Aug 5, 2014 - operational risk and in strengthening both its operating platform and competitive positioning. We also see
5 August 2014
Analyst TS Lim 612 8224 2810
Bank of Queensland (BOQ) On and up
Authorisation Chris Savage 612 8224 2835
Asset quality continues to improve
Recommendation
Buy (unchanged)
BOQ’s recent 3Q14 Pillar 3 report has pointed to further improvements in asset quality. Credit exposure growth was 5.5% on a rolling 12-month basis (up from 3% in the previous quarter) and equates to roughly 1.25 times system growth (in line with the blended target of 1.3 times system growth excluding Investec contributions). Impaired assets were lower at $359m ($364m in 2Q14) and 39% lower on a PCP basis ($588m in 3Q13). As a percentage of credit exposures, impaired assets are down to 99bp (104bp in 2Q14 and 171bp in 3Q13) and the pattern is similar for 90 days past due loans. The 2H14 BDD charge should now be lower than the $46m incurred in 1H14.
Price
$12.26 Target (12 months)
$13.50 (unchanged) Expected Return Capital growth
10.1%
Dividend yield
5.7%
Total expected return
15.8%
Company Data & Ratios Enterprise value
n/m
Market cap
$4,444m
Issued capital
363m
Free float
100%
Avg. daily val. (52wk)
$20.4m
12 month price range
$9.29 - $13.25
GICS sector Banks
Price Performance Price (A$) Absolute (%) Rel market (%)
(1m) 12.22 0.90 -2.16
(3m) 12.39 -0.48 -1.53
(12m) 9.32 32.30 22.69
Absolute Price
At least $1.00 valuation upside post Basel II accreditation Basel II accreditation in the form of a lower mortgage risk weighting (i.e. level playing field) is expected to increase the CET1 ratio by 2% and lead to surplus capital of $484m ($1.34 per share). Utilising the extra capital to boost lending by say $4bn (all else being equal while maintaining the equity ratio at close to 7.0%) would boost cash NPAT by around 10% and ROE and ROTE by 1%. Prospects of a higher overall riskadjusted return should then increase BOQ’s valuation by at least $1.00 per share.
Maintain $13.50 price target and Buy rating Our estimates are largely unchanged and we have maintained the $13.50 price target and Buy rating. We remain positive on BOQ given progress to date in lowering operational risk and in strengthening both its operating platform and competitive positioning. We also see value upside flowing from the recent Investec acquisition (including cost outs) and redeployment of surplus capital following Basel II accreditation that would boost returns and valuations as described earlier. The price target is the equivalent of 1.4 times 2015e book value and 13.7 times 2015e cash earnings, and 1.3 times 2016e book value and 12.9 times 2016e cash earnings, not unreasonable given healthier earnings prospects and acquired growth options. The target PB multiples are in line with the bank’s medium term ROE outlook.
Earnings Forecast Year end 31 August
$14 $13 $12 $11 $10 $9 $8 $7 $6
2013
2014e
2015e
2016e
NPAT (reported) (A$m)
186
285
356
384
NPAT (adjusted) (A$m)
251
294
363
391
EPS (adjusted) (A¢ps)
80
89
99
104
590%
11%
11%
6%
15.3
13.8
12.4
11.7
P/Book (x)
1.6
1.3
1.3
1.2
P/NTA (x)
2.0
1.6
1.5
1.4
Dividend (A¢ps)
58
64
70
74
4.7%
5.2%
5.7%
6.0%
ROE (%)
9.4%
10.2%
10.9%
11.1%
NIM (%)
1.69%
1.76%
1.79%
1.78%
100.0%
100.0%
100.0%
100.0%
EPS growth (%) PER (x)
Yield (%)
Aug Dec Apr Aug Dec Apr 12 12 13 13 13 14 BOQ S&P 300 Rebased
Franking (%)
SOURCE: IRESS
SOURCE: BELL POTTER SECURITIES ESTIMATES
BELL POTTER SECURITIES LIMITED ACN 25 006 390 7721 AFSL 243480
DISCLAIMER AND DISCLOSURES THIS REPORT MUST BE READ WITH THE DISCLAIMER AND DISCLOSURES ON PAGE 8 THAT FORM PART OF IT.
