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analysis

On today’s TSX Breakouts report, there are 45 stocks on the positive breakouts list (possessing price momentum) and 33 securities are on the negative breakouts list.

Discussed today is a stock that is on the positive breakouts list with its share price soaring over 21 per cent year-to-date - EQB Inc. (EQB-T). Given this swift rally, the positive price momentum may pause in the near-term as the stock digests these gains. The relative strength index (RSI) reading is at 73. Generally, an RSI reading at or above 70 reflects an overbought condition.

The stock has a unanimous buy recommendation from eight analysts with a forecast price return of 23 per cent.

A brief outline on EQB is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Investors may remember this company under the name Equitable Group Inc.

In June 2022, the company changed its name to EQB Inc. to reflect its ownership in Equitable Bank and the EQ Bank trade name. Toronto-based EQB, through its subsidiary, operates Equitable Bank. Equitable Bank is the seventh largest independent Schedule 1 bank in the country.

As at Dec. 31, assets under management stood at more than $61-billion and assets under administration was $41-billion. The company provides mortgage loans and savings products such as high interest savings accounts(HISAs) and guaranteed investment certificates (GICs) to its customers. Single-family mortgage loans represent a significant source of income for the company.

On Nov. 1, Equitable Bank completed the acquisition of Concentra Bank. Management expects to realize approximately $30-million in annual run rate synergies from this purchase by the second year.

The company will be shifting to a fiscal year-end of Oct. 31 from Dec. 31, aligning with its industry peers.

Quarterly earnings and outlook

On Feb. 16, the company reported another earnings beat - its ninth earnings beat out of the past 10 quarters.

Adjusted earnings per share came in at $2.46, up 7 per cent year-over-year and above the Street’s expectations of $2.39. Adjusted return on shareholders’ equity (ROE) was strong at 15.9 per cent in the quarter. The common equity tier 1(CET 1) capital ratio increased to 13.7 per cent from 13.3 per cent reported last quarter. Given the aggressive rate hikes announced by the Bank of Canada, the company’s adjusted provisions for credit losses (PCLs) increased to $7.8-million, up from $5.4-million reported last quarter.

On the earnings call, chief executive officer Andrew Moor made the following remarks on the housing market, “Clearly, we’ve got the housing market that’s quite slow as we speak. I’d be fairly optimistic, frankly, over the next three to four months. It’s going to come to life when people get kind of comfortable [that] interest rates have peaked…We’re certainly expecting a much stronger second half of the year than the first half of the year and I’m pleasantly surprised by the level of activity on the underwriting floor as it were today, especially in Western Canada.”

For 2023, management is guiding to earnings per share growth of between 10 per cent and 15 per cent, book value per share is anticipated to rise between 12 and 15 per cent, CET1 is expected to remain at 13 per cent or higher, and ROE is forecast to be 15 per cent or higher. Management sees strength weighted to the second half of this year.

The following trading day, the share price rallied 3 per cent.

Dividend policy

On Feb. 16, the company announced a 6-per-cent dividend increase, raising its quarterly dividend to 35 cents per share or $1.40 per share yearly. This equates to a current annualized dividend yield of 2 per cent.

Management is guiding to between 20-per-cent and 25-per-cent dividend growth in 2023. The dividend expanded by 63.5 per cent in 2022.

Analysts’ recommendations

EQB has a unanimous buy recommendation from eight analysts.

The firms providing research coverage on the company are: BMO Nesbitt Burns, Cormark Securities, Keefe Bruyette & Woods, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank and TD Securities.

Revised recommendations

This month, the following five analysts raised their expectations.

  • BMO’s Etienne Ricard to $93 (the high on the Street) from $88.
  • Cormark’s Lemar Persaud to $81 from $75.
  • National Bank’s Jaeme Gloyn to $75 from $68.
  • RBC’s Geoffrey Kwan to $85 from $72.
  • TD’s Graham Ryding to $83 from $80.

Financial forecasts

The Street anticipates the company will report earnings per share of $10.33 in 2023, up from $9.17 reported in 2022, rising 9 per cent to $11.28 in 2024.

Earnings forecasts have been edging higher. Four months ago, the consensus earnings per share estimates were $9.88 for 2023 and $11.13 for 2024.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings multiple of 6.7 times the 2023 consensus estimate, slightly below its five-year historical average multiple of 6.9 times.

As at Dec. 31, the company’s book value per share stood at $62.65. According to Refinitiv, the stock is trading at a price-to-book ratio of 0.97 the consensus fourth-quarter 2023 expected book value.

The average one-year target price is $85, suggesting there is 23-per-cent upside potential in the stock price over the next 12 months. Individual target prices are: $75 (from National Bank’s Jaeme Gloyn), $82, $83, $84, $85, $87, $91, and $93 (from BMO’s Etienne Ricard).

Insider transaction activities

Year-to-date, there has not been any trading activity in the public markets reported by insiders.

