The top six Canadian banks continue to remain in focus due to their huge market presence and large market caps. These banking giants have also delivered consistent returns across economic cycles. However, there’s a new challenger in town, and this financial company operates virtually.
I had written about Equitable Group (TSX:EQB) in May this year, recommending investors to look at the real estate lender closely, as I felt it was trading at an attractive valuation. The stock was trading around $60 per share. The price target for the company was $81 — upside of 35%. The stock has hit that target in 70 days.
The company operates under its wholly owned subsidiary Equitable Bank (EQ Bank) and is now Canada’s ninth-largest bank. It is a virtual bank (i.e., it has a branchless approach), and it focuses on residential lending apart from its commercial lending and savings accounts segments.
Equitable has delivered a total shareholder return of 500%, the highest of any bank in the TSX Composite, from January 1, 2010, through December 31, 2019.
Strong Q2 numbers
Equitable reported its results for the second quarter of 2020 and recorded a profit of $52.5 million, down 3% from the same period in 2019 but up 102% from Q1 of 2020. Adjusted diluted earnings per share for the company’s second quarter were $2.86, down 10% from the same period in 2019 but up 68% from Q1.
As people were locked down in their homes, demand for online banking rose, and Equitable was in a perfect position to provide that service with its digital-only EQ bank. Deposits rose over $3 billion.
Deferral situation improves
Equitable has offered its customers the option to defer payments for six months as the pandemic rages on. The last month of deferrals for most customers was July.
During a conference call for analysts, Equitable president and CEO Andrew Moor said, “Our general feeling is that many of our customers called looking for a deferral just out of an abundance of caution in an uncertain economic scenario. Many of those have rolled off. And it’s clear, I think, that if there are people in financial trouble, that it’ll start to emerge now.”
However, the company believes that a large percentage of customers will be able to service their loans once the deferral period runs out. “Equitable has been proactive in working with our customers to make the return to a more normal environment a slope, rather than the ‘cliff’ being talked about in some quarters,” Moor affirmed.
The bank’s PCL (provisions for credit losses) for Q2 was $8.8 million, up 538% from the $1.4 million in the same period in 2019. However, it is a massive reduction from the $35.7 million provision that it had in the first quarter of 2020, underlining the confidence Equitable has in its customers’ ability to service loans.
The company has also said, “Qualitatively, earnings in Q3 to Q4 2020 are expected to trend positively from the earnings reported in Q2 … Assuming economic forecasts do not worsen, PCLs should decrease in subsequent quarters.”
Equitable stock continues to remain a top bet right now, and analysts have an average target price of $90.5, indicating an upside potential of 12%.
Source: – The Motley Fool Canada
More China coal investments overseas cancelled than commissioned since 2017
More China-invested overseas coal-fired power capacity was cancelled than commissioned since 2017, research showed on Wednesday, highlighting the obstacles facing the industry as countries work to reduce carbon emissions.
The Centre for Research on Energy and Clean Air (CREA) said that the amount of capacity shelved or cancelled since 2017 was 4.5 times higher than the amount that went into construction over the period.
Coal-fired power is one of the biggest sources of climate-warming carbon dioxide emissions, and the wave of cancellations also reflects rising concerns about the sector’s long-term economic competitiveness.
Since 2016, the top 10 banks involved in global coal financing were all Chinese, and around 12% of all coal plants operating outside of China can be linked to Chinese banks, utilities, equipment manufacturers and construction firms, CREA said.
But although 80 gigawatts of China-backed capacity is still in the pipeline, many of the projects could face further setbacks as public opposition rises and financing becomes more difficult, it added.
China is currently drawing up policies that it says will allow it to bring greenhouse gas emissions to a peak by 2030 and to become carbon-neutral by 2060.
But it was responsible for more than half the world’s coal-fired power generation last year, and it will not start to cut coal consumption until 2026, President Xi Jinping said in April.