Page 1
Bank of Queensland (BOQ)
5 August 2014
On and up Asset quality continues to improve Trends in BOQ’s Pillar 3 disclosures (Table 1) suggest asset quality has continued to improve across specific and general impairments. This is underpinned by strengthened credit management practices and lower appetite for excessive credit growth. Growth in gross credit exposures (GCE) was around 5.5% on a rolling 12-month basis in 3Q14, up from around 3% in the previous quarter and with the key driver being business lending (while mortgage lending growth inclusive of revolving facilities remains elusive). The GCE growth of 5.5% equates to around 1.25 times system growth that is in line with management’s blended target of 1.3 times system growth (ex-Investec). Impaired assets were lower in 3Q14 at $359m ($364m in 2Q14) and 39% lower on a PCP basis ($588m in 3Q13). These are likely due to further improvements in the commercial property space in all states and better realisation especially in the >$5m bucket. As a percentage of GCE, impaired assets have fallen to 99bp (vs. 104bp in 2Q14 and 171bp in 3Q13 and having peaked at 177bp in 2Q13). The behaviour is similar for 90 days past due loans, having fallen to 66bp of GCE (vs. 73bp in 2Q14 and 89bp in 3Q13 and having peaked at 139bp in 3Q11). Specific provisions and GRCL remain more than adequate in our view at 159bp of risk weighted assets (vs. 120bp on average for the majors and 100bp for the other regional banks). The current trend in the specific impairment expense suggests a BDD charge in 2H14 that is below the $46m incurred in 1H14. BOQ’s prudential buffers continue to be conservative. With growth in lending not being excessive, retail deposit funding should exceed 74% as reported in 1H14 (likewise the retail deposit to lending ratio should remain over 68% while the High Quality Liquid Assets ratio should be stable at around 15%). BOQ’s CET1 ratio climbed to 10.5% as a result of the capital placement related to the Investec acquisition. Post consolidation of the Investec business, the CET1 ratio should stabilise at around 8.8% (still the highest in the sector).
Table 1 – Pillar 3 asset quality trends still favourable BOQ Basel II Pillar 3 ($m)
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
Gross credit exposures (GCE)
29,119
29,232
32,987
33,381
33,027
33,483
34,141
34,131
33,699
33,741
34,417
34,224
34,400
34,879
36,305
Gross credit exposures - mortgages
19,458
19,876
23,551
23,943
24,141
24,525
25,126
25,374
25,056
24,776
25,294
24,934
24,973
25,015
25,205
Total loans - drawn
22,931
23,353
26,720
27,228
27,196
27,432
27,994
28,312
27,914
-
-
-
-
-
-
Home loans - drawn
17,244
17,654
20,990
21,448
21,443
21,657
22,276
22,727
22,342
-
-
-
-
-
-
RWA
19,152
18,946
20,225
20,525
20,475
20,671
20,947
21,098
21,274
21,346
21,752
21,552
21,474
21,717
22,138
Level 2 Tier 1 capital
1,718
1,718
1,718
1,718
1,740
1,520
1,969
1,998
2,000
2,177
2,153
2,155
2,147
2,215
2,634
Level 2 Tier 1 capital ratio
8.7%
8.7%
8.4%
8.4%
8.5%
7.4%
9.4%
9.5%
9.4%
10.2%
9.9%
10.0%
10.0%
10.2%
11.9%
Gross im paired loans (GIA)
251
421
446
442
421
576
592
515
512
596
588
500
417
364
359
90 days pas t due loans
320
344
460
461
447
364
365
327
326
354
307
281
279
256
241
Specific provision balance
91
140
151
173
158
249
258
247
253
214
198
173
163
150
148
Charges for specific provision
31
48
11
23
-16
91
9
-55
5
-13
-14
-25
-10
-14
-3
Write-offs
18
12
11
20
50
38
22
83
29
67
49
53
34
38
23
Specific impairment expens e
49
60
22
42
34
129
30
28
34
54
35
28
24
24
- YTD
173
1H/2H BDD charge
134
66
FY BDD charge GRCL
221 328
73
201 115
114
121
123
60
198
213
68
55
401 121
21
151 46
115
184
185
221
212
208
207
204
204
Growth Gross credit exposures - mortgages
