Multiple Raised Targets EQB Inc.’s 2024 guidance “appears reasonable from a loan and earnings growth perspective,” according to TD Securities analyst Graham Ryding.
“Loan growth of 8-12 per cent in F2024 appears reasonable, in our view,” he said. “This includes 5-10-per-cent growth for uninsured personal and commercial growth, and 40-60 per cent for decumulation (reverse mortgages and insurance lending). Notably, multi-unit insured loans are expected to grow by 20-25 per cent as the Department of Finance looks to ramp up its Canada Mortgage Bond (CMB) program, which funds multiunit insured lending, from $40-billion to $60-billion annually.”
“Our F2024 EPS forecast is at the low-end of guidance. We are forecasting loan growth in-line with guidance, modest NIM compression (assuming interest rates decline), and slightly higher PCLs vs. F2023 (12 basis points overall vs. 10 basis points in F2023, and implies mortgage PCLs of 8 basis points, in-line with EQB’s long-term average). We estimate the mid-point of guidance implies 9bps overall. We are modeling constructive ROE of 15.7 per cent, and BVPS growth of 14 per cent.”
The guidance release came alongside the late Thursday release of the Toronto-based bank’s fourth-quarter results, including adjusted earnings per share of $3.80 that exceeded both Mr. Ryding’s $3.60 estimate and the consensus projection on the Street of $3.65. The beat came largely from higher-than-anticipated non-interest income.
“In our view, more muted EPS growth in F2024 (vs. recent years) appears reasonable in the context of an environment that could reflect lower loan growth, flat to modestly declining NIMs, and higher PCLs,” he said. “Nonetheless, EQB has a strong credit track record, and has consistently delivered solid earnings growth, ROE, and BVPS growth. Valuation at 6.8 times 4QF P/E is attractive, in our view, relative to its regional and BigSix bank peers.”
With a “buy” recommendation for EQB shares, Mr. Ryding raised his target to $94 from $90. The average on the Street is $99.
Others making target changes include:
* Raymond James’ Stephen Boland to $110 from $97 with an “outperform” rating.
“While on-balance sheet loan growth continues to be impacted by a slower housing market, the bank continues to see strong activity across its securitized multi-unit residential portfolio,” said Mr. Boland. “This led to significant gains on sale this quarter. On EQ Bank, customer growth remains robust, with the customer count up 9 per cent quarter-over-quarter to 400k. This continues to be an important part of the EQB story and has been core to the NIM expansion we have seen in recent years. In an interesting development, EQ Bank expects to launch a small business banking product in 2024 — offering a similar no-fee, digitally-focused offering as the current personal banking solution. EQ Bank also recently launched in Quebec, and the company is targeting further customer growth of 30-40 per cent in 2024.”
* BMO’s tienne Ricard and Sohrab Movahedi to $102 from $97 with an “outperform” rating.
“EQB is executing on-strategy, providing shareholders with an increasingly diversified bank, both on the asset and liability sides of the balance sheet. In addition, the acquisition of Concentra is strategically enhancing, providing scale, funding, and revenue diversification. The net result is we believe EQB’s relative valuation to other Canadian banks has the potential to expand,” they said.
* Cormark Securities’ Lemar Persaud to $97 from $92 with a “buy” rating.
“Our positive view on EQB is leveraged to the bank’s strong earnings growth profile, solid capital position and the benefits associated with the Concentra acquisition,” he said. “Over the short term, increased macroeconomic uncertainty could result in softer share price performance; however, we believe this is more than offset by the very attractive valuation in the context of a 16-per-cent-plus ROE.”