Post by
retiredcf on May 25, 2023 9:42am
CIBC
EQUITY RESEARCH
May 25, 2023 Flash Research
ROYAL BANK OF CANADA
FQ2 First Look: EPS Miss On Similar Themes
Our Take: Negative. EPS was 5% below consensus. Similar themes we are
seeing across the group – lower-than-expected net interest income and
higher-than-expected non-interest expenses.
Overview of results: RY reported Adjusted EPS of $2.65, slightly below our
estimate of $2.68 and well below consensus of $2.78. Adjusted ROE was
14.9% and BVPS of $74.79 increased 3.0% from last quarter. The company
announced a 2% dividend increase.
Sources of variance: PTPP and adjusted EPS came in slightly below our
estimates. Negative variances include higher non-interest expenses (-
$0.13/share), lower NII (-$0.04/share) and lower capital markets revenue (-
$0.04/share). Offsetting positive variances are lower taxes (+$0.13/share)
and higher fee-based income (+$0.07/share).
NII below our forecast: Net interest income of $5,742MM decreased 4.7%
from last quarter, and was 1.2% below our forecast of $5,811MM. RY
reported a 7bps decline in NIM. NIM declined 8bps Q/Q in Canada P&C and
declined 22bps for City National.
Operating leverage significantly negative: RY reported negative operating
leverage of 6%. Adjusted non-interest expense growth of 16% was higher
than expected. The acquisition of Brewin Dolphin, FX and share-based
compensation contributed ~8% to expense growth.
Capital ratios in line with our estimate: CET1 finished the quarter at
13.7%, relative to 12.7% last quarter and above both our estimate (13.3%)
and consensus (13.4%). The LCR ratio of 135% was up from 130% in FQ1.
Deposit growth: Total deposits increased 0.5% from last quarter. This
compares to sequential growth of negative 0.4% last quarter.
Loan growth slows: RY saw loan growth (ending balances) of 1.0% Q/Q, in
line with our forecast for 1.1%. Domestic residential mortgages were up 0.4%
Q/Q. Domestic commercial loans were up 1.5% Q/Q.
PCLs higher: The total PCL ratio of 30bps compares to 25bps last quarter
and above our assumption of 27bps. Impaired PCLs of 21bps compares to
17bps last quarter and was generally consistent with consensus
expectations. Performing PCLs of 9bps was up from 8bps last quarter, in line
with expectations, but the build in performing allowances should be viewed
as a positive.
Conference call: We will be publishing a more detailed look following the
conference call at 8:30 a.m. ET (416-340-2217; 6820081# / 1-866-696-
5910).
Neutral
RY-TSX, Sector: Financials
Current Price (5/24/23): C$123.75
Price Target (12-18 mos.): C$142.00