Analysts Paul Holden, CFA, Kevin Lai, CPA, CA and Brian Lee of CIBC World Markets Inc. commented in an August 27 research note that Canadian Western Bank's (CWB:TSX) strong Q3/21 financial results support its thesis for classifying the company as an "Outperformer."
The analysts advised that they expect that CWB will continue to deliver strong top-line growth in FY/22 buoyed by growth in lending and an upward trend in net interest margin (NIM). As a result, CIBC mentioned that it is reiterating its "Outperform" rating for the company and has raised its price target by CA$2.00 to CA$44.00 per share based upon higher earnings per share (EPS) estimates. CIBC explained that the CA$44 price target was arrived at by applying an 11-times price earnings (PE) ratio to its FY/22 EPS estimates of CA$3.98.
CIBC stated that it is increasing both its FY/21 and FY/22 adjusted EPS estimates for CWB by 3%. The key drivers in the valuation model are mostly due to higher anticipated net interest income (NII) and higher fee income. The analysts stated that the revised FY/21 estimates for CWB imply a growth in EPS of 25%, compared to CWB management's projections for 20% or above.
The company reported 2.8% YoY loan growth in the most recent quarter, which beat CIBC's forecast of 1.7%. CIBC wrote that CWB management's forecast suggests loan growth of between 9-10% in Q4/21 and added that demand for new loans is currently quite strong so it now anticipates FY/22 loan growth of 8%.
CWB indicated that its branch-based deposits were up 4% sequentially in Q3/21 and that low-cost demand deposits increased by 5% which bodes well for NIM. As a result, CIBC stated that its FY/22 modelling calculations assume a four-basis point increase in NIM with NII increases of 10%.
The report noted that though fee income is not presently a major contributor to CWB's total revenues, the company was able to benefit from a 4% sequential quarter-over-quarter increase in fee income attributed mainly to its wealth management business.
The report listed that ranked by market cap, CWB is the seventh-largest bank in Canada with operations centered in Alberta, British Columbia, and Ontario. The financial services company caters primarily to individuals and small- and medium-sized businesses.
CIBC World Markets advised that it rates Canadian Western Bank as an "Outperformer" and is raising its 12 to 18-month price to CA$44.00 per share, up from its previous target of CA$42.00. The company's shares trade on the Toronto Stock Exchange under the symbol CWB and last closed for trading at CA$36.34/share on September 3, 2021.
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Disclosures from CIBC, Canadian Western Bank, Aug. 27, 2021
Analyst Certification: Each CIBC World Markets Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
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These companies are clients for which a CIBC World Markets company has performed investment banking services in the past 12 months: Canadian Western Bank
CIBC World Markets Inc. has managed or co-managed a public offering of securities for these companies in the past 12 months: Canadian Western Bank
CIBC World Markets Inc. has received compensation for investment banking services from these companies in the past 12 months: Canadian Western Bank
CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Canadian Western Bank
