Toronto-Dominion Bank (TSX: TD) is one of Canada's two largest banks and operates three business segments: Canadian retail banking, U.S. retail banking, and wholesale banking. The bank's U.S. operations span from Maine to Florida, with a strong presence in the Northeast.

Key Highlights:

• New Product Launch: Recently, the company announced the launch of TD Payment Plans, a new credit service available to eligible TD cardholders with EasyWeb online banking access. TD Payment Plans would support cashflow management by enabling a fixed payment schedule to pay for eligible credit card purchases for a fee or a lower interest rate.  Additionally, cardholders would continue to enjoy their existing credit card benefits for their purchases, such as applicable rewards and insurances, and can pay off a plan at any time without penalties regardless of the length of the term they have chosen. This is expected to higher loan disbursement and is a key positive for the company.
  

• Growth in operating metrics: Assets under administration (AUA) from the Canadian Retail segment stood at CAD 537 billion in Q2FY22, as compared to CAD 514 billion. On the other hand, the company’s Assets under Management (AUM) stood at CAD 411 billion in Q2FY22, higher than CAD 397 billion in pcp. The growth was driven by growth driven by a surge in net assets during the quarter. We believe, this performance is impressive considering the ongoing tepid economic scenario.

• Growth from digital adoption: The recent consumer preferences suggests growing users for the mobile and tech-savvy users. Hence, the company has increased its focus on higher digital adoption, which has shown remarkable growth in the recent quarters. Notably, at the end of Q2FY22, 63.2% of Canadian retailers and 53% of U.S. retailers are using digital banking for transactions, which is higher than 62.3% and 50.2%, respectively, in pcp. Active mobile users stood at 6.7 million and 4.4 million, respectively, in Canada and U.S., respectively, up from 6.5 million and 4.3 million, respectively, in pcp. Higher number of digital users denotes a higher scope for cross selling its financial products digitally.

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.

Q2FY22 Financial Highlights:

Q2FY22 Income Statement Highlights (Source: Company Report)

• TD announced its second quarter results FY22, wherein the company posted its total revenue of CAD 11,263 million, increased from CAD 10,228 million in Q2FY21. This was supported by higher income from both net interest income and non-interest income.
• Non-interest expense stood higher at CAD 6,033 million in Q2FY22, as compared to CAD 5,729 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 4,611 million v/s CAD 4,435 million in pcp, thanks to the elevated revenue as mentioned above.
• The group reported its net income of CAD 3,811 million, grew from CAD 3,695 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:

Despite the ongoing pandemic, the company reported strong customer activity and reported double digit growth from Canadian Personal and Commercial Average Volumes, U.S. Retail Average Volumes and Total Wealth Assets during the last two years, which is encouraging. Lastly, the stock of TD carries a dividend yield of ~3.984% on an annualized basis, which looks impressive considering the persisting interest rate scenario. 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 Bank of Nova Scotia Bank of Montreal etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of TD at the last closing price CAD 89.35 on June 14, 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 June 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV 

Technical Analysis Summary

Disclaimer

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