-18.7%
2.1%
18.5%
1.7%
0.8%
1.6%
2.5%
1.0%
-1.3%
-1.1%
2.1%
-1.4%
0.2%
0.2%
0.8%
Impaired loans
-43.2%
67.4%
6.1%
-0.9%
-4.7%
36.7%
2.8%
-13.0%
-0.5%
16.4%
-1.5%
-15.0%
-16.6%
-12.5%
-1.3%
90 days pas t due loans
-30.7%
7.5%
33.8%
0.4%
-3.1%
-18.5%
0.3%
-10.5%
-0.2%
8.6%
-13.3%
-8.6%
-0.5%
-8.2%
-6.0%
Specific provision balance / GIA
36.4%
33.2%
33.8%
39.2%
37.5%
43.2%
43.6%
47.9%
49.5%
35.9%
33.8%
34.5%
39.1%
41.2%
41.1%
Impaired loans / GCE
0.86%
1.44%
1.35%
1.32%
1.28%
1.72%
1.73%
1.51%
1.52%
1.77%
1.71%
1.46%
1.21%
1.04%
0.99%
90 days pas t due loans / GCE
1.10%
1.18%
1.39%
1.38%
1.35%
1.09%
1.07%
0.96%
0.97%
1.05%
0.89%
0.82%
0.81%
0.73%
0.66%
Specific provision balance / RWA
0.48%
0.74%
0.75%
0.84%
0.77%
1.20%
1.23%
1.17%
1.19%
1.00%
0.91%
0.80%
0.76%
0.69%
0.67%
Ratios
SOURCE: COMPANY DATA AND BELL POTTER SECURITIES ESTIMATES
Page 2
Bank of Queensland (BOQ)
5 August 2014
At least $1.00 valuation upside post Basel II accreditation Note the above-mentioned CET1 ratio excludes the potential capital benefit to be derived from Basel II accreditation (i.e. under a level playing field scenario where BOQ’s average risk weight for mortgage lending falls from around 42% to around 23%). Based on current 2015e forecasts, we believe CET1 will increase by around 2% as a result of a lower risk weighted asset denominator – implying surplus capital of $484m ($1.34 per share). Utilising the surplus capital to boost spot lending by say $4bn (while maintaining the equity ratio at close to 7.0% that is still 1.0% higher than the average for the major banks) should further:
Increase cash NPAT by around 10%;
Increase ROE by 1% to 12% and ROTE by 1% to 14%; and
Stabilise surplus capital at around $394m ($1.09 per share).
All else being equal, the higher resulting DCF in addition to surplus capital should increase BOQ’s valuation/price target by at least another $1.00 per share.
Table 2 – Potential impact of 23% risk weighting for residential loans BOQ ($m)
2015e
Level playing field - 23% residential risk weighting Revised residential risk weight
Pro-forma 1
Increased leverage
Pro-forma 2
877
1
P&L items
2
Net interest income
798
798
80
3
Other income
184
184
17
202
4
Operating expenses
-376
-376
-37
-413
5
Underlying profit
606
606
6
Impairment expenses
-88
-88
7
Contribution before tax
518
518
568
8
Corporate tax expense
-155
-155
-170
9
Minority interests & PEPs
0
0
0
363
363
398
10 Cash earnings as is
BOQ 2015+ management targets
666 -10
-98
11 Balance sheet items 12 Average equity
3,318
3,318
3,318
13 Average tangible equity
2,813
2,813
2,813
14 Average assets
47,065
47,065
4,444
51,510
15 Average IEA
44,569
44,569
4,444
49,013
4,444
52,029
16 Spot equity
3,555
3,555
17 Spot assets
47,584
47,584
3,555
18 Spot residential loans
27,580
27,580
4,444
32,024
19 Spot loans
38,680
38,680
4,444
43,124
20 Spot residential RWAs
11,584
-5,378
6,205
1,000
7,205
21 Spot credit RWAs
24,279
-5,378
18,901
1,000
19,901
22 Spot RWAs
26,477
-5,378
21,099
1,000
22,099
23 KPIs 24 NIM
1.79%
1.79%
1.79%
25 ROE
10.9%
10.9%
12.0%
26 ROTE
12.9%
12.9%
14.1%
27 ROA
0.8%
0.8%
0.8%
28 ROCRWA
1.5%
1.9%
2.0%
29 Equity ratio
7.5%
7.5%
6.83%
30 Residential risk weighting
42%
31 Other income as % of avg. assets
0.4%
32 Cost to income ratio 33 BDD as % of GLA
23%
23%
23%
0.4%
0.4%
Low-mid 160s 13%+
38%
38%
38%
Low 40s
0.23%
0.23%
0.23%
~20bp
2,385
34 Capital implications 35 CET1 capital 36
- As is
2,385
2,385
37
- Adjustments
-
-
-
38 Additional T1 capital
300
300
300
39 Tier 2 capital
474
474
474
40 Total capital
3,159
3,159
3,159
41 Risk weighted assets
26,477
-5,378
21,099
1,000
22,099
42 CET1 capital ratio
9.0%
11.3%
43 Tier 1 capital ratio
10.1%
12.7%
12.1%
44 Total capital ratio
11.9%
15.0%
14.3%
