Bank of Queensland Limited

BOQ Details

Increase in Funds Under Management: Bank of Queensland Limited (ASX: BOQ) operates in retail banking, commercial lending business and treasury. The company operates over 180 branches across Australia. Recently, VGI has reported an increase in its Funds Under Management (FUM). VGI has reported $3.2bn of FUM as at 31 March 2021 against FUM of $3.1bn as at 31 December 2020. In another update, VGI appointed a new CEO, Mr. Jonathan Howie and expects him to contribute towards the growth of the company.

Robust Growth in Customer Deposits: The company has registered a robust growth of $1,062mn in customer deposits during 1HFY21. The term deposits were down by $772mn in 1HFY21 but the bank has seen an increase of $1,074mn from savings and investments in 1HFY21. The increase in customer deposits has resulted in a higher deposit to loan ratio at 74% in 1HFY21 against 69% in 1HFY20.

Strategic Acquisition for Business Growth: BOQ plans to acquire ME Bank is likely to take place in 2HFY21. BOQ is expecting an increase in number of customers from ~900k to ~1.45mn. With the acquisition of ME bank, BOQ is expecting retail net profit contribution to be more than ~50% from ~35%. BOQ is likely to get an opportunity to accelerate its digital strategy. 

1HFY21 Financial Highlights: The company has registered an increase in its net interest income (NII) to $512mn in 1HFY21 against $483mn in 1HFY20, due to a 3% growth in average interest earnings asset. BOQ has posted an increase in its profit to $154mn in 1HFY21 against $93mn in 1HFY20 on the back of lower funding and hedging costs. The company has registered a decline in its cash and cash equivalent position to $1,136mn as on 28 February 2021 against $1,353mn as on 31 August 2020.

Net Profit after Tax (Source: Company Reports)

Key Risks: The company is exposed to liquidity risk. There is always a risk for the company to get failed in meeting its financial obligations as and when they are due to pay. The company requires regulatory approvals to carry out its banking operations efficiently. Any delay in regulatory approval may result in financial losses for the company.

Outlook: BOQ expects a better operational environment with its focus on tactical transformation by introducing digital banking platform. The company is expecting to acquire ME Bank and divestment in St Andrews in 2HFY21. 

Valuation Methodology: P/BV 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: The stock of BOQ gave a return of ~3% in the last one month and a return of ~10.00% in the last three months. The current market capitalisation of BOQ stands at ~$5.80bn as of 6 May 2021. The stock is currently trading above the average 52-week price level range of ~$4.379-~$9.440. On the technical analysis front, the stock has a support level of ~$7.841 and a resistance of ~$9.65. We have valued the stock using a Price/Book Value per share multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering an increase in customer deposits and an increase in Net Interest Income (NII) in 1HFY21. For this purpose, we have taken peers Bendigo and Adelaide Bank Ltd (ASX: BEN), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC). Considering the company has seen an increase in profit in 1HFY21, strategic acquisition of ME Bank, growth in average interest earning assets, current trading levels, and valuation, we recommend a “Hold” rating on the stock at the current market price of $8.96, down by ~1.213% as on 6 May 2021.

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

VGI Partners Limited

VGI Details

Healthy Balance Sheet: VGI Partners Limited (ASX: VGI) manages its funds through a concentrated portfolio predominantly comprising long investments and short positions in global listed securities and cash. VGI has strengthened its balance sheet through maintaining zero debt on its balance sheet and an improvement in its cash position in FY20. The company has reported an improvement in net tangible assets of $1.85 per share as on 31 December 2020 against $1.58 as on 31 December 2019. The company has policy to keep buffer cash for investments in funds and maintains cash levels with financial institutions held on call.   

FY20 Financial Highlights: The company has registered a decrease in its total net income to $56.78mn in FY21 against $66.34mn in FY19. VGI has posted a decrease in its profit to $25.91mn in FY20 against $27.98mn in FY19. The company has registered an increase in its cash and cash equivalent position to $41.73mn as on 31 December 2020 against $29.34mn as on 31 December 2019.

Cash and Cash Equivalents Position (Source: Company Reports)

Key Risks: The company deals in multiple foreign currencies. Any severe movement in foreign exchange prices may lead to financial losses for the company. The company requires regulatory approvals to carry out its banking operations efficiently. Any delay in regulatory approval may result in financial losses for the company.

Outlook: VGI remains positive on long term growth for its portfolio and considers Covid-19 to be a short-term challenge for the economy and the business. The company is confident on generating superior risk-adjusted returns over the long-term for its investors. 

Stock Recommendation: The stock of VGI gave a return of ~-17.31% in the last one month and a return of ~-20.58% in the last three months. The current market capitalisation of VGI stands at ~$458.45mn as of 6 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$6.00-~$10.20. On the technical analysis front, the stock has a support level of ~$6.02 and a resistance of ~$7.173. On a TTM basis, the stock of VGI is trading at an EV/EBITDA multiple of 11.3x, lower than the industry median (Banking & Investment Services) of 22.6x. Considering the company has a strong balance sheet, increase in cash position, positive long-term outlook, and valuation on TTM basis, we recommend a “Buy” rating on the stock at the current market price of $6.30, down by ~4.11% as on 6 May 2021.

VGI 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.

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