Bank of Queensland Limited

BOQ’s Share Surged Over 3%: Bank of Queensland Limited (ASX: BOQ), on May 20, 2019, surged over 3% post Coalition government victory. The return of Australian Labour Party would have dented the Banks earning as some of their policies such as limiting negative gearing, reducing the capital gains tax discount and tougher restrictions on mortgage brokers, would have negatively affected the Banks. BOQ recently appointed Ms Fiona Daly as an additional Company Secretary (CS) along with existing CS Ms Vicki Clarkson.

H1FY19 (Ended February 28, 2019) Financial Performance: BOQ’s profit after tax decreased by 10% pcp to $156 Mn in 1H FY 2019. The Board of directors declared (fully franked) interim ordinary dividend of 34 cps with record date on May 2, 2019, and payment date on May 22, 2019.


H1FY19 Key Financial Metrics (Source: Company Reports)

What To Expect: In order to improve its lending processes, the Bank has deployed an end to end mortgage lending transformation program in place to streamline processes, including use of automation and robotics, which is expected to deliver progressive benefits to the customer experience over the course of 2019 and 2020.

Stock Recommendation: BOQ’s share is down by ~15% in the span of 1 year and provides an opportunity for value investments. Its efficiency ratio for H1FY19 stands at 55.3% lower than the industry median of 58%, which implies company is managing its expenses better than its peer group. On valuation front, its P/B & P/E multiple for TTM stands at 0.91x and 11.00x lower than the peer median of 1.24x and 12.17x, indicating under-valued position at the current juncture.

Its annual dividend yield was reported at 8.19%. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $9.120 per share (up 3.754% on May 20, 2019).
 

Commonwealth Bank of Australia

CBA’s Share Rises 6.275% on May 20, 2019: Commonwealth Bank of Australia (ASX: CBA) recently announced that it has become substantial holder to Link Administration Holdings limited and Dacian Gold Limited with voting power of 5.04% and 5.01%, respectively. Its voting power in A2B Australia Limited changed from 8.26% to 6.81%.

In another update, CBA announced that its Instalment Warrants in the IYE, IYF, and IYG Series are due to be reset on June 18, 2019. On this (reset) date, holders will drawdown an amount equal to the new interest amount under the loan and apply that amount to pay to Commonwealth Bank the new interest amount for the interest period to the next reset date.


Q3FY19 Key Financial Metrics (Source: Company Reports)

What to Expect: The bank aims to provide superior services to its customers ranging from addressing past failings to the fast compensation to the customers.The additional $714 Mn in pre-tax customer remediation provisions taken in the quarter demonstrates this commitment and builds on a range of other initiatives to achieve better customer outcomes, including removing and reducing fees for its customers.

Stock Recommendation: CBA’s share generated positive YTD return of 2.62%. Its annual dividend yield was reported at 5.92%. Its share surged over 6% today (May 20, 2019) due to favourable outcome of Coalition government election win and hence a possibility of fresh upside rally has arisen. Its efficiency ratio for H1FY19 stands at 43.4% lower than the industry median of 58.0%, which implies company manages its expenses better than its peer group.

Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $77.400 (up 6.275% on May 20, 2019).
 

Westpac Banking Corporation

WBC’s Share Surged Over 9% Post Coalition Govt. Win: Westpac Banking Corporation (ASX: WBC) recently published Supplementary Product Disclosure Statement (SPDS) which supplements the Westpac Vanilla Instalment Equity Warrants (Westpac VIEWs) Product Disclosure Statement. The information contained in this SPDS combines, replaces and supersedes the previous SPDS dated 14 April 2014.

In another update, WBC announced issuance of new securities i.e. 15,000 Series 2019- 4 Notes which are fully paid senior notes paying floating rate interest in denominations of A$100,000, 17,000 Series 2019-5 Notes which are fully paid senior notes paying floating rate interest in denominations of A$100,000 and 3,000 Series 2019-6 Notes which are fully paid senior notes paying fixed rate interest in denominations of A$100,000.

H1FY19 Financial Performance: Its Statutory net profit decreased by 24% to $3,173 Mn. Its cash earnings decreased by 22% to $3,296 Mn. The Board of directors have declared an unchanged interim dividend (fully franked) of 94 cents per share to be paid on 24 June 2019. The dividend reinvestment plan (DRP) will continue to operate and a 1.5% discount will apply to the market price.


WBC’s Expense Metrics (Source: Company Reports)

What To Expect: WBC expects Australian economy will remain subdued with GDP growth this year to remain at around 2.2%. Employment growth is likely to slow while inflation is likely to remain low. The bank expects that system housing credit growth to slow to 3% in the current bank year and fall further next year to 2.5%, which implies total credit growth slowing to 3% this year and 2.8% next year.

However, the economy will continue to be supported by strong government investment and exports, in both resources and services. Although the second half will continue to be challenging, WBC believes its service-led strategy remains the best way to create value for its shareholders.

Stock Recommendation: WBC’s dividend yield was reported at 7.4%. Its efficiency ratio for H1FY19 stands at 51.9% lower than the industry median of 58.0%, which implies company manages its expenses better than its peer group.
Hence, considering the aforesaid facts, we recommend a “Buy” rating on the stock at the current market price of $27.750 per share (up 9.209% on May 20, 2019).
 

NIB Holdings Limited

Over-Valued Position At The Current Juncture: Share of NIB Holdings Limited (ASX: NHF) surged today over 15% on the winning of election by Coalition Government. The S&P/ASX200 rose by 1.7% and S&P/ASX 200 Financials (Sector) (XFJ) rose by 5.53% including banks, insurers, private health insurers, and investment funds.

NIB Holdings recently announced that it has completed the purchase of QBE’s travel insurance business (QBE Travel) at a final purchase price of $24.2 million. The acquisition includes the distribution and claims capability of QBE Travel. The business will be re-branded to nib Travel and new policies issued will be underwritten by AXA XL. This development is expected to increase nib Travel’s annual domestic gross written premium by more than 50%.

A Look at H1 FY 2019 Financial Performance:The total group underlying revenue increased by 10.9% pcp to $1.2 Bn. The board of directors declared (fully franked) interim dividend of 10 cps, with record date on 1 March 2019, and payment date on 2 April 2019.


H1FY19 Key Financial Metrics (Source: Company Reports)

What To Expect: The company does not anticipate the second half of FY19 to be as strong as the first. Its full year underlying operating profit guidance is now expected to be at least $195 million as compared to previously stated $190 million, and statutory operating profit of at least $178 million as compared to previously stated $168 million.

Stock Recommendation: NHF’s share generated positive YTD return of 14.59%. As per ASX, the stock is trading close to its 52-week higher levels.  Its dividend yield was reported at 3.57%. On valuation front, its P/B multiple for TTM stands at 4.4x higher than the industry median of 2.3x.

Hence, considering the aforesaid facts and current trading level, we presume that the stock is “Expensive” at the current market price of $6.820 per share (up 15.789% on May 20, 2019).


Comparative Price Chart (Source: Thomson Reuters)
 

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