TD Currently have a $105.00 target. GLTA
EQB Inc.
(EQB-T) C$95.00
Q1/F24 Preview: Credit To Remain A Focus
Event
Q1/F24 results; February 28 after market.
Conference call; February 29, 10 am ET. Link.
Impact: NEUTRAL
We are updating our estimates ahead of Q1/F24 results (January 31 quarter-end).
We have reduced our near-term outlook, while increasing our estimates for H2/F24.
This reflects our expectation for higher near-term expenses (EQ Bank marketing
costs) and slightly higher PCLs (offset by lower H2/F24 PCLs) given that we continue
to see evidence of normalizing credit conditions (see Exhibits 4-6). We maintain our
$105.00 target (implies 8.3x 2025E P/E) and reiterate our BUY rating.
We are forecasting EPS of $2.81 for Q1/F24 (consensus is $2.84). We have
increased our expense expectations for H1/F24 and reduced H2/F24 expense
growth. We have also slightly increased PCLs. Given the backdrop of softening
credit trends (rising insolvencies, delinquencies, and soft housing activity), we are
forecasting EQB to have slightly higher PCLs in H1/F24 vs. H2/F24.
Our full year F2024 estimates are unchanged (EPS of $11.75), and we
remain at the low-end of guidance ($11.75-$12.25). Consensus is $11.88. Our
estimates imply a modest 4% EPS growth rate in F2024 (vs. 22% in F2023), and
a more constructive 8% in F2025.
We expect a continued build in allowances. In Q4/F23, arrears moved up to
76bps vs. 47bps q/q and 44bps pre-pandemic. As we show in exhibits 4 and 5,
credit continue to normalize suggesting a further build in arrears is reasonable.
This report provides an update around housing and credit trends. We note
unsecured consumer credit trends are softening (some products are above pre-
pandemic levels). Mortgage arrears remain well below pre-pandemic levels but
are showing a slow build. Housing activity in recent months remains soft.
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 to modestly
declining NIMs, and higher PCLs. Nonetheless, EQB has a strong credit track record,
and has consistently delivered solid earnings growth, ROE, and BVPS growth.
Valuation at 8.1x 4QF P/E is attractive, in our view, relative to its regional and Big-
Six bank peers. We acknowledge our target return is below our hurdle for a BUY
recommendation. We will look to update our target price, recommendation, and
estimates following the quarterly earnings.