Q: I became an EQB customer just to experience their service and I am very impressed how the whole process works without any human involvement (this means big cost savings on their part) and the unmatched benefits of keeping your cash savings there over the legacy banks. If this is the future, the big banks have a problem of large workforce and the real estate footprint to be maintained. From my point of view it is easier to enter the market from EQB starting point than from the big banks position to slim down. However there is a limit to which EQB can grow that way. Would you be able to asses this limit in terms of EQB market cap?
There are/were smaller/regional banks that entered Canadian banking in the past. How would you rate EQB in this group?
Regards,
JR
There are/were smaller/regional banks that entered Canadian banking in the past. How would you rate EQB in this group?
Regards,
JR
5i Research Answer:
The market cap question is very difficult. It is a combination of growth and valuation. With its potential addressable market and a shift in valuation from 7X to 11X (which should certainly happen if it does grow) that would imply $6 to $B market cap at some point. But there are massive assumptions here. Growth has to stay profitable. Losses cannot increase. Interest rates need to co-operate. Competition can't increase. But we do like its potential, certainly, and so far so good. Many of the online competitors are subsidiaries of larger entities, or private, so financial data is harder to compare. But within the sector we would certainly put EQB in the top decile.