For Canadians it is hard to ignore the significant amount of infrastructure construction that has taken place over the past several years with no sign of a slowdown ahead. Various factors have allowed for the projects to take flight, including the simple fact that Canada's aging infrastructure has been neglected since at least the 1970's and is now in a state of disrepair. Further, historically low interest rates has allowed the various levels of government to raise capital for new projects at extremely reasonable project lifecycle cost and the global financial recession of 2008 allowed the Provincial and Federal government to deploy a significant amount of capital into new projects that are still ongoing. Lastly, the value of Canadian real estate has been steadily increasing over the past years, which has allowed a significant amount of new homes and condos to be built, especially in the Greater Toronto Area.
History will show us that Canada built the vast majority of the public infrastructure during the 1950's and 60's which assisted in the economic growth that the country has experience in the last 50 years. Today, both at a Federal and Provincial level, Canada is investing heavily into the electrical grid and shifting from traditional energy sources to clean renewable energy sources such as wind, solar, biomass, and hydroelectric production. The nation's transportation infrastructure is currently experiencing a significant boom from local transit systems to the largest international airports coupled with new highways, expanding high speed and commuter rail systems, everything has been updated or is scheduled to be. The governments have not been shy to plow hundreds of millions into expanding the health care infrastructure to support the millions of Canadians who are rapidly approaching the golden years. At a municipality level major investment is being driven into everything from new transit fleets to new public service facilities such as police and fire stations, schools, expansion of universities and much more. Lastly, urban sprawling in the Great Toronto Area and other key Canadian cities is fueling new investments in sewers and water mains to service the urban sprawl.
With an aging infrastructure, a growing population, a more diverse economy and the need to stimulate the economic recovery, Canada has been investing significantly into new projects. One way to play this boom is through shares in Canadian banks. One company that is playing an active role in public and corporate financing is the National Bank of Canada (OTCPK:NTIOF). Montreal-based National Bank of Canada ranks as the sixth-largest commercial bank in Canada, with branches throughout Canada servicing 2.4 million personal clients. Its network included 448 branches and 892 ATMs in Canada. National is ranked as the largest bank in the Province of Quebec. In 2011, Bloomberg Markets ranked National Bank as the strongest bank in North America. National Bank also placed third in Bloomberg's list of the "The World's Strongest Banks". Outside of National's strong retail operations it also assists government clients, including federal, provincial, municipal or crown agencies by bringing debt securities to the market and to institutional investors in Canada and around the world. It is common to read headlines were National is the book runner, lead financier, or engaged in some other aspect.
National Bank Active in the Financing of Canada's Infrastructure
There are numerous examples of National's involvement in the financing of Canada's redevelopment. In early 2014, the company announced the successful closing of a private placement totaling $390 million of Senior Secured Construction and Acquisition Term Loan Facilities for a 108 megawatt portfolio of solar PV projects, being developed by Recurrent Energy, in Ontario, Canada.
In BC, National was involved in a green bond issuance which would see, for the first time, public-private partnership finance a public infrastructure project in Canada. The North Island Hospital Project in BC raised a total of CDN $231 million. One of the most notable infrastructure projects was the financing of the Ottawa Light Rail Transit project which was closed on in 2013. National acted as co-lead underwriters and also acted as book runner, mandated lead arranged and hedge provider on the senior bank construction financing and acted as administrative agent for all senior lenders in the financing on an ongoing basis.
According to the City of Ottawa:
The Ottawa Light Rapid Transit project was procured by the City of Ottawa in 2013 using Infrastructure Ontario's Alternative Financing and Procurement framework and includes the conversion of the existing 12.5 km bus rapid transit corridor into a light rail transit system, the upgrades to ten existing passenger stations, the construction of three new underground passenger stations, a 2.5 km tunnel through Ottawa's downtown core, the construction of a new maintenance and storage facility, the procurement of an initial light rail vehicle fleet, and the widening and rehabilitation of 4 km of Highway 417. The OLRT project is Ottawa's most significant infrastructure investment since the building of the Rideau Canal.
Consensus Indicate Additional Upside to Share price and Dividends
According to sources, the consensus forecast amongst 14 polled investment analysts covering National Bank advises that the bank will outperform the stock market. Further, the same source reports that the analysts offering 12-month price targets for National Bank have a median target of CDN $50.00 share. The highest projection on the stock is placed at CDN $52.00/share, which represents a potential of an additional 4.7% upside on the stock, coupled with a 3.8% dividend payment. Collectively, this represents an annual return of 8.5%.
As of Fiscal Q2 2014, Nation had a balanced dividend payout of 42.5% indicating that there is room for growth in its dividend yield which could bump the yield back to the 4% yield rate. Net income for the same quarter was $362M representing a $1.01/ Earnings Per Share. The bank is expected to release Q3 earnings on August 26, 2014.
Disclosure: The author is long NTIOF.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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