Welcome back to our Friday Focus series. Each week we take current market events and examine them through the lens of Structural Valuation Analysis (SVA).

This week’s focus is tied to the sudden takeover announcement of Laurentian Bank. You can watch the full discussion here:
👉 https://youtu.be/UXfrIqUGun0

Last week we expected to be taking time off, but this development forced our hand. The valuation case was extremely clear for months, and the takeover validated what the data already showed: Laurentian was deeply undervalued.

The Framework: Finding “Ridiculously Cheap” Stocks

In the investing classic An Economist on Wall Street, Peter Bernstein described situations where a stock is so cheap that you almost feel guilty buying it. Those moments are rare — but when they occur, valuation investors need to recognize them.

Laurentian Bank was one of those cases.

There are three key criteria we look for:

1. Financial Solvency and Balance Sheet Stability

Before evaluating valuation metrics, we must establish financial integrity. Laurentian’s stability ratio—1.505—confirmed that solvency was sound. No structural financial concerns existed.

2. Historically Low Valuation Relative to Book Value

When looking at Laurentian’s valuation all the way back to 1991, the stock recently returned to the lowest level it has traded at in decades. It reached levels comparable to the mid-1990s—trading at just 32 percent of book value.

That discounts the business to levels that are historically rare.

3. Strong Upside Spread vs. Fair Market Value

The spread between current price and fair market value (FMV) was 150 percent.

That told us:

• Downside risk was limited
• Upside probability was high
• The market was materially mispricing the asset

That is the kind of setup Structural Valuation seeks.

Portfolio Decision and Outcome

We added Laurentian to our North American Value Portfolio early in the year. For months it crept upward slowly, frustratingly so — until the takeover news landed.

The market caught up to what the valuation case had highlighted long before.

What Happens Next?

The bank is still cheap. It would not surprise us to see additional bidders enter the scene now that the value argument is obvious.

If holding shares (as I am), one reasonable approach is:

• Take some profit
• Hold a portion for potential competing bids

Not a guarantee — just recognizing where valuation leads.

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