45 Implied surplus capital 46
- Per share
10.8%
484
394
$1.34
$1.09
SOURCE: COMPANY DATA AND BELL POTTER SECURITIES ESTIMATES
Page 3
Bank of Queensland (BOQ)
5 August 2014
The nuts and bolts Revisiting 2015+ management targets The current 2015+ targets exclude contributions from the Investec transaction and are thus considered ultra-conservative. As a guide, our medium term forecasts that include the Investec contributions are set out below relative to these targets: 1.
Loan growth at 1.1-1.2 times system vs. blended target of ~1.3 times system (1.2 times system growth for retail, 1.5 times system growth for business);
2.
NIM of 179bp (given the transaction’s higher incremental NIM) vs. target of low-mid 160s;
3.
Flat expense growth (given transaction synergies) vs. target of less than Inflation;
4.
Cost-to-income ratio of 38% vs. target of low 40s;
5.
BDD as a percentage of GLA of 23bp vs. target of ~20bp; and
6.
~13% ROTE that is broadly in line with the target of 13%+.
Maintain $13.50 price target and Buy rating Our estimates are largely unchanged (Table 3) and we have maintained the $13.50 price target and Buy rating. We remain positive on BOQ given progress to date in lowering operational risk and in strengthening both its operating platform and competitive positioning. We also see value upside flowing from the recent Investec acquisition (including cost outs) and redeployment of surplus capital following Basel II accreditation that would boost returns and valuations as described earlier. The price target is the equivalent of 1.4 times 2015e book value and 13.7 times 2015e cash earnings, and 1.3 times 2016e book value and 12.9 times 2016e cash earnings, not unreasonable given healthier earnings prospects and acquired growth options. The target PB multiples are in line with the bank’s medium term ROE outlook.
Table 3 – Estimate changes Bank of Queensland Y/e August 31 ($m)
2014e Current
2015e
Previous
Change
Current
2016e
Previous
Change
Current
2017e
Previous
Change
Current
Previous
Change
Profit & Loss Net interest income
725
725
0%
798
798
0%
852
847
1%
907
902
1%
Other income
165
165
0%
184
184
0%
196
196
0%
210
210
0%
Total operating income
889
889
0%
982
982
0%
1,048
1,043
0%
1,117
1,111
0%
Operating expenses
-380
-380
0%
-376
-376
0%
-396
-396
0%
-411
-411
0%
Impairment expenses
-87
-93
6%
-88
-88
0%
-94
-89
-4%
-104
-96
-8%
Net profit before income tax
422
417
1%
518
518
0%
558
558
0%
601
604
-1%
Corporate tax expense
-129
-127
-1%
-155
-155
0%
-167
-167
0%
-180
-181
1%
0
0
n/m
0
0
n/m
0
0
n/m
0
0
n/m -1%
Minority interests
294
290
1%
363
363
0%
391
390
0%
421
423
DPS (cps)
64
64
0%
70
70
0%
74
74
0%
78
78
0%
EPS (normalised cash basis) (cps)
89
88
1%
99
99
0%
104
104
0%
110
111
-1%
ROE
10.2%
10.1%
0.1%
10.9%
10.9%
0.0%
11.1%
11.1%
0.0%
11.3%
11.4%
-0.1%
NIM
1.76%
1.76%
0.00%
1.79%
1.79%
0.00%
1.78%
1.77%
0.01%
1.77%
1.76%
0.01%
NPAT (normalised cash basis)
Cost ratio Impairment expense as % of GLA
43%
43%
0%
38%
38%
0%
38%
38%
0%
37%
37%
0%
0.24%
0.26%
0.02%
0.23%
0.23%
0.00%
0.23%
0.22%
-0.01%
0.24%
0.22%
-0.02%
SOURCE: COMPANY DATA AND BELL POTTER SECURITIES ESTIMATES
Page 4
Bank of Queensland (BOQ)
5 August 2014
Bank of Queensland Company description BOQ is largely a retail bank with specialist business banking capabilities. It operates 262 branches and transaction centres (including 179 Owner Managed Branches and 75 corporate branches) and has access to 3,076 REDI and BOQ-branded ATMs. The regional bank operates predominantly in QLD (57% of retail loans, 59% of business before the Investec transaction [48% after]) with an expanding presence in WA (following the HME acquisition) and VIC, as well as through the Virgin Money Australia network.
