BMOFebruary 27, 2022 | 16:00 ET~ CIBC CM-TSX CM-NYSE Rating Outperform Price: Feb-25 $163.61 Target ↑ $170.00 Total Rtn 8%
Q1/22 Results Beat With Better Trading and Credit; 2- for-1 Stock Split Bottom Line: Positive. CM's adjusted cash EPS of $4.08 (excl. $0.02 integration charge for Costco portfolio) exceeded our/consensus expectations of $3.62/$3.67.
The beat to us reflected better capital markets activity (strong FX/Equity trading) and better credit in CP&SB. Total bank PCL ratio was 6bps.
Balance sheet remains strong with CET1 ratio of 12.2%/ LCR 123%. CM repurchased ~0.9MM shares in the quarter (~9% of 10MM/2% NCIB previously announced).
Two-for-one stock split announced, subject to approval, for May 2022.
Key Points Total bank PTPP income was up +11% y/y with revenue diversification helping top-line growth of +11% y/y; positive operating leverage despite 10% higher expenses y/y (compensation/strategic initiatives/inflation).
Market sensitive fees came in strong, supported by strong trading (up 13% y/y to $576MM; trailing eight-quarter average of $418M).
Total bank non-trading NIM was 241bps (down 2bps q/q and down 6bps from last year); NIX ratio of 54.2% vs. 54.3% a year ago. Adj. ROE of 17.6% was driven by strong ROA of 85bps and CET1 ratio of 12.2%.
Outlook: Management guided to high-single-digit expense growth including the impact of inflation; reiterated the target of positive operating leverage in FY22. Solid Growth Across Most Segments. CP&SB earnings up 7% y/y to $697M (13% RESL growth; 16bps lower risk-adjusted NIM). CC&WM up 31% y/y to $462M (19% y/y commercial loan growth; 32bps higher risk-adjusted NIM; AUA +14% y/y).
Record Capital Markets earnings of $543M (up 10% y/y) helped by strong FX/equity trading. Strong momentum continued in U.S. C&WM (up 20% y/y) supported by volume growth (loans up 13% y/y excl. PPP forgiveness).
Outlook: Sequential expense growth moderating in U.S. C&WM. The Costco credit card portfolio acquisition on track to close in Q2. Continued Recovery Benefits. Total PCL was $75M/6bps and included $51mm of reserve releases on performing loans (vs. total PCL of $78M/7bps last quarter). Total allowances (specifics + collectives) now stand at ~$3.0B or ~121bps of credit RWA (vs. “through-the-cycle” average of 154bps).
Forecasts. F2022E EPS was raised to $15.15 from $14.45. F2023E EPS was raised to $15.70 from $15.25.
Target price raised to $170; valuation multiple remains unchanged at ~10.8x 2023E EPS. Key Changes Target $170.00↑ $165.00 Estimates Q2 / 22E 2022E 2023E CEPS $3.58 $15.15 $15.70 Previous $3.43 $14.45 $15.25 Revenue (mm) $5,361 $22,295 $24,185 Previous $5,225 $21,705 $23,597 Expenses (mm) 2,984 12,372 13,322 Previous 2,939 12,121 13,074