Improved Business Prospects from Canadian Segment: Canadian Imperial Bank of Commerce (TSX: CM) is a leading North America bank which offers a wide range of services such as Personal and Small Business Banking, Commercial Banking and Wealth Management, and Capital Markets businesses etc.

CM declared a quarterly dividend of CAD 1.46 per share, reflecting an increase of two cents. Divided payout for Q1FY20 stood at 54.6%, as compared to 52.2% in the previous corresponding period.

Financial Highlights for Q1FY20: CM reported its quarterly results, wherein the company reported total revenue of CAD 4,855 million, as compared to CAD 4,565 million in the prior-year quarter. Net interest margin came in at 1.62%, down from 1.66 % in Q1FY19. Adjusted net income stood at CAD 1,483 million, up 9% on y-o-y basis. The increase was primarily driven by solid growth from Canadian Personal and Small Business Banking segment. Within the U.S. Commercial Banking and Wealth Management, CM reported decent revenue growth, driven by higher fees and increase in assets under management. However, lower-margin remained a drag. Net income in the Capital Markets segment jumped 63% y-o-y, reflecting higher revenues and lower provisions.  Common Equity Tier 1 (CET1) ratio improved to 11.3% from 11.2% in the prior year. The company reported total assets at CAD 672,118 million, as compared to CAD 651,604 million in FY19.

Q1FY20 Key Operational Highlights (Source: Company Reports)  

Valuation Method: Price to Book Multiple Approach

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:The stock of CM is quoting at CAD 81.78 with a market capitalization of 36.40 Billion. The stock corrected by ~17% and ~24% in the last one month and six months, respectively. The stock bounce back and made a recovery of 3.52% in the last five trading sessions, ~1.82% higher than the industry. The stock is trading higher than the 20-days simple moving average (SMA) of CAD 78, which suggest short term-strength. Due to the recent correction in the stock price, the dividend yield increased to 7.141%. The bank has shown strong performance across the Canadian region and in the capital market segment, supported by strong volume growth in deposits and loans and higher AUM. CM reported lower provisions for credit losses, as compared to the previous corresponding quarter, which is encouraging. While the current low-interest-rate environment is not congenial for banks, we expect the economy to revive gradually and would result decent credit expansion. We have valued the stock using Price to Book based relative valuation methodology. We have taken peers like Royal Bank of Canada (TSX: RY), Bank of Montreal (TSX: BMO), Bank of Nova Scotia (TSX: BNS) etc and arrived at a target price which offers an upside of low double-digit (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 81.78 as on April 06, 2020.

CM One-Year Daily Price Chart (Source: Thomson Reuters)

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