Revised TargetsAll but NB raised them. GLTA
Following Royal Bank of Canada’s in-line fourth-quarter results, Desjardins Securities analyst Doug Young anticipates the focus of investors will remain on net interest margins as well as its pending acquisition of HSBC Canada.
“We like the outlook on both fronts,” he said in a research note titled There’s room for everyone on the nice list!.
The premarket release on Wednesday drew a muted response from the Street with its shares closed up a mere 0.01 per cent.
Cash earnings per share of $2.78, exceeding Mr. Young’s $2.71 estimate and the consensus forecast of $2.69.
“Adjusted pre-tax, pre-provision (PTPP) earnings were less than 1 per cent below our estimate; relative to our estimates, Canadian banking, wealth management and insurance beat, while investor and treasury services, and capital markets missed,” said Mr. Young.
“The all-bank NIM excluding trading was in line with our expectations. There was a lot of detail provided on NIMs. In a nutshell, management anticipates further NIM expansion through FY23, but as central bank rates move closer to peaking, it has acted to protect NIMs (via hedging).”
After tweaks to his estimates, Mr. Young raised his target for RBC shares to $145 from $140, maintaining a “buy” recommendation. The average is $139.79.
“We like RY’s scale, NIM sensitivity and the pending HSBC Canada acquisition,” he said.
Elsewhere, KBW’s Mike Rizvanovic upgraded RBC to “market perform” from “underperform” with a $138 target, up from $129.
Other analysts making target adjustments include:
* Credit Suisse’s Joo Ho Kim to $153 from $150 with an “outperform” rating.
“RY finished off F2022 with what we view as a muted set of results,” he said. “The bank continued to put up good margin performance, but was also impacted by higher expenses from Capital Markets, that led to a miss on our PTPP estimate (Y/Y growth was still solid). Beyond the results, the macro commentary for the year ahead from the bank was more favorable than it has been in our view, and further reflected in a generally constructive set of guidance for the year ahead. The bottom line is, we continue to favor RY’s diversified business mix that should better withstand periods of stress on a relative basis, as well as its rate sensitivity profile (and the potential for further margin improvements) despite a more modest positioning.
* National Bank’s Gabriel Dechaine to $147 from $148 with an “outperform” rating.
“RY’s all-bank NIM (excl. trading) was up 8 basis points quarter-over-quarter,” said Mr. Dechaine. “The bank benefits from its strong core deposit base in Canadian banking (where NIM was up 10 bps Q/Q) and the rate sensitivity of City National (NIM up 30 bps Q/Q). We expect a similarly strong NIM trajectory during Q1/23, however, moderation thereafter is reflected in our estimates. For starters, RY has put on some hedges to reduce its downside rate sensitivity. More importantly, we’re seeing the impact of higher funding costs coming in two forms : 1) higher core deposit betas, which have moved from 15 per cent during Q2/22 to 20 per cent during Q4/22, still below the 40 per cent « natural » level; and 2) consumers shifting from zero cost chequing deposits to term GICs. We note that despite these trends, we expect RY’s NIM performance to exceed that of peers.”
* Barclays’ John Aiken to $151 from $140 with an “overweight” rating.
* Canaccord Genuity’s Scott Chan to $136 from $131 with a “hold” rating.