Bank of Queensland Limited

BOQ Details

Key Financial Highlights of H1FY21: Bank of Queensland Limited (ASX: BOQ) is a regional bank of Australia, which is engaged in retail banking, commercial lending activities and treasury management business. During H1FY21, net interest income (NII) increased to ~$512 million from ~$483 million in H1FY20. Net Interest Margin (NIM) stood at 1.95%, an improvement of 6 bps relative to H1FY20. Total income stood at ~$569 million in H1FY21, an increase of 5% on a YoY basis, and Statutory PAT stood at ~$154 million in H1FY20, an increase of 66% on a YoY basis. The favourable top-line outcomes were primarily driven by improved product mix, lower funding costs as a result of deposit repricing actions and lower hedging costs. The increased cash earnings was a result of improved NII and lower loan impairment expenses, partly offset by increased operating expenses.

A Look at Key Performing Indicators of H1FY21: During the period, ROE and ROTE increased by 30 bps (7.8%) and 10bps (9.9%), respectively, relative to H1FY20. Despite increased operating expenses of 4%, the CTI ratio declined by 50bps to 53.8% relative to H1FY20. GRCL coverage to GLA increased to 95 bps as compared to 69 bps in H1FY20 due to increased loans and advance coupled with a marginal decline in collective provision balance. BOQ improved its liquidity and funding position as indicated by an increase in the CET1 ratio by 12bps (10.03%) and an increase in the total capital adequacy ratio by 62bps (13.83%).

Cash Earnings and Tier-1 Capital (Source: Company Reports)

Key Risks: BOQ is exposed to interest rate fluctuations that have adversely affected returns on invested capital. The ongoing impact of low-interest rate environment may require prudent risk management strategies. Maintaining adequate liquidity is crucial for BOQ to underpin proper asset liability management. Being a highly cyclical industry, BOQ also assumes high Economic Risks and COVID-19 related uncertainties.

Recent Corporate Events – On 23 February 2021, BOQ announced the successful completion of an Institutional Entitlement Offer of $1.35 billion, and the proceeds are to be used for the acquisition of ME Bank. On 22 February 2021, BOQ entered into a strategic acquisition agreement with ME Bank (100% stake) and the completion is expected in H2FY21.

Outlook: Recent developments of the government stimulus have brought forward less likelihood of a downside situation on employment and house prices. BOQ expects growth in lending operations with NIM to remain slightly positive in FY21. Costs are expected to grow by 3% due to the rising requirement of technological advancements, which shall reap economic benefits in the near future. BOQ exhibits sustainable growth, hence targeting dividend payout ratio of 60 – 75% of cash earnings. However, it is noteworthy to mention the risks of COVID-19 uncertainties, and low-interest rate scenario may cause reduced profitability and increased liquidity risks.

Valuation Methodology: Price/Book Value 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: Over the last three months, the stock of BOQ went down by ~2.41%. The stock made a 52-weeks’ low and high of $4.641 and $9.440, respectively. The stock has a support level of ~$8.339 and a resistance level of ~$9.333. We have valued the stock using the Price/Book Value multiple based illustrative relative valuation method and arrived at a target price of a modest upside of single-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer’s average Price/Book Value (NTM Trading multiple) considering better liquidity position, higher ROE and ROTE levels despite the pandemic situation, and growing deposits and loans. We have taken peers like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), to name a few. Taking into account the current technical analysis, appropriate provisioning and positive KPIs, partially offset by low-interest rate levels, COVID-19 uncertainties and inclining operational expenditure, we give a ‘Hold’ rating on the stock at the current market price of $8.890%, up by ~0.338% as on 26 May 2021.

BOQ Daily Technical Chart, Data Source: REFINITIV

Navigator Global Investments Limited

NGI Details

Latest Newsstand updates: Navigator Global Investments Limited (ASX: NGI) is a holding company. NGI is engaged in providing investment management services that offers multi-managed hedge fund solutions to investors globally via Lighthouse Investment Partners, LLC (Lighthouse). On 19 April 2021, NGI updated on Asset Under Management (AUM) NGI group total AUM, which stood at ~US $20.7 billion, and the performance of selective Lighthouse commingled funds. On 1 February 2021, NGI successfully completed the strategic acquisition of Dyal Capital Partners with an objective to diversify NGI’s earnings profile.

Key Financial Highlights of H1FY21: During H1FY21, the reported management fee stood at ~US $37.70 million, a decline of 19% compared to H1FY20. In contrast, the performance fee increased to ~US $9.76 million, up by an astounding 166% relative to H1FY20. Total revenue was registered at ~US $52.74 million, down by 2% relative to H1FY20. Reported EBITDA declined to ~US $15.50 million, down by 23%. The dip in revenue was primarily driven by 12% decline in average AUM as compared to H1FY20 and a reduction in average fee from 0.68% to 0.62%, mostly offset by improved performance fee from the outperformance of commingled funds. Lower EBITDA was a result of increased operating expenses, essentially driven by additional bonus expense as a result of fund outperformance.

Management and Performance Fees (Source: Company Reports)

Key Risks: Although NGI has a diversified portfolio of multi-managed hedge funds, they are still exposed to interest rate and systematic risks due to their investments in fixed-income and equities. Considering the current pandemic situation, there are possibilities of extreme market volatility.

Outlook: The acquisition of Dyal Capital estimates a contribution of US $2-3 million accounting profits with a diversified portfolio exposure to minimise market risks. NGI expects an underlying EBITDA of US $28-31 million in FY21. NRI targets 70-80% dividend payout from EBITDA. Despite, revenue from performance fees is highly uncertain; the historical performance trend suggests that NGI funds may outperform their respective benchmarks. Nevertheless, COVID-19 related uncertainties may pose high market volatility, and hence prudent risk management is requisite.

Valuation Methodology: Price/Book Value 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: Over the last three months, the stock of NGI went down by ~17.30%. The stock made a 52-weeks’ low and high of $1.130 and $2.320, respectively. We have valued the stock using the Price/Book Value multiple based illustrative relative valuation method and arrived at a target price of a modest upside of double-digit (in percentage terms). We believe that the company can trade at a modest premium as compared to its peer average Price/Book Value (NTM Trading multiple), considering high-performance expectations and increased profits & decreased investment risk from the strategic acquisition. We have taken peers like Pendal Group Ltd (ASX: PDL), Centuria Capital Group (ASX: CNI), Pacific Current Group Ltd (ASX: PAC), to name a few. Taking into account the technical analysis, high-performance expectations, steady management fee expectations, strategic acquisition, partially offset by COVID-19 related uncertainties, interest rate risk and market volatility, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.530, up by ~2.684% as on 26 May 2021.

NGI Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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