Cormark Cormark Securities analyst Lemar Persaud has a “a slightly positive view” on Canadian banks ahead of the start of earnings season late this week and is “moving closer to flipping in favour of the banks over the lifecos.
“To be clear, we are sticking with our call on lifecos over the banks at this time, however: 1) we are getting more positive on the banks given persistently strong credit experience, 2) lifecos valuations (P/B) are now through the banks (given the strength of MFC particularly), 3) the prospect of lower rates which are a net positive to the banks,” he said in a report titled Warmer on Banks But Still Not There; TD in Focus.
Mr. Persaud is currently projecting a 2-per-cent year-over-year decline in earnings per share, which he said reflects mid single-digit PTPP growth and higher PCLs. His projection is 0.4 per cent below the consensus on the Street.
“Capital markets results could be ‘good but not great’ in Q2,” he said. “Given the positive readthroughs from the U.S. bank Q1 results, strong client sentiment, balance sheet strength and confidence that we will avoid a hard landing, we think capital markets results could be good in Q2. We expect this to be driven by robust investment banking results. The wildcard, in our view is what we will see in terms of trading revenue. Q2/23 trading results were weak and while the markets were solid in Q2/24, volatility remained low. Given that trading revenues are approximately 2 times the size of investment banking revenues, this is why our expectations are for a ‘good but not great’ Q2 for capital markets. When rate cuts materialize, this should be positive for both FICC and equities trading.”
Mr. Persaud raised his group target price-to-earnings multiple to 11.0 times from 10.5 times to account for “persistently strong credit experience despite elevated levels of macroeconomic uncertainty.”
“This is balanced against positive PTPP growth, attractive dividend hikes and solid capital levels,” he added. “We made some changes to our target premiums (increases for BMO/Royal and reduction for TD).”
That change led to these target price adjustments:
- EQB Inc. ( “buy”) to $114 from $109. Average: $103.70.