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Stockchase Insights
Canadian Western Bank
CWB-T
PARTIAL BUY
May 29, 2024
Stock price when the opinion was issued
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Don't forget it's a share swap, so shares will trade in line with NA shares. NA shares are down, because it's raising a bunch of money to pay for the acquisition. Consider yourself lucky, as you're doubling your money from yesterday.
He'd hold on, accept the NA shares, hold onto those shares, and you'll do extremely well.
Under regulatory scrutiny, but likelihood of transaction going through is pretty high, though of course not guaranteed. The acquisition makes a lot of sense for expanding NA's footprint. No other player likely to step in.
If you're worried, you could sell and redeploy proceeds elsewhere in the sector. Look at RY or even TD.
What the caller's really asking is could this be an arbitrage opportunity to back-door his way into NA? Yes, but there's risk that the government doesn't allow the deal. Deal could fall apart. Then CWB would go back to $27. Unless you also short NA, you could really get slaughtered.
He'd never recommend a retail investor ever do anything crazy like that. If you really want to own NA, buy that stock instead.
Regional banks are having a tough time competing with well-established big banks in general due to their inferior scale and less famous brand recognition. CWB is trading at a cheap valuation of only 0.7x Price/Book, but operational efficiency is not as good as the high-quality operators in the banking industry. Return on equity was around the 10% range in the last few years, which is quite weak relative to the large banks, while net margin is also lower than large banks. CWB could be an interesting value name once in a while, but we think it makes more sense to hold high-quality, more efficient banks in the long term. CWB does have energy sector exposure, which is both good and bad depending on the cycle. But for an income stock, we prefer the safety of the larger banks. We would prefer RY or TD.
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