TSX:EQB - Post Discussion
Post by
retiredcf on Jul 17, 2023 8:25am
TD Raise Target
EQB Inc.
(EQB-T) C$74.38
Credit Trends will be in Focus
Event
Q2/23 Preview
Impact: NEUTRAL
July 17, 2023Financial Services - Diversified Financials
| |
| |
12-Month Target Price: C$88.00 Prior: C$87.00 |
12-Month Dividend (Est.): C$1.60 |
12-Month Total Return: 20.5% |
We are seeing early signs of credit normalizing, with unemployment and consumer insolvencies trending higher. Housing activity recovered in Q2/23 (q/q), but remains down year-to-date. The Bank of Canada rate hikes in June and July 2023 will likely weigh on activity levels in H2/23, in our view. For EQB, we expect expenses to rise q/q (marketing-related) and PCLs to trend higher q/q. In our view, P/E valuation at 6.5x (2024E) remains attractive relative to the banks (particularly CWB at 7.0x and LB at 8.5x). We reiterate our BUY rating.
-
We are forecasting EPS of $2.55. This is slightly below consensus of $2.59. Our 2023 EPS forecast of $10.55 is at the high end of guidance (implies 15% y/ y growth), but slightly below consensus of $10.63.
-
We are expecting some continuation of arrears building. In Q1/23, arrears moved up to 32bps (of loans) vs. 28bps q/q and compares with the L10Y average of 28bps and 44bps pre-pandemic. Credit trends broadly suggest that arrears rates should continue to normalize, given the higher interest rate backdrop.
Originations are expected to be more constructive in Q2/23. We are forecasting $3.9bln (up from $3.4bln q/q). We are modelling loan growth of 7% y/y (organic) and 2% q/q. Management is guiding for 2023 loan growth of 3-5% for personal loans and 10-15% for commercial. Management's expectations of a stronger H2/23 (vs. H1/23) could be revised, in our view, given the stronger-than- expected activity in H1/23 and rate hikes in June and July 2023.
EQB will release Q2/23 results on August 1 (next day call available here). Post-Q2/23, EQB will report a 'four-month' year-end quarter as it transitions to an October 31 fiscal year-end.
TD Investment Conclusion
NIM has been stronger than expected in recent quarters and is in part driving our constructive EPS growth forecast for 2023. EQB looks well-positioned from a funding and liquidity perspective. Loan growth is expected to be muted in 2023 (we are in line with guidance). Credit trends are expected to continue to normalize, in our view
Be the first to comment on this post