EQB Inc (TSX:EQB) is Canada’s fastest-growing bank. Over the last 12 months, it grew its revenue by 39%, its earnings by 27%, and its dividend by 20% — truly outstanding performance. The long-term averages are pretty good as well. Over the last five years, it compounded its revenue at 22%, its earnings by 17.7%, its earnings per share (EPS) by 15.6%, and its book value by 15.5% — also very good.
The question is, can EQB keep up this growth? As a bank, EQB collects more interest when the Bank of Canada (BoC) raises interest rates. The BoC’s 2022/2023 rate-hiking spree helped EQB in the last year or so.
Today, we’re seeing inflation come down, which may lead the bank to cut interest rates a basis point or two. If that happens, EQB may collect less interest on variable-rate loans that it has already issued, but on the other hand, it may also issue more loans. So, it’s not entirely bad that interest rates look likely to come down.
In this article, I will explore some reasons why EQB may remain Canada’s fastest-growing bank in the year ahead.
Recent earnings
EQB Inc’s most recent earnings release was pretty good. The company beat analysts’ expectations and issued impressive guidance for the year ahead. The headline numbers were as follows:
- Revenue: $395 million, up 80%
- Net income: $141 million, up 208%
- Diluted EPS: $3.64
- Operating income: $201 million, up 193%
- Net interest income: $345 million, up 46%
Those are pretty impressive results. The only question is whether they can continue. EQB’s growth over the last five years was impressive, but obviously, the most recent quarterly performance was partially a function of high interest rates. That situation is expected to partially reverse this year, so we need to know what growth drivers EQB has that can propel it forward.
Growth drivers
One big advantage that EQB Inc has is its size. It’s easy to grow when you’re relatively small in size, and at $1.1 billion in annual revenue and a $3.5 billion market cap, EQB is tiny by the standards of Canadian financials.
Another advantage that EQB has is its lack of branches. As an online-only bank, it has far fewer costs than the average bank does. This might cost it some depositors who urgently need to cash checks or withdraw cash, but those are a rare breed these days. EQB has no trouble finding depositors who can bank online. The money saved by having no branches contributes to EQB’s growth by giving it more money to invest compared to a competitor of the same size.
Finally, EQB offers Guaranteed Investment Certificates (GICs) that typically have higher yields than what its competitors offer. This advantage helps the company attract depositors. It does have a somewhat negative effect on margins in theory, but the bank’s 39% net margin beats any of the Big Six. So, it looks like EQB’s branchless status prevails over the higher interest it pays on GICs.
The bottom line
The bottom line on EQB Inc is that it could easily keep growing. In addition to all the advantages I mentioned in this article, the bank also trades at a mere seven times earnings. It’s definitely a stock worth looking into.
