Bank of Queensland Limited

BOQ Details

Continuous focus on asset quality and cost controlling measures: Recently, Standard & Poor’s (S&P) has downgraded its long-term credit rating of Bank of Queensland Limited (ASX: BOQ) to ‘BBB+’ from ‘A-’ as part of a downgrade of ratings on 23 Australian financial institutions, while maintaining a stable outlook. However, BOQ seems to have a significantly lower level of exposure to the Sydney and Melbourne property markets than many other industry participants and the bank’s loan book has performed well in the central Queensland and northern WA.  During H1FY17, BOQ has faced several industry headwinds including low credit growth and intense competition for both loans and deposits. This has placed increasing pressure on Bank margins and reduced overall revenue. Despite the tough operating environment, banks focus on asset quality and expense management coupled with growth in lending segment is expected to deliver earnings growth in FY17. The stock has declined by 8.2% in the last two months owing to fears over recent regulations on home loans. However, given the optimistic prospects over peers, we maintain a “Buy” recommendation on the stock at the current price of $ 10.96
 

BOQ Daily chart; (Source: Company reports)

MyState Limited

MYS Details

MyState Limited (ASX: MYS) has witnessed a strong investor demand for its recent CONQUEST Series 2017-1 $400m RMBS (Residential mortgage-backed security), and resulted in tighter pricing for the transaction. The transaction was the largest in the long history of the CONQUEST program and elicited broader investor support than any of previous transaction. Strong investors’ appetite for MYS RMBS placing MyState as a regular issuer to the market and increasingly seek to benefit from participating in a program with exemplary credit performance and increasing geographic diversification. Further, the senior tranches of notes have received a preliminary rating of AAA (sf) from Standard and Poor and Fitch Ratings. The transaction is backed by Australian prime residential mortgages originated by MyState Bank Limited while eighteen domestic and foreign investors participated in the transaction. The successful transaction represents the sixth RMBS transaction under the CONQUEST program following from the recent transaction completed in November 2016. The stock has moved up 4% over the last six months, while it was up 9.8% in the last one year (as on June 23,2017). We give a “Speculative buy” rating on the stock at the current market price of $4.67
 

MYS Daily chart; (Source: Company reports) 

Bendigo and Adelaide Bank Ltd

BEN Details

Moody’s down grade in line with the sector: Moody’s has downgraded the Baseline Credit Assessments (BCAs), long-term ratings and Counterparty Risk Assessments (CRAs) of 12 Australian banks and their affiliates, reflecting elevated risks in the household sector which heighten the sensitivity of the banks’ credit profiles to an adverse shock. These elevated risks have been captured in Moody’s Macro Profile for Australia, which has been lowered to “Strong +” from “Very Strong.  BEN’s long-term credit rating was downgraded by Moody’s by one notch to A3/Stable and the short-term rating by one notch to P-2. However, this change is not expected to have a material impact on the availability or cost of funding for BEN. During H1FY17, the bank reported an after tax statutory profit of $209.0 million, while the underlying cash earnings rose 0.4% year on year (yoy) to $224.7 million. The bank’s net interest margin witnessed pressure as it was impacted by additional liquidity for the Keystart portfolio acquisition, while the increasing competition remains a concern despite the group’s focus on customers.

The stock has fallen 16% over the last six months, while it was up 11.5% in the last one year (as on June 23,2017). However, given the lukewarm prospects, we maintain an “Expensive” rating on the stock at the current market price of $ 10.63
 

BEN Daily chart; (Source: Company reports)

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