EQB Inc. (EQB.CA), operating primarily through its subsidiary Equitable Bank, is a growth-oriented, mid-size Canadian bank that differentiates itself with a tech-driven approach to banking and a focus on niche markets, explains Aaron Dunn, senior equity analyst at KeyStone Financial.
The company's recent financial performance underscores its robust growth trajectory. In the fourth quarter of 2023, EQB reported record performance, with a 54% year-over-year increase in adjusted EPS (earnings per share), driven by higher net interest margin, increased assets, and acquisitions. Guidance for 2024 implies continued growth with EPS expected to be in the range of $11.75 to $12.25 per share.
EQB’s strategy has been twofold: Targeting niche markets and emphasizing technological innovation. By focusing on segments such as immigrants, entrepreneurs, and self-employed individuals, EQB has tapped into a customer base that possesses high creditworthiness but is often overlooked by larger banks. The bank applies a specialized credit approval process to manage risk and provide service to high-value customers.
EQB is also a technology-driven organization and has set an ambitious goal to become Canada's first 100% cloud-only bank by 2026. This strategy provides significant cost efficiency, faster adaptability to market changes, and an enhanced customer experience. EQB partners with a fintech company to offer innovative products and currently manages up to 30 tech releases per month, aiming to increase this number to 100 by 2026.
Financially, EQB presents an attractive proposition. The company trades at a PE valuation of seven times its expected 2024 earnings. The valuation compares favourably to peers, when considering its superior growth profile and overall fundamentals. With a strong capital position, an industry-leading efficiency ratio, and a robust growth trajectory, EQB is a potential choice for investors looking for growth and value in the banking sector.
EQB is well-positioned to achieve its ambitious five-year target of growing EPS by 15% and dividends by 20% to 25% annually to 2027. The stock remains our top pick in the Canadian banking sector.