The report on CWB is updated and rated (higher) Speculative Buy at $32.39. This should be a good investment but due to the possibility of higher loan losses, I labeled it speculative. But that’s not to say that it is highly speculative. I just call it speculative due to its highly leveraged nature as a bank and due to the uncertainty of loan losses. Over the long term I am quite confident it will continue to grow.
Perhaps shockingly, I have now been following and analyzing CWB continuously for almost 22 years. In that time the share price is up 556% or 8.9% compounded per year. Combined with the dividend that was definitely a good return.
But it has certainly not gone up in a straight line. There was a huge decline during the financial crisis in 2008. But the stock came back strongly from that to hit a high of around $42 in mid 2014. But it then quickly plummeted to about $20 by early 2016 mostly due to the steep decline in oil prices. By the end of 2017/start of 2018 it was back to a high around $39. But then it was weak again and finally plunged under $20 with the COVID-panic last year. Since then, it has gained fairly steadily.
So, the past result has been quite good for very long term holdings but featuring a very bumpy ride. Those who bought near the lows on the big dips would have done very well.
A look back and a look forward:
Looking back at my analysis as of 2014, I was too enthusiastic. InvestorsFriend rated it a Buy on September 7, 2014 at $40.54. Looking back, the analysis stated:
the price to book value ratio seems moderately high (less attractive) at 2.15 (but this may be well justified by the 14% ROE). The adjusted P/E is neutral in attractiveness at 16…. Dividend yield is modest at 2.0% and reflects a pay-out ratio of 32% of adjusted earnings (meaning that 68% of earnings are retained and reinvested which is a good thing given the 14% ROE). Adjusted ROE is quite good at 14.2% for the latest four quarters.
Intrinsic value per share is calculated as $32.25 assuming just 5% average annual growth for 5 years and a terminal P/E of 13 and more optimistically calculated as $43.86 assuming 9% growth for 5 years and a terminal P/E of 15 . These ratios in isolation would indicate a Buy rating.
The book value at that time was $18.83 and earnings per share were $2.53 and the dividend was 80 cents per year for a yield of 2.0%.
So today, the book value per share is 72% higher at $32.21. The P/E is far lower (more attractive) at 11. The dividend is 45% higher. The earnings per share are actually only 16% higher at $2.93 (hampered by the pandemic). The ROE is lower at 9.45%. With all of this, the stock price is 20% lower and the dividend yield is 80% higher at 3.6%.
In retrospect, and even not knowing that oil prices would collapse, perhaps the stock should have been rated a bit lower in 2014. But in any case, despite the lower ROE and more muted growth expectations, the stock looks FAR more attractive today than it did in 2014.
Buying this bank at a price to book value of right around 1.0 seems likely to lead to a return somewhere close to its REOE which is 9.45% and may well be set to rise. Barring big loan losses this should be a strong investment.
I have my own biases, but looking at the stocks on our list, this is the one I am most inclined to buy right now. My only hesitations are that it is already my second largest position and the fact that I have been wanting to maintain a strong cash allocation since that will be so much more comfortable and desirable if there is a market “correction”.