The Globe and Mail newspaper reported that on July 30, 2021, company director and entrepreneur Irfhan Rawji acquired 10,000 shares of Canadian Western Bank (TSX:CWB, Financial) at a cost per share of 34.15 Canadian dollars ($27.18), bringing his holdings to 19,175 shares. The cost of the purchase was around C$341,000. Significant insider purchasing is a strong indication that the stock is undervalued. Insiders are usually the best positioned to assess the prospects of the company.
Canadian Western Bank is part of CWB Financial Group, a diversified financial services organization providing service in banking, trust and wealth management. It was founded in 1984 in Edmonton, Alberta, to be a western-based, federally regulated financial institution with a national presence. Its is a "second tier" bank, coming after the "Big 5" banks in Canada.
The bank has a strong franchise in Alberta, Canada but is now expanding nationally. The company recently reported an excellent second quarter for 2021 (compared to the second quarter of 2020). Below is a summary of key numbers:
| Common shareholders' net income of $72 million | Up 40% year-over-year |
| Adjusted earnings per share (EPS) of $0.84 | Up 40% year-over-year |
| Adjusted return on equity of 10.8% | Up 280 basis points |
| Efficiency ratio of 48.9% and Tier 1 ratio of 11.2% |
The bank updated its fiscal 2021 financial outlook and said that it is seeing signals of a strong economic recovery. and the strong financial performance in the first half of fiscal 2021 is expected to continue. It now expects to deliver:
- Full year 2021 percentage growth of adjusted EPS in the mid-teens;
- Annual percentage loan growth in the high-single digits;
- Net interest margin is expected to fluctuate around 2.50% over the second half of the year.
- For the second half of fiscal 2021, the bank expects total PCL (provision for credit losses ) in the range of high 20s to low 30s basis points, mostly attributable to PCL on impaired loans; and
- Full year efficiency ratio between 48% to 49%, due to stronger net interest income.
GuruFocus shows a current price-earnings (PE) ratio of 10.5 and a price-book (PB) ratio of 1.08 for the stock. Based on the median historical values of the price-earnings and price-book ratios over the last 15 years, the bank appears to be undervalued. With oil prices recovering, Alberta's economy is primed for a strong rebound, which should aid the bank's results.
The bank pays a dividend yield of3.34% with a payout of 36%. It grew the dividend at an annual rate of 5.9% over the last five years.
Long term earnings per share growth have been excellent for this mid-sized bank, with EPS growing at over 9%. All in all, the stock appears to be undervalued with a significant margin of safety, and I rate it as a solid buy.