Investment strategy BOQ is shifting towards the capital efficient wealth and higher spread asset finance businesses that should ultimately underpin higher NIM and ROE. Despite the BDD setbacks in 2011 and 2012, we feel the regional is now more than well capitalised and provisioned to start looking towards normalising and growing earnings again. With new management and tightened credit risk disciplines, leverage to the east coast and a better wholesale funding environment to look forward to, BOQ is potentially undervalued for its growth potential as and when operating conditions normalise.
Valuation The price target is based on the DCF valuation methodology (using 11.4% discount rate, 3.50% terminal growth rate and 8.5% ongoing Tier 1 requirement), earnings upside from increased leverage (including the Investec Australia transaction net of higher acquired loan book RWA capital requirements) and residual surplus CET1 capital under Basel II accreditation over current projected levels. The price target is the equivalent of 1.4 times 2015e book value and 13.7 times 2015e cash earnings, and 1.3 times 2016e book value and 12.9 times 2016e cash earnings, not unreasonable given better earnings prospects with its acquired growth options. The target PB multiples are in line with the bank’s medium term ROE outlook.
SWOT analysis Strengths 1.
New conservative management with the 3Rs banking experience (retail, rural, regional); and
2.
Strengthened credit rating, funding, capital and provisioning base.
Weaknesses 1.
Commercial property exposure at 2% of total exposures with the bulk in QLD;
2.
Proportion of wholesale funding although improving with expanding retail funding base; and
3.
Underperforming NSW OMB and WA but with the risk partially mitigated by new management with relevant experience and refocus on third party distribution.
Opportunities 1.
Multiple domestic retail banking, leasing and wealth management opportunities based on securing alternate distribution strategies (e.g. St Andrews purchase, acquiring building societies and health insurance);
Page 5
Bank of Queensland (BOQ)
5 August 2014 2.
Big Bang approach in creating Australia’s premier regional bank in challenging the majors by merging with another larger player; and
3.
Highly leveraged to economic recovery in QLD and NSW.
Threats 1.
Macroeconomic factors such as QLD seasonal factors, higher national unemployment and slowing credit growth;
2.
Changes in regulatory environment, especially the potential capping of banking fees that would crimp earnings growth;
3.
Customer leakage from adverse Storm and NSW OMB publicity, and related contingent liabilities; and
4.
Increased competition from the major banks especially in the retail deposit space.
