Morningstar | Toronto-Dominion Wraps Up Good 2018; Macro and Geopolitical Concerns Remain Key for 2019 and Beyond. See Updated Analyst Note from 30 Nov 2018
Wide-moat rated Toronto-Dominion Bank’s fourth-quarter earnings were well within our expectations and do not affect our long-term thesis on the firm. We are increasing our fair value estimate for the Canadian shares to CAD 81 from CAD 80 and decreasing our fair value estimate for U.S. shares to $61 from $62 due to updated exchange rates.The adjusted return on common equity remained came in at 17% for full-year results, placing Toronto-Dominion in the top tier of Canadian banks that earned 17%-plus ROE’s in 2018. Adjusted net income was up 15% year over year, and earnings per share were up 17%. Management maintained guidance for EPS growth of 7%-10% in 2019; however, it was also highlighted that this will be heavily influenced by key macro and geopolitical factors and how they develop throughout the year. The Canadian retail segment saw net income growth of 10% for full-year results, driven by solid loan volume growth, net interest margin expansion, and good fee income growth. Growth in the U.S. was even stronger, on the back of tax reform and solid growth for TD Ameritrade. Finally, the Wholesale business also saw a good year, with revenue up 6% as the bank saw good activity and maintained its top domestic market share in key advisory and underwriting categories.
Credit quality remained relatively steady, as impaired loan formations increased 3 basis points to 21, and the proportion of gross impaired loans to total loans remained range bound at 47 basis points. Further, provisioning also remained range bound, and there were no signs of deterioration in the Canadian mortgage portfolio. Home equity loans continued to grow at a fast pace, and given some of the dynamics in the Canadian real estate market, this is a key portfolio to keep a close eye on. For now there are no signs of stress, but HELOC loans may be under some of the most pressure in a downturn if they were poorly underwritten to highly leveraged consumers.
Toronto Dominion Bank provides financial services. Co.'s segments comprised of: Canadian Retail, which include Canadian personal and commercial banking businesses, Canadian credit cards, TD Auto Finance Canada and Canadian wealth and insurance businesses; US Retail, which includes the US personal and commercial banking businesses, US credit cards, TD Auto Finance US, US wealth business and the Bank's investment its subsidiary, TD Ameritrade Holding Corporation; and Wholesale Banking, which provides a range of capital markets, investment banking, and corporate banking products and services. As of Oct 31 2017, Co. had total assets of C$1.28 trillion and total deposits of C$832.82 billion.
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