Bank of Queensland Limited

BOQ Details

Basel III Pillar 3 Disclosures: Bank of Queensland Limited (ASX: BOQ) is engaged in the provision of financial services.

• As per a recent disclosure, the company’s board has set the common equity Tier 1 capital target in the range of 9% and 9.5%, and the total capital range to be between 11.75% and 13.5%.
• The common equity Tier 1 Capital ratio stood at 14.1% as of 31 May 2021, and the total capital ratio improved to 18%.

Capital Raise:

The Group raised $1,350 million through the issue of ordinary shares in March 2021 and also raised $250 million through the issue of subordinated debt in April 2021.

Completion of Acquisition of ME Bank:

On 1 July 2021, the bank has updated that it has completed the acquisition of ME Bank for a total cash consideration of $1.325 billion. The transaction marks a critical milestone in the company’s multi-brand strategy.

H1FY21 Financial Overview:

• During the period, the bank reported a statutory NPAT of ~$154 million in H1FY21, reflecting an increase of ~66% on the pcp.
• Cash return on average equity increased by 30bps to 7.8% in H1FY21.
• It declared a dividend of 17 cents per share in H1FY21, compared to 6 cents per share in H1FY20.

Growth in Net Loans (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business is exposed to macro risks which impact the borrowing and repayment behaviour of customers.

Outlook: The Group expects an optimistic scenario going forward with Australia relatively well placed with the support of Government stimulus. It will look for continued operational improvements and plans to go-live of the first phase of the retail digital banking platform. It anticipates positive NIM in FY21, and a cost increase of ~3% in order to support business momentum.

Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)

Source: 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:  As per a recent announcement, the bank has updated that former ME Bank Director Deborah Kiers will join BOQ’s Board of Directors. As per ASX, the stock of BOQ is trading above its average 52-weeks’ levels of $5.457-$9.680. The stock of BOQ gave a positive return of ~52.985% in the past one year and a positive return of ~19.76% in the past nine months. It has a support level of $8.44 and resistance level of $10.77. The stock has been valued using a P/B multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ median, considering the prevalent macro risks due to the COVID-19 pandemic and a decrease in efficiency ratio. For the purpose of valuation, few peers like National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC) have been considered. Considering the expected upside in valuation & current trading levels, decent growth in NPAT, increase in dividend pay-out and completion of the acquisition of ME Bank, we recommend a ‘Hold’ rating on the stock at the current market price of $9.26, up by ~0.98% as on 25 August 2021.

BOQ Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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