Revised Targets Credit Suisse analyst Joo Ho Kim thinks the results from Royal Bank of Canada followed many of the trends that he’s observed from the Big Six group in the first quarter, emphasizing its “weaker” underlying results.
“While trading did provide a boost to the results, that was overshadowed by an even sharper area of focus, which was net interest margins and expenses,” he said. “On margins, RY softened its near-term guidance, and while the bank is not alone in doing so this quarter, we believe the impact certainly looked worse given its outperformance on the metric last year. RY also wasn’t alone on higher-than-expected expenses this quarter (in fact all the banks missed our expense estimates so far this earnings season), but the magnitude of the increase certainly seemed like it was on the higher end of the group even excluding ‘one-time’ items.”
RBC shares slid 3.6 per cent on Wednesday following the premarket release, which included core cash earnings per share of $3.10, exceeding both Mr. Kim’s $2.95 estimate and the consensus projection on the Street of $2.96.
“Relative to our estimates, the result was driven by higher-than-expected revenues (14 cents [er share, strong trading results here as NII was in line), which more than offset higher expenses (12 cents per share), as PCLs were in line with our estimate,” he said. “The pre-tax pre-provision earnings growth was 12 per cent quarter-over-quarter and 7 per cent year-over-year, in line with our expectations. The bank reported core ROE of 17.1 per cent this quarter, which was up 130 basis points over the quarter. The CET1 ratio of 12.7 per cent was up 10 basis points sequentially. As expected, the bank left its quarterly dividend unchanged at $1.32 per share.”
Though he raised his full-year core cash EPS estimate by 6 cents to $11.98, Mr. Kim cut his target to to $151 from $153, reiterating an “outperform” rating. The average on the Street is $142.21, according to Refinitiv data.
Other analysts making target adjustments include:
* National Bank’s Gabriel Dechaine to $145 from $147 with an “outperform” rating.
“A negative surprise from RY’s Q1/13 results was a mere 1 basis points of sequential NIM expansion (excl. trading),” said Mr. Dechaine. “The bank was caught off guard by the pace of customers switching out of zero cost deposits into higher-cost term deposits (e.g., GICs). RY quantified that GIC deposits grew 18 per cent quarter-over-quarter and 71 per cent year-over-year, with core banking account deposits (lower cost) falling 4 per cent quarter-over-quarter and 7 per cent year-over-year. Looking ahead, the bank is guiding to mid-teens NII growth in Canadian banking for fiscal 2023, with even stronger growth at City National. Given this quarter’s disappointment relative to guidance, we are keeping our expectations in check (i.e. single-digit all-bank NIM expansion this year).”
* Canaccord Genuity’s Scott Chan to $145 from $147 with a “hold” rating.
* CIBC’s Paul Holden to $147 from $150 with an “outperformer” rating.
* Cormark Securities’ Lemar Persaud to $152 from $161 with a “buy” rating.