Page 6
Bank of Queensland
Recommendation Price Target (12 months)
as at 5 August 2014
Bank of Queensland (BOQ)
Buy $12.26 5 August 2014 $13.50
Table 4 - Financial summary Bank of Queensland As at
Share Price (A$) Market Cap (A$M)
5-Aug-14
PROFIT AND LOSS Y/e August 31 ($m) Net interest income Other income Total banking income Funds management income Insurance income Total operating income Operating expenses Impairment expenses Net profit before income tax Corporate tax expense Minority interests NPAT (normalised) Adjustments - Amort'n of customer contracts - H/O restructuring costs - NSW OMB restructuring costs - HME integration costs - Gain on VISA IPO - Other NPAT (statutory basis) Add: RePS dividends & other Add: convertible note dividends Add: PEPS dividends Adjustments net of PEPS dividends NPAT (normal'd for dil. EPS)
2012 656 161 817 0 0 817 -373 -401 43 -12 0 31 0 -11 -5 0 -1 0 -31 -17 1 0 10 28 21
2013 694 162 857 0 0 857 -379 -115 363 -112 0 251 0 -9 -11 -38 -4 0 -4 186 0 1 2 74 263
2014e 725 165 889 0 0 889 -380 -87 422 -129 0 294 0 -5 0 0 0 0 -4 285 0 0 0 26 311
2015e 798 184 982 0 0 982 -376 -88 518 -155 0 363 0 -5 0 0 0 0 -2 356 0 0 0 24 380
2016e 852 196 1,048 0 0 1,048 -396 -94 558 -167 0 391 0 -5 0 0 0 0 -2 384 0 0 0 24 408
CASHFLOW Y/e August 31 ($m) NPAT (statutory basis)
2012 31
2013 251
2014e 294
2015e 363
2016e 391
Increase in loans Increase in other assets Capital expenditure Investing cashflow
-824 -821 0 -1,645
-1,062 540 -7 -530
-521 -161 -8 -689
-2,905 -1,528 -1 -4,435
-2,471 -613 -1 -3,085
Increase in deposits & borrowings Increase in other liabilities Equity raised Other Financing cashflow
1,545 -14 507 -186 1,852
527 325 -98 -273 481
1,130 -1,044 461 -221 326
2,994 1,238 85 -246 4,072
2,508 362 94 -269 2,694
237 671
203 873
-70 803
0 803
0 803
BALANCE SHEET Y/e August 31 ($m) Cash and liquid assets Divisional gross loans Provisions Other gross loans / inter div. Other IEA Intangibles PP&E Insurance assets Other assets Total assets
2012 671 34,340 -413 0 6,085 555 31 0 490 41,758
2013 873 35,302 -312 0 5,543 593 38 0 492 42,528
2014e 803 35,799 -289 0 5,985 600 45 0 211 43,155
2015e 803 38,680 -265 0 7,513 595 47 0 211 47,584
2016e 803 41,162 -276 0 8,127 590 48 0 211 50,665
Divisional deposits Other borrowings Other liabilities Total liabilities
31,172 7,149 538 38,859
31,699 6,692 1,320 39,711
32,829 6,787 181 39,797
35,823 8,025 181 44,029
38,331 8,387 181 46,899
2,464 196 106 133 0 2,899
2,563 0 111 144 0 2,818
3,023 0 105 230 0 3,358
3,109 0 105 342 0 3,555
3,202 0 105 458 0 3,766
41,758
42,528
43,155
47,584
50,665
264 265
314 347
331 360
367 396
374 403
Net change in cash Cash at end of period
Ordinary share capital Other equity instruments Reserves Retained profits Minority interests Total shareholders' equity Total sh. equity & liabs. WANOS - statutory (m) WANOS - dil. normalised (m)
12.26 4,444
VALUATION DATA Y/e August 31 NPAT (normalised) ($m) EPS (statutory basis) (cps) - Growth EPS (cash basis) (cps) - Growth P / E ratio (times) P / Book ratio (times) P / NTA ratio (times) Net DPS (cps) Yield Franking Payout (cash basis)
2012 31 -6 -110% 12 -85% 105.7 1.5 1.9 52 4.2% 100% 457%
2013 251 59 -1014% 80 590% 15.3 1.6 2.0 58 4.7% 100% 73%
2014e 294 86 45% 89 11% 13.8 1.3 1.6 64 5.2% 100% 75%
2015e 363 97 13% 99 11% 12.4 1.3 1.5 70 5.7% 100% 71%
2016e 391 103 6% 104 6% 11.7 1.2 1.4 74 6.0% 100% 71%
