EQB stock downgraded at National Bank

With the stock trading near a 52-week high, National Bank Financial analyst Gabriel Dechaine thinks EQB (EQB Stock Quote, Chart, News, Analysts, Financials TSX:EQB) has become a little pricey.

On February 28, EQB reported its Q1, 2024 results. The company posted Adjusted Net Income of $108-million on revenue of $299-million, a topline that was up 27 per cent over the same period last year.

“EQB delivered first quarter results consistent with our long-term value creation approach with ROE above 15 per cent. This performance is particularly encouraging in the context of the slow housing market in the face of Bank of Canada monetary tightening,” CEO Andrew Moor said. “Moreover, Canadians are increasingly embracing our Challenger Bank approach to business. EQ Bank, our award-winning digital bank, is attracting new customers at an accelerated daily pace aided by the launch of our national ‘second chance’ campaign. The campaign is getting people to ask why so many of us still bank with our first-ever financial institution when we celebrate choice and have changed providers to get a better deal in so many other categories. Brought to life by Eugene and Dan Levy in English Canada and Diane Lavallee and Laurence Leboeuf in Quebec, ‘second chance’ is a key element of building our brand value, and I am thrilled by its success so far.”

As reported by The Globe and Mail, Dechaine February 29 downgraded the stock from “Outperform” to “Sector Perform” and lowered his price target on the stock from $98.00 to $95.00.

“Trading at a 1.3 times P/BV [price-to-book value] multiple, or 16 per cent above its 10-year average, we believe taking a more cautious view on the stock is warranted and are downgrading the stock to Sector Perform (was Outperform),” the analyst explained.

Regarding the quarter, Dechaine said there were issues to be concerned about.

“Loan losses [were] higher than forecast (with another GIL spike),” he wrote. “Two-thirds of this quarter’s provisions were tied to the equipment finance portfolio (i.e., transportation sector). While we would normally look through a ‘lumpy’ commercial loss, we have to consider the broader credit picture that includes another spike in impairments. The GIL [gross impaired loan] balance increased 25 per cent quarter-over-quarter (following a 60-per-cent spike during Q4/23), with a nearly 50-per-cent increase of Personal loan impairments and a nearly 20-per-cent increase in Commercial GILs.”