Is it good to invest in Regional Banks?

MyState Ltd

MYS Dividend Details
 
Ongoing Settlements growth: MyState Ltd (ASX: MYS) stock rallied over 2.16% in just last five days (as at December 31, 2015) while Standard and Poor’s reiterated the group’s BBB rating and even enhanced its outlook to positive from stable on the back of better asset quality of MYS. MyState Ltd.’s settlements reached $1 billion while its settlements in second half of 2015 generated 50% better settlements than the first half of 2015 leading to a FY15 settlements growth of 75% against prior corresponding period (pcp).
 

Gross loans and advances (Source: Company Reports)
 
MYS built a solid loan book growth in FY15 while its investor loans are at 13%, which is well lower than the APRA ADI average of 35%. The first quarter of 2016 loan book is generating better growth than the second half of 2015. MYS strengthened its capital position by issuing $25 million of tier 2 medium term notes with a capital adequacy ratio of 12.7%. MYS is focusing on its cost management, and accordingly enhanced its cost to income ratio by 20 basis points to 64.3%. MyState stock is also trading at reasonable valuations at a P/E of 12.46x and has a good dividend yield. Accordingly, we give a “Speculative Buy” recommendation on the stock at the current price of  $4.74
 
 
MYS Daily Chart (Source: Thomson Reuters)
 

Bank of Queensland Ltd

BOQ Dividend Details
 
Focusing on niche segments and customer relationships: Bank of Queensland Ltd (ASX: BOQ) continues to develop itsbusiness banking via niche markets including its BOQ Specialist and BOQ Finance business. The group also continued to build strong customer relationships, which could be reflected from its outstanding Net Promoter Score improvement to 30.5 as compared to less than zero level during early 2013, and against major banks average of 0.5. BOQ East & Partners Business Banking Index has been on top for seven successive years. Bank of Queensland estimates its accredited brokers to grow to 4,000 from 2,500 in FY16. The group intends to introduce Virgin Money mortgage product through the broker channel by the first quarter of 2016. Meanwhile, Bank of Queensland is enhancing its balance sheet and priced $550 million of 3.5 year floating rate notes at a margin of 115 basis points over the 3 month Bank Bill Swap Rate as well as raised over $150 million via wholesale capital notes at a margin of 4.35% over the 6 month Bank Bill Swap Rate. BOQ management estimates that the margins would improve in the coming months.
 

Better Net Promoter Score (Source: Company Reports)
 
The stock rallied over 17.64% in the last three months (as at December 31, 2015) and is trading at a reasonable valuations with a P/E of 16.45x and has a good dividend yield. We maintain our “BUY” recommendation to the stock at the current price levels of  $13.94
 
 
BOQ Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corp

WBC Dividend Details
 
Service focused strategy: Westpac Banking Corp (ASX: WBC) management issued a positive outlook for its core domestic business. The bank forecast Australia’s real GDP growth of over 2.75% for 2016. Better household spending, non-mining investments coupled with rising exports are expected to give momentum to growth pace in 2016. The group expects banking credit growth to be in line with 2015 while estimates a better business lending. Meanwhile, WBC is also focusing on its services to strengthen its customer relationships and hence increased its annual investment by 20% to over $1.3 billion for generating better service, growth and efficiency. As a result, Westpac Banking forecasts to add over 1 million new customers from 2015 till 2017 and also developed a Customer Service Hub by merging multiple technology systems to a single view of the customer. On the other hand, WBC increased its interest rates to comply with CET1 ratio requirements, with home loan variable rates rising by 20 basis points per annum to 5.68% per annum while residential investment property variable rates rising by 20 basis points per annum to 5.95% per annum. Moreover, Westpac was asked by ASIC to refund its clients, as WBC sold insurance to those who did not require it and even collected unnecessary premiums. We reiterate our “Expensive” recommendation on this stock and would review the stock at a later date.
 
 
WBC Daily Chart (Source: Thomson Reuters)
 

Bendigo and Adelaide Bank Ltd

BEN Dividend Details
 
Stock highlights: Bendigo and Adelaide Bank Ltd (ASX: BEN) stock rallied over 18.55% in the last three months (as of December 31, 2015) as the group delivered underlying cash earnings rise of 13.1% year on year to $432.4 million in FY15 while its net profit after tax reached $423.9 million as compared to $372.3 million in FY14. BEN improved its balance sheet position to comply with APRA standards and accordingly Basel III common equity tier 1 ratio surged 15 basis points to 8.17%, while the total capital surged by 118 basis points to 12.57%. On the other hand, Bendigo and Adelaide Bank might not be able to maintain its FY15 performance in FY16 due to margins pressure on the back of low interest rates. We believe that BEN shares are trading at higher valuations and give an “Expensive” recommendation to this stock at the current levels.
 
 
BEN Daily Chart (Source: Thomson Reuters)

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