November 9, 2022
EQB Inc.
Maintaining Outperform and increasing target following strong Q3/22
Our view: EQB reported very strong Q3/22 results and announced a +7% dividend increase. EQB continues to do a good job executing on its growth strategy even despite the weak housing market. We maintain our Outperform rating, but increase our target to $70 (was $69).
Key points:
Q3/22 pre-tax, pre-PCL earnings (excl. gains/losses) of $111.7MM ($3.24/ share) were slightly ahead of our $106.6MM ($3.09/share) forecast. Given the uncertainty regarding potential changes in credit loss provisions, we focus a bit more on this metric.
Q3/22 normalized EPS of $2.35 was well above our $2.12 forecast and $2.11 consensus (range of $1.99 – $2.23). The higher-than-forecast result relative to our forecast reflected higher-than-forecast net interest income and non-interest income, partially offset by higher-than-forecast non- interest expenses.
Q3/22 provisions for credit losses were a provision of -$5.4MM (-$2.0MM mortgage loan provision, -$3.3MM equipment loan provision), which was largely in line with our -$5.5MM provision forecast (-$3.0MM equipment loan provision). Net impaired loans (as a % of total on-balance sheet loans) of 0.23% were up +5bps Q/Q but flat Y/Y.
Q3/22 originations of $3.35B were slightly below our $3.51B forecast, due to lower-than-forecast Personal/Residential originations, partially offset by higher-than-forecast Commercial originations. Furthermore, loans under administration (including off-balance sheet mortgages) of $43.9B were slightly ahead of our $43.1B forecast and were +3% Q/Q and +18% Y/Y.
Dividend increased by +7% Q/Q to $1.32/share annualized, payable on December 30, 2022 to shareholders of record December 15, 2022. This th represents the 4 consecutive dividend increase and EQB is guiding to +20-25% dividend growth in 2023 (in line with our forecast).
2022 guidance largely unchanged + 2023 preliminary guidance introduced. Overall, 2022 guidance was reaffirmed other than a few minor changes (e.g., lower prime insured lending growth and EQ Bank Deposits, stronger NIM) while the new 2023 preliminary guidance was largely in line with our forecasts and consensus (see Exhibit 4 on page 4 for more details). EQB plans to refine its preliminary 2023 guidance when it reports Q4/22 results in February 2023.
Increasing 12-month target to $70/share (was $69), but maintaining our Outperform rating. The higher price target reflects higher financial forecasts. Introducing 2024 forecasts.