In today’s daily we have covered stock research on Bank Of Queensland (Expensive).

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The S&P 500 was up 9.12points or 0.46%on Wednesday. U.S. stocks rose on Wednesday, rebounding from a sharp two-day decline, after minutes from the Federal Reserve's June meeting showed the central bank has started to detail how it will end its loose monetary policy. Alcoa jumped 5.7% on the back of better than forecast results. American Airlines rallied 4.3% after raising its margin forecast.

Gold was up $11 at $1,330 an ounce as the markets digested the fed minutes. Among industrial commodities, Brent Crude suffered a seventh successive decline after a Libyan oilfield restarted. Brent fell 66 cents to settle at $108.28 a barrel it’s lowest for a month. In the currency markets U.S dollar eased back in line with the latest drop in Treasury Yields. The Dollar index a gauge of the Currency’s value against a weighted basket of peers was down 0.2%.



Alcoa Daily Chart (Source – Thomson Reuters)
 
S&P ASX 200 was down by 58.4points or 1.06%on Wednesday and closed at 5452.5 points. NEXTDC announced its admission to the Australia Government Data Centre Facilities Supplies Panel.Prima Biomed has appointed a new CEO with the appointment of Marc Voight. Yellow Brick Road announced that it has entered into a conditional agreement to acquire privately owned mortgage manager and originator RESI Mortgage Corporation.

Navitas has reached an agreement with Macquarie University to extend SIBT partnership to 12 February 2016. 3P Learning, the biggest Australian tech IPO of the year was down 14 per cent at $2.15, while the benchmark S&P/ASX 200 Index fell 1.1 per cent. Seven West Media has secured the broadcast rights for the next three Olympic Games for just under $200 million. Copper ended up 0.36 per cent at $US7156 a tonne after hitting its highest since February 19 on Tuesday at $US7212 a tonne. Aluminium hit a new 13-month peak of $US1959 a tonne before trimming gains to end at $US1950 a tonne, up 0.6 per cent. 


ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:- 



Stock of the Day – Bank Of Queensland (BOQ)

BOQ’s 1H14 net interest margin rose 5 basis points to 1.77% and the bank appears to be targeting a margin higher than its stated FY15 goal of 1.60-1.65%. Term deposit balances plunged 9% in 1H14 as the bank switched to cheaper funding sources. BOQ’s housing lending lagged both management targets and Queensland based SUN and it risks having to jump back into the mortgage market to revive growth at spreads in line with or even lower than current levels.


BOQ Net Interest Margin (Source – Company Reports)

The bank made good progress towards management’s FY15 targets although it fell well short of its housing loan growth goals. BOQ reduced its bad debts charge to loans ratio to 26 basis points in 1H14 closer to the FY15 target of 20 basis points. In 1H14, BOQ also exceeded it FY15 Return on Tangible Equity target of 13.0% (1H14 was 13.2%) and net interest margin goal of 1.60-1.65% (1H14 was 1.77%).


BOQ Gross Loans (Source – Company Reports)

 
Longer term we are less positive on BOQ’s growth outlook. With cost to income ratio  unlikely to decline further and the bad debt charge now closer to normal levels, we think the bank will need to revive revenue growth to justify a further rerating. However we believe further increase in BOQ’s net interest margin will be harder from here as the bank closes the margin gap with regional bank peer Bendigo & Adelaide Bank and its capital disadvantage versus peers will probably constrain lending growth.


BOQ Daily Chart (Source – Thomson Reuters)

In 1H14, lending was flat on the prior period and total retail deposits fell almost 1% in 1H14. BOQ’s mortgage balance declined 0.2% in 1H14. While it’s commercial lending grew 1.1% in 1H14 and 1.4% on the previous corresponding period. In mortgages brokers accounted for 10% of originations in 1H14. We believe BOQ’s asset quality remains worse than that of its peers, but it made further progress in narrowing the gap in 1H14. We believe the stock is expensive at its current price and would review the stock at a later date.


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