EQB Inc. T.EQB.PR.C

RBC Raise Targets

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Their upside scenario target is also raised to $126.00. GLTA

May 30, 2024

Outperform

TSX: EQB; CAD 78.83

Price Target CAD 109.00 ↑ 107.00

EQB Inc.

Mixed, but slightly positive Q2/24 results. 7% dividend increase announced

Our view: We have a slightly positive view of Q2/24 results as EPS was ahead of our forecast with loan growth in line with our forecast, but NIM yields were up an impressive +10bps Q/Q. However, similar to bank peers, certain credit metrics continued to worsen and despite gross impaired loans declining slightly Q/Q, we expect PCLs to improve exiting 2024. RBC Economics’ forecasts don’t reflect a severe economic recession or housing downturn and as such, with EQB’s shares trading at just above 1.0x P/BV and our forecast of a mid-teen ROE over the next couple of years, we view the shares as attractively valued. Increasing our target to $109 (was $107) and maintaining our Outperform rating.

Key points:

Q2/24 normalized EPS of $2.71 was ahead of our $2.63 forecast and $2.66 consensus (range of $2.51 – $2.73) as higher-than-forecast net interest income (NIM yield was up +10bps Q/Q) was partially offset by higher-than- forecast PCLs and OpEx. We adjusted reported EPS of $2.81 to exclude gains/losses on investments and derivatives.

Q2/24 originations of $4.25B were below our $4.65B forecast, with Personal loan originations well below our forecast ($1.55B vs. RBC at $2.35B) while Commercial originations were ahead of forecast ($2.69B vs. RBC at $2.30B). Furthermore, loans under administration (including off balance sheet mortgages) of $65.5B were in line with our $65.9B forecast.

Q2/24 provisions for credit losses of $22MM were worse than our $19MM provision forecast and $20MM consensus. Mortgage PCLs were better than forecast ($6.8MM vs. RBC at $8.0MM), while equipment finance PCLs remained elevated and were worse than forecast ($14.0MM vs. RBC at $10.0MM) while consumer loan PCLs were slightly worse than forecast ($1.4MM vs. RBC at $1.0MM). Gross impaired loans decreased slightly Q/Q, driven by declines in Commercial (excl. Equipment Financing), mostly offset by increases in Personal (excl. Consumer) lending and Equipment Financing. Of note, Stage 3 ACLs in Commercial (excl. Equipment Financing) had a noticeable Q/Q increase relating to a small handful of loans.

+7.1% dividend increase announced to $1.80/share annualized, slightly better than our $1.76 forecast.

Increasing our 12-month price target to $109/share (was $107) and maintaining Outperform rating. The increased price target reflects the rolling forward of our valuation, partly offset by lower financial forecasts (slower loan growth, higher PCL forecasts) and a slightly lower target multiple (1.30x P/BV, was 1.35x) due to slightly lower ROE forecasts. Conference call scheduled for today (Thursday) at 10am EST; dial-in: 1-888-390-0605 or [phone] or webcast link on EQB website.