Just find a place to make your stand and Take It
EQB: Q1/23 EPS ahead of forecast and consensus
Our View: EQB reported very good Q1/23 results with normalized EPS ahead of our forecast and consensus; provisions for credit losses better- than-forecast; total loans outstanding in-line with our forecast; and loan originations that were only slightly below our forecast. Furthermore, the +6% dividend increase was in line with our forecast. Our note title reference to The Eagles’ classic "Take It Easy" reflects our view that despite the uncertain housing/mortgage market backdrop, we think EQB nevertheless continues to focus on its growth strategy, which we think the company is doing well. Within our small cap coverage, EQB is our best idea. Increasing price target to $88/share (was $87/share), maintaining Outperform rating.
Key points:
Q1/23 normalized EPS of $2.64 (excl. derivative gains, losses on investments, and acquisition-related costs) was above our $2.44 forecast and $2.44 consensus (range of $2.31–$2.52), with the positive variance reflecting higher-than-forecast net interest and non-interest income plus lower-than-forecast PCLs ($6.2MM vs. our $9.5MM forecast) and effective tax rate, partially offset by higher-than-forecast non-interest expenses. Q1/23 pre-tax, pre-PCL earnings (excl. gains/losses) of $142.1MM ($3.75/ share) were in line with our $141.9MM ($3.72/share) forecast.
Q1/23 originations of $3.45B were slightly below our $3.59B forecast,
with Personal loan originations slightly below our forecast and Commercial largely in line.
+6% dividend increase to $1.48/share annualized (in line with our forecast), payable on June 30, 2023 to shareholders of record June 15, 2023. EQB reaffirmed its guidance of +20-25% dividend growth in 2023 as well as its other 2023 guidance targets.
Updated disclosures on Commercial Real Estate in light of increased investor focus within Financials: (1) Commercial Office is <1% of EQB’s total assets with an average LTV of 59% and largely pertain to properties in major urban centres and smaller buildings often with tenants like medical and professional practices; (2) average LTVs are <60% for uninsured commercial loans and EQB indicated it ensures strong personal and corporate guarantees; (3) shopping centers and hotels comprise just 3.7% and 0.3% of Commercial loans and just 1.1% and 0.1% of the total loan portfolio, respectively; and (4) >67% of Commercial loans have credit insurance.
Increasing 12-month target to $88 (was $87), maintaining our Outperform rating. The higher price target reflects better-than-forecast Q1/23 results.
Conference call today (Wednesday) at 8:30am ET; dial-in: (416) 764-8609 or webcast link available on EQB’s company website.