Toronto-Dominion Bank (TSX: TD) is one of the largest Canadian banks, and operates through three business segments, namely, Canadian retail banking, U.S. retail banking, and wholesale banking.

Key Highlights:

• Growth in Asset Under Administration (AUA): Assets under administration (AUA) from the Canadian Retail segment stood at CAD 557 billion in Q1FY22, reflecting a growth of 15% on y-o-y basis. On the other hand, the U.S. Retail segment reported its AUA of USD 32 billion, grew 23%, on y-o-y basis. A higher AUA reflects higher banking activity and hence would lead to higher income for the Bank.
  

• Focused on digital adoption: As per the recent trend of growing mobile and tech-savvy users, the company has increased its focus on higher digital adoption, which has shown remarkable growth in the recent quarters. Notably, at the end of Q1FY22, 61.6% of Canadian retailers and 52.3% of U.S. retailers are using digital banking for transactions, which is higher than 60.6% and 49.4%, respectively, in pcp. Active mobile users stood at 6.5 million and 4.3 million, respectively, in Canada and U.S., respectively, up from 6.1 million and 3.8 million, respectively, in pcp. Higher number of digital users denotes a higher scope for cross selling its financial products digitally.

Source: Company Presentation

• Increase in Dividend Payment: In Q1FY22, the TD distributed total dividend of CAD 2,947 million, which is significantly higher than CAD 1,387 million in Q1FY21. This is impressive as most of the companies are lowering their dividend distribution in order to retain liquidity. Moreover, the stock of TD also carries a dividend yield of ~3.591%, which looks attractive considering the ongoing interest rate scenario.

• Growth in Loans and Deposits: Despite the negative effects of the pandemic, the bank reported stable growth from its loan and deposits across the U.S. and Canada region. Both personal loans and personal deposits segments reported remarkable growth in Q1FY22 supported by strong consumer sentiment and higher purchasing activities. We expect the momentum to continue aided by lower COVID restrictions and revival in the economy.

Source: Company Presentation

Risk Associated with the Investment:

The bank’s operations might be hindered by change in interest rates, which might lead to lower consumer sentiment and a decline in purchasing activities. This might hamper the company’s lending segment 

 Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• TD announced its first quarter results, wherein the company posted its total revenue of CAD 11,281 million, increased from CAD 10,812 million in Q1FY21. This was supported by higher income from both net interest income and non-interest income.
• Non-interest expense stood higher at CAD 5,967 million in Q1FY22, as compared to CAD 5,784 million in pcp, due to higher salaries and employee benefits and an increase in Technology and equipment, including depreciation, partially offset by lower Occupancy, including depreciation expense. Income before income taxes stood higher at CAD 4,486 million v/s CAD 3,935 million in pcp, thanks to the elevated revenue as mentioned above.
• The group reported its net income of CAD 3,733 million, grew from CAD 3,277 million in pcp, primarily due to the above-mentioned facts, partially offset by a higher income tax expense.

 Valuation Methodology (Illustrative): Price to Book value based

 Analysis by Kalkine Group

Stock Recommendation:

TD has reported its Common Equity Tier (CET) 1 Ratio of 15.2% on Q1FY22, improved by 162 bps from Q1FY21. A higher CET 1 ratio suggest higher financial strength and indicates that how well the bank can withstand economic depression and other economic crisis. We have valued the stock using the P/BV-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry peers like Royal Bank of Canada, National Bank of Canada etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of TD at the last closing price CAD 99.14 on April 06, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 06, 2022). Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

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