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Stockchase Insights
Equitable Group
EQB-T
PARTIAL BUY
Apr 04, 2025
Stock price when the opinion was issued
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That's right. They've been severely beaten up over the last few years. Massive outflow of funds out of Canada, and it hits the smaller stocks even more. A lot of retail investors put in fund redemptions last year, so that created many bargains.
Over the last 6 months, he added to many of his small- and mid-cap positions. Companies like QTRH, JWEL, and EQB.
We cover EQB and we have also had it in our growth model portfolio for some time now. We are quite comfortable with the name - the management team is strong, the business is expanding into new product lines, and it is overall gaining market share. It will likely be more volatile than a large Canadian bank at times, but as a high-growth peer to the large banks, which is also trading at a discount to the Big 6, we feel it can complement the large banks nicely and add a growth component.
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When companies buy back their own shares, the company can either cancel them or hold them as treasury shares. It is mostly just accounting terms, the primary purpose of the share buybacks are still the same - it is intended to reduce the total share outstanding and boost EPS in the near term.
A share buyback is a more tax-efficient alternative method to return capital to shareholders compared to raising dividends, potentially creating a compounder over time. Despite strong performance recently, EQB is trading at only 8.8x Forward P/E; we think EQB’s valuation is quite attractive as of today.
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Tariffs shouldn't have any impact at all on this domestic lender. Raises $$ in the GIC market and lends it out. Very high quality. He has other first choices, but if he was going to own another, this would probably be it. Very steady performer, well run, but ROC at 15% is a bit lower than he likes.
See his Top Picks.
Canadian telcos may be bottoming, at least until more bad news shows up, if it does. We would consider EQB to have more upside, but it is still a fairly small company at $4B, and we would size accordingly. But we like it. We would be OK with adding selling some telco exposure and adding but would not suggest a wholesale swap out.
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CEO's done a tremendous job building a Canadian bank that's different from the usual suspects. No branches, everything's online. Diversified funding sources. Strong balance sheet. Number of clients growing nicely. Fantastic job managing credit exposure. Cheap for what it is. High ROE. Best-performing bank in NA over last 10 years, looking at total shareholder return.
Economic risks have increased, perhaps a lot, and this can impact banks. We generally do not like averaging down but are more comfortable with the strategy when 'everything' is down. We would be cautious on sizing as it is a smaller company, but at 8X earnings and a dividend that was increased in February we would be comfortable buying some into the current weakness.
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