Post by
perplexed01 on May 31, 2024 10:01am
cibc analyst: Price Target (12-18 mos.): C$33.00
FQ2 First Look: Adjusted EPS In Line; Takes Big Impairment And Restructuring Charges
Our take: Negative. LB reported an in-line quarter on adjusted earnings, but announced significant impairment and restructuring charges. The impact to CET1 was not meaningful and the stock was already significantly discounting book value. We expect a negative share price reaction, but limited by an already heavily discounted valuation.
Overview of results: Adjusted EPS came in at $0.90, effectively in line with consensus of $0.88 and our estimate of $0.89. Adjusted ROE was 6.0%, unchanged from last quarter. Book value per share was $56.82, declining 5% sequentially on the impairment and severance charges. Reported EPS was a $2.71 loss, primarily related to impairment of goodwill and intangibles and an AIRB impairment.
Significant impairment and restructuring charges: LB is taking total impairments of $156MM ($126MM post tax), mostly on goodwill and intangibles. Impact to CET1 is not meaningful. The company is also taking restructuring charges for a total of $40MM ($30MM post tax) with most of that related to AIRB and a reduction in the corporate office footprint. LB will take additional severance of $7MM next quarter ($4MM in FQ2). We are not completely surprised by these charges given the recent change in CEO and an ROE (6%) that did not support that level of goodwill and intangibles.
Strategic refresh coming later today: Management is hosting an event from 1-3pm ET today to discuss its refreshed strategy. We expect an increasing focus on commercial banking, which is where the current CEO came from. The more challenging part of the strategy is what to do about the broken retail banking franchise.
Loans decline sequentially: Total gross loans and acceptances declined 1.2% Q/Q. Commercial loans declined 0.7%, personal loans declined 4.7%.
Operating leverage remains negative: Total expenses of $186MM increased 4% Y/Y. Adjusted operating leverage came in at -6%.
Deposits declined: Total deposits were down 1.9% Q/Q, improving from -3.7% in FQ1.
Total demand deposits declined 5.7% versus -7.9% in FQ1. Term deposits were essentially flat Q/Q, versus -1.6% in FQ1.
Total PCLs helped by performing release: Total PCLs were $17.9MM, lower than our estimate of $19.8MM. Impaired provisions increased sequentially from $9.2MM to $28.2MM. Performing provisions were -$10.3MM (release of provisions).
CET1 ratio: Reported CET1 was 10.4%, up from 10.2% last quarter.
Price Target Calculation
We derive our $33 price target by applying a 7.2x P/E multiple to our F2025 EPS estimate of $4.56. The multiple implies an 18% discount to its historical multiple given the higher sensitivity to recessionary risks