MOVING BACK TO THE LOW-END OF F2024 GUIDANCE ON HIGHER NIM
THE TD COWEN INSIGHT
We are moving our F2024 EPS estimate back to the low-end of guidance. NIM was notably higher than expected this quarter, and commentary suggests this should largely be sustainable. In our view, management appears confident that PCLs should decline in H2/ F24. We continue to forecast earnings growth to pick up in F2025. Valuation remains attractive, in our view, and we reiterate our BUY rating.
Event: FQ2/24 conference call Impact: POSITIVE
We have moved our F2024 EPS estimate higher (now at the low-end of guidance) to reflect higher non-interest revenue, and most notably a higher NIM run-rate (2.11% in FQ2/24 looks largely sustainable, and was up from 2.01% in FQ1/24 and 1.97% in F2023). Somewhat offsetting is higher expense growth and slightly lower loan growth (we are still within management's 8-12% target). Our F2025 estimates also move higher due to a higher NIM outlook. As such, our target price moves up to $101 (from $98).
Management believes PCLs may have peaked ($22mm in FQ2/24, a 19bps PCL rate). Gross impaired loans (GILs) remain elevated but were stable q/q (98bps compares with 99bps q/q, 34bps y/y). Personal and equipment financing GILs increased q/q, while commercial declined slightly. We take some comfort in the low LTVs for personal (71% weighted average) and commercial (72% excluding equipment financing). Commercial GILs improved somewhat post quarter-end. Management believes current allowances are sufficient and equipment finance GILs should improve by year-end (suggested potential for releases if GILs improve).
Loan growth was lower than expected (5% ytd overall was below our 6% forecast).
Guidance for F2024 is unchanged at 8-12% overall, with decumulation loans and multi- unit insured expected to grow by 20%+, while conventional personal and commercial (ex multi-unit) targeted to grow 5-10%. We are forecasting 10% overall in F2024, with the assumption that potentially lower rates will be supportive of H2/F24 growth.
EQB continues to deliver on ROE (15%+), BVPS growth (14% y/y), and remains well capitalized (CET 1 ratio is 14.1%). All of these factors should be supportive of valuation, in our view. EQB is currently trading at 1.2x P/B and 7.3x P/E (4QF), which compares with L5Y averages of 1.1x and 7.1x, respectively. We continue to see valuation upside potential as we move into late-2024/2025 (potentially lower rates, better loan growth, and improving credit conditions).