other installations to facilitate transportation. It is expected to commence service by the end of 2014.

Enbridge Inc (USA) (NYSE:ENB) also added the Athabasca and Waupisoo pipeline systems to this pipeline, which are connected to six oil sand projects. The company is expecting to connect nine producers to this pipeline by 2015. This expansion will add extra output for Surmount’s oil sand project. It is expected that company will have revenue growth of $165 million in 2013, and $195 million in 2014, as compared to $110 in 2012, from its oil sand system.

Enbridge Inc (USA) (NYSE:ENB)’s main revenue driver is its Canadian mainline from Western Canadian Sedimentary Basin in the U.S. mid-continent. Its well established oil infrastructure facilities in the mid-stream are a strong reason for revenue growth. Being optimistic towards future transportation demand, it expanded this pipeline from Northern Alberta to the U.S. Gulf Coast, which will be in service by the middle of 2014. The company announced continuity in adding more infrastructure facilities, expecting a rise in oils and production.

Further, it announced an expansion of the Canadian Mainline system into Eastern Canada, the Eastern U.S. Gulf Coast, and Canadian West Coast at an estimated cost of $200 million. The expansion will raise its capacity by 120,000 bpd, year-over-year, to a capacity of 570,000 bpd by the end of this year. Enbridge Inc (USA) (NYSE:ENB) is expecting revenue of $580 million in 2013 and $662 million in 2014 from this pipeline, compared to $432 million of 2012.

Conclusion

Increased mortgage rates and a major revenue generating wealth segment will bring favorable impact in increasing future revenue generation for Royal Canadian Bank. The Toronto-Dominion Bank (USA) (NYSE:TD)’s new agreements for issuing credit cards and its acquisition of Target’s credit card operations will boost its market share. Pipeline expansion and a new contract to provide terminal and transportation services will increase revenue in the future for Enbridge Inc (USA) (NYSE:ENB). Therefore, these stocks are recommended as a buy.

The article 3 Nova Scotia Picks You Must Buy This Month originally appeared on Fool.com.

Madhu Dube has no position in any stocks mentioned. The Motley Fool recommends The Bank of Nova Scotia (USA). Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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