Equitable Group (EQB.TO)

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.

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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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.

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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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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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It is a niche bank that specializes in Alt A lending. It lends a lot to the real estate industry, both personal and commercial, with mortgages on multi-family residential. It is also has an online component. He likes the bigger banks but the smaller ones could grow more.

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.

Very good business for investors. Return on equity very high. Strong management team. Consistent growth for the past 20 years. Only concern is that credit cycle will tighten and make it harder to perform. 

Are very well-managed. Are exposed to insurance, too. He's been wanting to buy this for years, but the price keeps running away from him. Trades at 1.3x book and 9.5x PE. Doesn't pay a big dividend, because they reinvest into the company, which is good.

Good, but is less diversified than the Canadian banks. Also, he fears the real estate market will hit a bigger snag than many believe, and that would impact EQB earnings (through mortgages).

Great company, alternative lender, very well managed. Though stock's not that expensive, he's waiting for a pullback. Rising rates haven't slowed the mortgage market to a significant enough degree to impact the share price.

It is very well managed and has a high ROE. There are risks in the sector with a real estate slowdown. Still not priced low enough yet, so wait.

One of the criteria we used is Total long-term debt to Total Equity less than 1.5x, and EQB does not meet those criteria. 
However, we think EQB’s capital base is good, growth has been strong recently. 
We like EQB and would be comfortable holding it for the long term. 
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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. 10-year ROE average of 16.6%. More than 340,000 customers. Recent acquisition of Concentra Bank. Strong balance sheet and valuation. Unlock Premium - Try 5i Free