RE:RE:Why is there still a massive discount between HCG and EQB?First of all, please take a deeper look at the Q1 earnings of both companies. HCG did MORE PCL than EQB as a % of loan book, so on a "normalized" basis as you suggested, HCG's Q1 profit would be similar to EQB if not greater when adjusted for PCL. I would argue that EQB actually didnt do enough PCL because they have a much larger commercial loan portfolio and also equipment leasing sub that they recently purchased.
Second, your argument contradicts iself. You said most investors based their valuation on "normalized" and "expected" future earnings and then you go on to look at PAST 5 years ROE, which makes no sense.
You are right that investors should look at future earnings. Looking at past 5 years of ROE is irrelevant because HCG was operating at 20%+ CET1 ratio vs. EQB's 13% so its stupid to compare the two companies' historical ROE to gauge future profitability.
In fact, HCG has now caught up to EQB's profitability levels. Q1 efficiency ratio for HCG was 44% and EQB was 43%.
Of course, HCG's ROE will still be lower than EQB because HCG still has massive excess capital with CET1 at 17.7%, but wouldnt you think excess capital is more valuable now in the current environment? HCG can potentially take a lot of market share from EQB because they have the capital. HCG management actually talked about this in the conference call. When that happens, HCG's ROE could be even higher than EQB.
Northforce13 wrote: The market continues to be illogical. EQB is now trading at 0.88x P/B and HCG is still at 0.70x? Why is there a 20% discount when EQB's ROE is now at HCG's level based on Q1 numbers? HCG also has more excess capital than EQB which is a huge positive at times of crisis.
Really? I mean, like really?
I guess you hadn't noticed, but all banks Q1 numbers were skewed by PCL adjustments.
Most investors base their valuation of companies on "normalized"/"expected" future earnings, not based on 1 quarter with said quarter being chock full of adjustments. (DUH?)
Compare EQB's past 5 years ROE vs HCG, then ask yourself instead, why is HCG selling at such a high price compared to EQB? Why why why? That would be a more appropriate question.
They are both fairly priced.
When this settles down, EQB's ROE will be > HCG's ROE, until HCG fully deploys its capital, which isn't goint to happen in a quarter or two.
Do you really not know all this?
I mean really?