Chart watch

Year-to-date, the share price is up nearly 22 per cent making it the third best-performing stock in the S&P/TSX Financials index. Given this rally, the positive price momentum may pause in the near-term. The relative strength index (RSI) reading is at 73. Generally, an RSI reading at or above 70 reflects an overbought condition.

In terms of key technical resistance and support levels, the share price is approaching an initial ceiling of resistance around $70. After that, there is overhead resistance between $80 and $83.50. In terms of downside support, there is initial technical support around $60, close to its 50-day moving average at $61.33. Failing that, there is strong support around $55, near its 200-day moving average at $55.82.

ESG Risk Rating

According to risk provider Sustainalytics, EQB has an environmental, social and governance (ESG) risk score of 21.8 as of Dec. 3, 2022. A risk score of between 20 and 30 reflects a “medium risk” rating.

POSITIVE BREAKOUTSFeb. 17 close
AGF/B-TAGF Management Ltd $9.34
AQN-TAlgonquin Power & Utilities Corp $10.55
ATD-TAlimentation Couche-Tard Inc $65.59
BHC-TBausch Health Companies Inc. $12.80
BDT-TBird Construction Inc $9.10
BEI-UN-TBoardwalk Real Estate Investment Trust $59.39
CTC-A-TCanadian Tire Corp Ltd $174.64
CAS-TCascades Inc $9.85
GIB-A-TCGI Group Inc $125.80
CSU-TConstellation Software Inc $2,370.61
CRT-UN-TCT Real Estate Investment Trust $16.64
DIV-TDiversified Royalty Corp $3.36
DBM-TDoman Building Materials Group Ltd. $7.70
EFN-TElement Fleet Management Corp. $19.54
EMA-TEmera Inc $54.77
EQB-TEquitable Group Inc $69.01
ERO-TEro Copper Corp. $22.41
FFH-TFairfax Financial Holdings Ltd $929.78
MHC-U-TFlagship Communities REIT $17.90
GLXY-TGalaxy Digital Holdings Ltd. $5.72
GWO-TGreat-West Lifeco Inc $36.38
HR-UN-TH&R Real Estate Investment Trust $13.16
IGM-TIGM Financial Inc $42.81
IIP-UN-TInterRent REIT $14.89
KMP-UN-TKillam Apartment REIT $18.92
KPT-TKP Tissue Inc $10.32
LGT-B-TLogistec Corp $43.56
GRA-TNanoXplore Inc. $3.25
NA-TNational Bank of Canada $101.50
NXR-UN-TNexus Industrial REIT $11.10
PET-TPet Value Holdings Ltd. $41.36
PBH-TPremium Brands Holdings Corp $98.88
PRMW-TPrimo Water Corp. $22.01
QTRH-TQuarterhill Inc. $2.00
RECO-XReconnaissance Energy Africa Ltd. $2.30
RSI-TRogers Sugar Inc $6.22
RUS-TRussel Metals Inc $37.22
SIA-TSienna Senior Living Inc $12.60
STN-TStantec Inc $71.90
SLF-TSun Life Financial Inc $68.88
TECK-B-TTeck Resources Ltd $59.40
TOI-XTopicus.com Inc. $89.60
VMD-TViemed Healthcare Inc. $12.25
WJX-TWajax Corp $23.73
WELL-TWell Health Technologies Corp. $4.18
NEGATIVE BREAKOUTS
ABST-TAbsolute Software Corp $12.44
AAV-TAdvantage Oil & Gas Ltd $7.95
AEM-TAgnico Eagle Mines Ltd $62.31
ALC-TAlgoma Central Corp $15.95
ARX-TARC Resources Ltd $14.73
BTO-TB2Gold Corp $4.48
BIR-TBirchcliff Energy Ltd $8.04
CFW-TCalfrac Well Services Ltd $5.80
CFX-TCanfor Pulp Products Inc $3.85
CSW-A-TCorby Spirit and Wine Ltd $15.77
ERF-TEnerplus Corp $21.30
FNV-TFranco-Nevada Corp $178.50
GLO-TGlobal Atomic Corp. $3.05
GTE-TGran Tierra Energy Inc $1.11
K-TKinross Gold Corp $5.20
MAG-TMAG Silver Corp $17.00
NGT-TNewmont Corp. $61.27
NVA-TNuVista Energy Ltd $10.72
OVV-TOvintiv Inc. $58.65
PSI-TPason Systems Inc $14.67
PEY-TPeyto Exploration & Development Corp $11.45
PD-TPrecision Drilling Corp $80.14
RPI-UN-TRichards Packaging Income Fund $40.00
SDE-TSpartan Delta Corp. $12.27
STEP-TSTEP Energy Services Ltd. $4.35
TPZ-TTopaz Energy Corp. $19.22
TOU-TTourmaline Oil Corp $58.96
TCW-TTrican Well Service Ltd $3.17
TC-TTucows Inc. $40.70
URE-TUr-Energy Inc $1.50
VET-TVermilion Energy Inc $17.96
YRI-TYamana Gold Inc $7.17
YGR-TYangarra Resources Ltd. $2.18

Source: Bloomberg

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

This report should not be considered an investment recommendation.

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