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Is it time to buy Bank of Queensland ?

October 03, 2014 | Team Kalkine
Is it time to buy Bank of Queensland ?

Stock of the Day – Bank Of Queensland (BOQ )
 
BOQ announced last month that it reached an agreement to settle all remaining ASIC Storm Financial proceedings and a class action on behalf of customers. This is subject to Federal Court approval but concludes the outstanding proceedings against BOQ. The gross payment is $149.7 million with $17m to go to its customer and the one off after tax net impact is $22.1 million including legal costs and a further remediation provision.


Key Metrics (Source - Company Reports)

While this will only impact 2014 reported NPAT and not 2014 cash NPAT the outcome is also not expected to materially impact BOQ’s CET1 target and expected 2H14 dividend payment. BOQ is shifting towards the capital efficient wealth and higher spread asset finance businesses that should ultimately underpin higher Net Interest Margin and Return on Equity. With new management and tightened credit risk disciplines, leverage to the east coast and a better whole sale funding environment to look forward to BOQ has some positives going for it.


Multi Channel Strategy (Source - Company Reports)

The outlook at BOQ remains uncertain with a new CEO potentially bringing a change in strategy. While at a headline level BOQ’s upcoming result on October 9 is unlikely to surprise, the composition of the result/trends could raise some concerns. Deteriorating expense trends a slowing impaired asset runoff profile and weak credit growth are all likely to be negatives. We believe there remains a material risk of deterioration in BOQ’s cost profile.


BOQ Daily Chart (Source - Thomson Reuters)

We expect impairment expense to continue to decline, however impaired asset runoff could slow. The equipment finance business was flagged as an area where BOQ were seeing instances of elevated impairment mainly relating to mining services. Business ancillary to mining services could also be under pressure. We believe the stock is expensive at current price and would review the stock at a later date.
  

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The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

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