Stocks’ Details

Bank of Queensland Limited

Redemption of Wholesale Capital Notes: Bank of Queensland Limited (ASX: BOQ) provides banking, financial and related services. As on 10 July 2020, the market capitalization of the bank stood at ~$2.79 billion. The bank announced that it has exchanged all Wholesale Capital Notes (WCNs) by means of Redemption where WCN Holder was paid the Face Value of $10,000 for each WCN on 26 May 2020 and a distribution of $185.34 for each WCN held by a WCN Holder on the record date of 18 May 2020.

Adequate Capital Levels: As at 29 February 2020, Common Equity Tier 1 Capital Ratio stood at 9.9%, and Total Capital Ratio was 13.2%. During 1H20, the bank reported a healthy balance sheet with improved momentum across housing and commercial businesses and sound asset quality. In the same time span, statutory net profit after tax was $93 million, and cash return on average equity was 7.5%.

Key Financial Metrics (Source: Company Reports)

Key Risks: BOQ is exposed to financial loss and inability to meet its liabilities due to inadequate or inappropriate insurance product design, claims management, or reinsurance management. It may not be able to generate sufficient cash resources to meet its payment obligations in full as they fall due.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: BOQ has entered this uncertain period with sound capitalisation and a decent liquidity position and asset quality. It is focused on protecting its strong foundations and positioning BOQ for a return to growth when the economy recovers. As per ASX, the stock of BOQ is trading below the average of 52-week high and low levels of $9.980 and $4.510, respectively, proffering an opportunity for accumulation. We have valued the stock using the price to cash flow based relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, adequate capital, and decent liquidity position, we recommend a ‘Buy’ rating on the stock at the current market price of $6.11, down by 0.65% on 10 July 2020.

Bell Financial Group Limited

Growth Across All Business Units: Bell Financial Group Limited (ASX: BFG) is engaged in stockbroking, investment, and financial advisory services. As on 10 July 2020, the market capitalization of the company stood at ~$429.8 million. During 2019, the company reported decent growth across all business units producing a very credible bottom-line performance. During the year, revenue grew by 15.7% on a YoY basis, resulting in a CAGR of ~10% over the last five years. In the same time span, NPAT of the company witnessed a growth of 33% and stood at $32.4 million and has consistently grown over the five years.

FY19 Financial Highlights (Source: Company Reports)

Guidance: The company has recently provided guidance for 1H20 and expects profit before tax of approximately $23.5 million, an increase of ~5% on the pcp. It expects to report better first half results. The performance of two subsidiaries, Bell Potter Capital and Third Party Platform is pleasing, with six months’ unaudited profit before tax up 120% and 140%, respectively.

Key Risks: The principal financial instruments of the company include loans and advances, listed securities, derivatives, term deposits, and cash. It is, therefore, exposed to Margin lending risks, which requires collateral in respect of margin loans made during the business. The group is also exposed to equity price risks through its listed and unlisted investments.

Stock Recommendation: The company’s Retail and Wholesale Equities divisions performed well, making a significant contribution to the results. As per ASX, the stock of BFG gave a return of 48.89% in the past three months and a return of 8.5% in the past one month. The stock is trading towards a 52-week high level of $1.510. On a trailing twelve months basis (TTM), the stock of BFG is trading at 1.7x, lower than the industry Median (Financials) of 5.1x. Considering the decent financial performance, positive guidance, and attractive returns in the past three months, we recommend a ‘Hold’ rating on the stock at the current market price of $1.255, down by 6.343% on 10 July 2020.

WAM Capital Limited

Investment Portfolio Outperformance: WAM Capital Limited (ASX: WAM) provides investors with exposure to an actively managed diversified portfolio of undervalued growth companies. As on 10 July 2020, the market capitalization of the company stood at ~$1.39 billion. The WAM capital investment portfolio has outperformed the S&P/ASX all ordinaries accumulation index by 4.4%. Since its inception, the investment portfolio has increased 15.6% p.a., outperforming the index by 7.8% p.a.

Investment Portfolio Performance Since Inception (Source: Company Reports)

What to Expect: The Australian economy rallied strongly with the re-opening of the domestic economy. Conditions for agricultural companies have improved, and WAM holds a position in the companies that have the strengthened balance sheet and industry position.  

Key Risks: The financial markets have been softer due to the unprecedented uncertainty due to the COVID-19 crisis. The company is exposed to equity price risks through its listed and unlisted investments and is also exposed to market risk, including price risk, liquidity risk, etc.

Stock Recommendation: The Board is committed to paying a stream of dividends provided that the company has sufficient profits. As per ASX, the stock of WAM is trading slightly below the 52-weeks’ average trading levels. On a TTM basis, the stock of WAM is trading at a P/E multiple of 7.580x, lower than the industry median (Financials) of 10.1x. Considering the current trading levels, healthy balance sheet and outperformance of the portfolio, we recommend a ‘Buy’ rating on the stock at the current market price of $1.895, down by 1.044% on 10 July 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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