It all started with Otto von Bismarck1 (1815 – 1898), Chancellor of Germany. He was the first European political leader to recognize the crucial connection between employee productivity and financial peace-of-mind2. His vision was ground breaking.
With the passage of the Sickness Insurance Law of 1883, the Accident Insurance Law of 1884, and the Old Age and Disability Insurance Law of 1889, Bismarck built the foundation for a dynamic, employee productivity led, German economy.
Corporate sponsorship of productivity programs (especially those supporting employee financial wellness) is gaining ground in many advanced economies, including one created by Scotiabank in Canada. Ironically, we have the Iron Chancellor to thank for spearheading these important innovations.
The combination of lackluster Q1/18 earnings and the downside volatility in market conditions over the past two months has resulted in CWB shares giving back a sizable 21% from its YTD high close on Jan 22nd. Of course, the pullback follows what had been a very strong run for CWB in 2H/17, as the earnings power of the company rebounded from the aftershocks of the energy downturn and has returned to the double-digit pace of EPS growth that was consistently seen in the 2010-14 period.
From a valuation perspective CWB shares are now trading at 9.5x our 2019E, a 9% discount to the sector avg. of 10.5x, and we note that the P/E differential is a wider 16% on a capital-adjusted basis. We expect to see an improved performance from the key net interest income components of CWB in Q2/18, and are of the view the recent market dislocation has provided a good entry point into the stock, particularly as we remain constructive on the EPS growth outlook of the bank in 2018E (+18%) and 2019E (+8%).