Environmental groups have called on China to stop financing coal-fired power entirely and to use the funds to invest in cleaner forms of energy, and there are already signs that it is cutting back on coal investments both at home and abroad.
Following rule changes implemented by the central bank earlier this year, “clean coal” is no longer eligible for green financing.
Industrial and Commercial Bank of China, the world’s biggest bank by assets and a major source of global coal financing, is also drawing up a “road map” to pull out of the sector, its chief economist Zhou Yueqiu said at the end of May.
(Reporting by David Stanway; Editing by Kenneth Maxwell)
Bank of Montreal CEO sees growth in U.S. share of earnings
Bank of Montreal expects its earnings contribution from the U.S. to keep growing, even without any mergers and acquisitions, driven by a much smaller market share than at home and nearly C$1 trillion ($823.38 billion) of assets, Chief Executive Officer Darryl White said on Monday.
“We do think we have plenty of scale,” and the ability to compete with both banks of similar as well as smaller size, White said at a Morgan Stanley conference, adding that the bank’s U.S. market share is between 1% and 5% based on the business line, versus 10% to 35% in Canada. “And we do it off the scale of our global balance sheet of C$950 billion.”
($1 = 1.2145 Canadian dollars)
(Reporting by Nichola Saminather; Editing by Leslie Adler)
GameStop falls 27% on potential share sale
Shares of GameStop Corp lost more than a quarter of their value on Thursday and other so-called meme stocks also declined in a sell-off that hit a broad range of names favored by retail investors.
The video game retailer’s shares closed down 27.16% at $220.39, their biggest one-day percentage loss in 11 weeks. The drop came a day after GameStop said in a quarterly report that it may sell up to 5 million new shares, sparking concerns of potential dilution for existing shareholders.
“The threat of dilution from the five million-share sale is the dagger in the hearts of GameStop shareholders,” said Jake Dollarhide, chief executive officer of Longbow Asset Management. “The meme trade is not working today, so logic for at least one day has returned.”
Soaring rallies in the shares of GameStop and AMC Entertainment Holdings over the past month have helped reinvigorate the meme stock frenzy that began earlier this year and fueled big moves in a fresh crop of names popular with investors on forums such as Reddit’s WallStreetBets.
Many of those names traded lower on Thursday, with shares of Clover Health Investments Corp down 15.2%, burger chain Wendy’s falling 3.1% and prison operator Geo Group Inc, one of the more recently minted meme stocks, down nearly 20% after surging more than 38% on Wednesday. AMC shares were off more than 13%.
Worries that other companies could leverage recent stock price gains by announcing share sales may be rippling out to the broader meme stock universe, said Jack Ablin, chief investment officer at Cresset Capital.
AMC last week took advantage of a 400% surge in its share price since mid-May to announce a pair of stock offerings.
“It appears that other companies, like GameStop, are hoping to follow AMC’s lead by issuing shares and otherwise profit from the meme stocks run-up,” Ablin said. “Investors are taking a dim view of that strategy.”
Wedbush Securities on Thursday raised its price target on GameStop to $50, from $39. GameStop will likely sell all 5 million new shares but that amount only represents a “modest” dilution of 7%, Wedbush analysts wrote.
GameStop on Wednesday reported stronger-than-expected earnings, and named the former head of Amazon.com Inc’s Australian business as its chief executive officer.
GameStop’s shares rallied more than 1,600% in January when a surge of buying forced bearish investors to unwind their bets in a phenomenon known as a short squeeze.
The company on Wednesday said the U.S. Securities and Exchange Commission had requested documents and information related to an investigation into that trading.
In the past two weeks, the so-called “meme stocks” have received $1.27 billion of retail inflows, Vanda Research said on Wednesday, matching their January peak.
(Reporting by Aaron Saldanha and Sagarika Jaisinghani in Bengaluru and Sinead Carew in New York; Additional reporting by Ira Iosebashvili; Editing by Sriraj Kalluvila, Shounak Dasgupta, Jonathan Oatis and Nick Zieminski)