TD EQB Inc.
(EQB-T) C$86.18
Stronger H2/F24 Expected to Meet Guidance
Event
Q1/F24 Conference Call
Impact: NEGATIVE
The sell-off in EQB shares yesterday (-10%) and the emphasis on the conference
call suggest that the market is sensitive to credit trends. Secondly, the market may
have concerns towards EQB meeting its 2024 guidance (management reaffirmed its
guidance). We believe EQB can meet guidance, but we are maintaining our EPS
forecast at the low end. Although EQB share upside may be muted over the next
3-6 months, we believe they remain attractive looking further out (end of 2024
and into 2025) as they likely meet guidance, and credit trends stabilize. We
reiterate our $105.00 target price and BUY rating.
This was a soft quarter, in our view, given the EPS miss (vs. our estimate
and consensus) and increase in impairments. The miss was due to slightly
lower-than-expected loan growth and higher expenses (PCLs were in line with
our expectations).
Arrears continue to build and suggest credit is normalizing. PCLs were in line
with expectations this quarter, but biased towards equipment financing (modest
provisioning against personal and commercial). Although commercial impairment
rates increased (183bps vs. 156bps q/q and 56bps L5Y average), management
noted that average LTVs are 47%, and bottom-up assessments suggest that the
ACL rates are sufficient (27bps vs. 25bps L5Y average).
Guidance was reiterated by management. Our F2024 EPS estimate of $11.75
is unchanged. We believe results may be muted next quarter as well (low loan
growth, elevated PCLs, and expense growth), but pick up in H2/F24 (better loan
growth and slightly lower PCLs). This implies loan growth in line with guidance
(8-12% overall), a 12bps PCL rate (in line with the last two quarters), stable NIMs,
and modest expense growth (vs. Q1/F24).
TD Investment Conclusion
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 NIMs, and
higher PCLs. We expect earnings growth to be muted in H1/F24, and pick up in
H2/F24. EQB has a strong credit track record, and has consistently delivered solid
earnings growth, ROE, and BVPS growth.