Potential for them to raise their current $100 target. GLTA
EQB INC FQ2 First Look: EPS Beat On Higher NIM
Our take: Positive. Adjusted EPS was 6% higher than consensus and our
estimate. NIM expansion was the primary driver of the beat. Credit losses in
equipment finance remain elevated and total PCLs were higher than
forecast. Credit trends may take some of the shine off what was otherwise a
strong result.
Overview of results: Adjusted EPS of $2.81 was better than consensus of
$2.66 and our estimate of $2.64. The company reported PTPP of $174MM,
higher than our estimate of $164MM. Adjusted ROE came in at 15.9%,
supporting our thesis that EQB should be able to achieve its 15%+ target
even with elevated credit losses. EQB announced a 7% increase in its
quarterly dividend which now sits at $0.45 (+22% Y/Y).
Sources of variance: Positive sources of variance relative to our estimate
were mainly from lending NII (+$0.18/sh) and non-interest income
(+$0.12/sh). A lower effective tax rate also contributed positively to the
variance (+$0.03/sh). Offsets included higher operating expenses (-$0.12/sh)
and higher PCLs (-$0.04/sh).
NII much stronger than forecast on NIM expansion: Core NII of $267MM
increased 4% sequentially and was easily above our forecast of $258MM.
NIM of 2.11% increased 10bps sequentially versus our expectation for flat.
Consensus also had flat NIM.
Loan growth on pace with target: Total loans under management
increased 2.5% sequentially in FQ2, consistent with management’s full-year
target of 8%-12%. Single-family residential uninsured loans grew 0.5% Q/Q,
decumulation 10% Q/Q, and multi-unit commercial 6.8% Q/Q.
PCLs modestly higher than expected: Total PCLs were $22.2MM (19bps),
vs. both our estimate and consensus of $20.0MM (17bps). The total PCL
ratio for the equipment financing business increased to 420bps from 376bps
last quarter. Commercial ex. equipment finance was 30bps vs. 12bps in FQ1.
PCLs on personal loans were negative (i.e., provision release).
Gross impaired loans may continue to weigh on the stock: Total gross
impaired loans (GILs) were down slightly Q/Q (-0.6% Q/Q). However, GILs
were up 23% Q/Q for personal loans (ex. consumer finance) and up another
46% Q/Q for equipment finance. While we expect EPS downside is limited
from here, these trends may need to improve for the multiple to re-rate.
Operating expenses higher than our forecast: Total non-interest
expenses came in at $143MM, up 7% Q/Q and 5% above our forecast.
Capital position remains strong: EQB reported a CET1 ratio of 14.1%,
decreasing from 14.2% last quarter.
Conference call details: We will be publishing a more detailed look
following the conference call occurring tomorrow at 10:00 a.m. ET (416-764-
8609; 888-390-0605).