Are These 2 Banks Still in Buy Zone: WBC, BOQ

Westpac Banking Corporation

WBC Details
WBC Raises over $2.7 bn in Capital:Westpac Banking Corporation (ASX: WBC) provides banking, financial and related services. In a recent announcement to the exchange, the Board conveyed their concerns with respect to the issues raised by AUSTRAC in its Statement of Claim of 20 November 2019. Some of the key issues raised included failure to report international funds transfer instructions and the process of monitoring transactions to detect those indicating potential child exploitation risk. The bank has accepted its responsibilities in the matters above and has changed its processes to eliminate discrepancies. The company has also established a new Board Financial Crime Committee for an External Accountability and Financial Crime Program Review.
 
FY19 Highlights for the Period Ended 30 September 2019: WBC declared its FY19 full-year results, wherein it reported net interest income at $16,907 million as compared to $16,505 million in FY18. Statutory net profit, during the year, came in at $6,784 million, down 16% on y-o-y basis on account of significant increases in provisions for estimated customer refunds, payments, associated costs, and litigation, along with costs associated with the restructuring of the wealth business. The business reported a net interest margin of 2.12%, down 10 bps from FY18.  WBC reported common equity tier 1 (CET1) capital ratio for FY19 at 10.7%, which is higher than APRA’s unquestionably strong benchmark. Return on equity, during FY19 stood at 10.75%, down 225 bps from FY18. 
 

FY19 Financial Highlights (Source: Company reports)
 
Valuation Methodologies:
 
Method 1: Price to Cash Flow Multiple Valuation

Price to Cash Flow Multiple Based Valuation (Source: Thomson Reuters)
 
Method 2: Price to Book Value Multiple Valuation

Price to Book Value Multiple Based Valuation (Source: Thomson Reuters)
 
Stock Recommendation: The stock is currently trading below the average of its 52-week trading range and has a PE multiple of 12.410x. In FY19, the board made progress against its strategic priorities, with some of its actions focused on lifting the performance over the long-term. For instance, 2019 final dividend was reduced to 80 cents per share, from 94 cents in the first half. Over time, the bank has strengthened its capital taking the CET1 ratio from 7% during the beginning of the decade to 10.67% as at September 2019. Moreover, the bank raised over $2.7 billion through an institutional placement and Share Purchase Plan, for additional support to customers. Considering the above factors, we have valued the stock using two relative valuation methods, i.e., Price to Cash Flow Multiple and Price to Book Value Multiple and arrived at a target price depicting lower single-digit upside (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $24.08, down 1.231% on 12 December 2019.
 
 
WBC Daily Technical Chart (Source: Thomson Reuters)
 
 

Bank of Queensland Limited

 

BOQ Details
 
BOQ Raises $275 million to Support Strategic Transformation: Bank of Queensland Limited (ASX: BOQ). The bank recently updated that Bruce James Carter, Director on the Board, acquired 10,000 ordinary shares for a consideration of $7.2900. In the recently released CEO & MD’s address at the 2019 AGM, the Bank notified that potential compliance contraventions of the AML/CTF legislation were reported as per the thematic review of the business, conducted by AUSTRAC. BOQ, through a comprehensive program, is on track to strengthen its controls and make improvements in the areas identified.
 
FY19 Key Financial Highlights: During the year ended 31 August 2019, cash earnings after tax were reported at $320 million, down 14% on prior corresponding year. Statutory net profit after tax came in at $298 million, down 11% on pcp. Cash earnings per share came in at 79.6 cents, down 16% on FY18. Dividend for the second half was reported at 31 cents per share, taking FY19 total dividends to 65 cents, representing a decline of 14% on prior corresponding period. Total lending during the year increased by $937 million or 2% on the previous year.
 

FY19 Results (Source: Company Reports)

Key Strategies: In order to improve the performance going forward, the bank aims to fix its lending processes and optimize business revenue and margin. This will provide a lift to distribution and customer base. Moreover, the bank also looks forward to simplifying its business, improve productivity and address costs, with an aim to improve its cost-to-income ratio. In addition, the bank is continuously working towards improving the balance sheet, as reflected in the recent capital raise worth $275 million.
 
Valuation Methodology:Price to Book Value Multiple Valuation
 

Price to Book Value Multiple Based Valuation (Source: Thomson Reuters)
 
Stock Recommendation: The stock is currently trading at the lower end of its 52-week trading range of $7.110 - $10.770. Although the result for FY19 was not that encouraging, the bank has taken various measures for correction in performance, as already discussed above. With respect to the issues raised by AUSTRAC, the bank has taken corrective measures and is on track to incorporate the required changes in controls. Considering the above factors, we have valued the stock using Price to Book Value Multiple based relative valuation method and arrived at a target price depicting single-digit upside (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $7.110, down 2.201% on 12 December 2019.
 
 
BOQ Daily Technical Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.