Bank of Queensland Limited

BOQ Details

Growth in Housing Portfolio: Bank of Queensland Limited (ASX: BOQ) operates in segments related to banking and finance such as retail banking, BOQ business and other in Australia. The retail banking offers solutions to customers through its corporate branch network, third party intermediaries’ and Virgin Money distribution channels. BOQ offers commercial lending services, BOQ Finance and BOQ Specialist businesses. BOQ has registered a growth in its housing portfolio by 6% from 2HFY20 to $997mn in 1HFY21. The growth has come up on the back of increase in owner occupied loans at a higher fixed lending rates as compared to previous period. BOQ branch portfolio has seen a turnaround with a first positive growth of $26mn in 1HFY21 since FY15. The Virgin Money Australia (VMA) mortgage portfolio continued to register a growth of 28% YoY by $459mn in 1HFY21. 

Dividend Declaration: The company has declared a dividend for its shareholders amounting to AUD 0.1700. The ex-date for dividend will be on 5 May 2021 and the payment date will be on 26 May 2021.

1HFY21 Financial Highlights: The company has registered an increase in its net interest income to $512mn in 1HFY21 as compared with $483mn in 1HFY20 on the back of 3% increase in interest earning assets. BOQ has registered an increase in its NPAT in 1HFY21 to $154mn as compared with $93mn in 1HFY20. The company has registered a modest decline in its non-interest income to $57mn in 1HFY21 as compared with $58mn in 1HFY20.

Net Profits after Tax (NPAT) Growth (Source: Company Reports)

Key Risks: The company is present in banking and financial services industry, BOQ requires regulatory approvals to carry out its operations efficiently, any delay in regulatory approvals may lead to financial losses for the company. BOQ is exposed to the fluctuation in the interest rates, any severe fluctuations in the interest rates may impact margins of the business and may lead to financial losses for the company. 

Outlook: As per the company reports, BOQ is in a process to acquire 100% in ME Bank and BOQ is expecting to complete the acquisition in 2HFY21. BOQ is expecting a rise in the carrying value of intangible assets in 2HFY21 after the completion of Enterprise Data Management Platform to transform the retail banking.

Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, BOQ has increased by ~2.64% and by ~10.42% in the last three months. The current market capitalisation of BOQ stands at ~$5.64bn as of 16 April 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$4.379 -~$9.440. On the technical analysis front, the stock has a support level of ~$8.745 and a resistance of ~$9.165. We have valued the stock using a Price/Book Value multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a decline in its banking and insurance income and an increase in operating expenses during 1HFY21. For the purpose we have taken peers, Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Bendigo and Adelaide Bank Ltd (ASX: BEN). Considering the company has posted an increase in its housing portfolio, increase in net interest income, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $8.91, up by 0.906% as on 16 April 2021.

BOQ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

G8 Education Limited

GEM Details

Recovery in Occupancy and Attendance: G8 Education Limited (ASX: GEM) offers developmental and educational child-care services. The company is primarily engaged in early education centers owned by the company and its subsidiaries across Australia and Singapore. The company has seen a recovery in its occupancy and attendance after the Covid-19 restrictions lifted from the government. The company was able to narrow the occupancy gap in CY20 as compared to previous year. The occupancy in CY20 was registered at 69.2% with a consistent occupancy trend for the state except Victoria and the ACT. 

CY20 Financial Highlights: The company has registered a decline in total revenue to $787.5mn in CY2020 as compared with $921.7mn in CY19. The company has registered a loss of $187.0mn in CY20. The company has posted an increase in its cash and cash equivalent position to $317mn at the end of CY20 as compared with $40.6mn at the end of CY19.

Cash Position (Source: Company Reports)

Key Risks: The company is present in educational services, which can be battered by Covid-19 situation. This, in turn, will lead to financial losses for the company. The company requires regulatory approvals to carry out its business. Thus, any delay in regulatory approvals may lead to financial losses for the company. 

Outlook: The company is expecting a further growth in new centers in 2021, continuing from 2020. The company will remain focused on investing in programs for the child safety and creating an enhanced learning environment. The company has plans to open ~10 new greenfield centers in CY21 with a capital of $4mn. The company will explore any new opportunities for organic as well as inorganic growth in the future.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, GEM has decreased by ~4.14% and by ~10.72% in the last three months. The current market capitalisation of GEM stands at ~$898.23mn as of 16 April 2021. The stock is currently trading slightly above the average 52-weeks’ price level range of ~$0.750 -~$1.315. On the technical analysis front, the stock has a support level of ~$1.025 and a resistance of ~$1.112. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering a decline in its revenues, losses in CY20 and discontinuation of government subsidies. For the purpose we have taken peers Mayfield Childcare Ltd (ASX: MFD), Think Childcare Ltd (ASX: TNK), to name a few. Considering, a recovery in occupancy and attendance, increase in cash position, decent outlook, valuation, current trading levels and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.04, down by ~1.887% as on 16 April 2021.

GEM Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.