CAPITAL ADEQUACY Y/e August 31 Risk weighted assets ($m) Average risk weight Tier 1 ratio Core Tier 1 ratio Total capital ratio Equity ratio
2012 21,098 52% 9.5% 8.5% 12.6% 6.9%
2013 21,552 52% 10.0% 8.6% 12.2% 6.6%
2014e 22,102 53% 12.2% 10.8% 14.3% 7.8%
2015e 26,477 57% 10.1% 9.0% 11.9% 7.5%
2016e 28,242 57% 10.3% 9.2% 11.9% 7.4%
PROFITABILITY RATIOS Y/e August 31 Return on assets Return on equity ROTE Leverage ratio Net interest margin Cost / income ratio Cost / average assets Growth in operating income Growth in operating expenses Jaws Effective tax rate
2012 0.1% 1.0% 1.2% 4.8% 1.67% 46% 0.91% 1% 4% -3% 28%
2013 0.6% 9.4% 11.9% 5.2% 1.69% 44% 0.90% 5% 2% 3% 31%
2014e 0.7% 10.2% 12.9% 6.3% 1.76% 43% 0.89% 4% 0% 4% 30%
2015e 0.8% 10.9% 12.9% 5.7% 1.79% 38% 0.80% 10% -1% 12% 30%
2016e 0.8% 11.1% 12.9% 5.8% 1.78% 38% 0.79% 7% 6% 1% 30%
ASSET QUALITY Y/e August 31 Impairment expense / GLA Impairment expense / RWA Total provisions + GRCL ($m) Total provisions + GRCL / RWA Indiv ass prov / gross imp assets IBL / IEA
2012 1.17% 1.90% 483 2.29% 42% 96%
2013 0.32% 0.53% 383 1.77% 46% 95%
2014e 0.24% 0.39% 359 1.63% 51% 95%
2015e 0.23% 0.33% 335 1.26% 51% 95%
2016e 0.23% 0.33% 346 1.23% 51% 95%
1H12 326 77 403 0 0 403 -181 -328 -106 33 0 -72 0 -6 0 0 -1 0 -12 -91 0 0 5 8 -77
2H12 330 83 414 0 0 414 -192 -73 148 -45 0 103 0 -5 -5 0 0 0 -19 74 0 0 5 20 98
1H13 335 83 417 0 0 417 -187 -60 171 -51 0 120 0 -5 -11 -2 0 0 -2 101 0 1 2 20 124
2H13 360 80 439 0 0 439 -193 -55 192 -61 0 131 0 -4 0 -36 -3 0 -2 85 0 0 0 54 139
1H14 362 82 444 0 0 444 -195 -46 203 -63 0 140 0 -3 0 0 0 0 -3 135 0 0 0 14 149
-30 -6.4% 1.68%
39 8.3% 1.65%
39 8.9% 1.66%
41 9.8% 1.72%
44 10.3% 1.77%
INTERIMS Net interest income Other banking income Total banking income Funds management income Insurance income Total operating income Operating expenses Impairment expenses Net profit before income tax Corporate tax expense Minority interests NPAT (normalised) Adjustments - Amort'n of customer contracts - H/O restructuring costs - NSW OMB restructuring costs - HME integration costs - Gain on VISA IPO - Other NPAT (statutory basis) Add: RePS dividends & other Add: convertible note dividends Add: PEPS dividends Adjustments net of PEPS dividends NPAT (normal'd for dil. EPS) EPS (cash basis) (cps) Return on equity Net interest margin
SOURCE: BELL POTTER SECURITIES ESTIMATES
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Bank of Queensland (BOQ)
Recommendation structure
5 August 2014 Research Team Staff Member
Title/Sector
Phone
@bellpotter.com.au
TS Lim
Head of Research
612 8224 2810
tslim
Sam Haddad
Industrials
612 8224 2819
shaddad
John O’Shea
Industrials
613 9235 1633
joshea
Hold: Expect total return between -5%
Chris Savage
Industrials
612 8224 2835
csavage
and 15% on a 12 month view
Jonathan Snape
Industrials
613 9235 1601
jsnape
Sam Byrnes
Industrials
612 8224 2886
sbyrnes
Sell: Expect 15% total return on a 12 month view. For stocks regarded as ‘Speculative’ a return of >30% is expected.
Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced
Industrials
Financials
Resources
operations or have been in operation for
Peter Arden
Resources
613 9235 1833
parden
some time but have only forecast cash
Stuart Howe
Resources
613 9235 1782
showe
flows and/or a stressed balance sheet.
Fred Truong
Resources
613 9235 1629
ftruong
Research Assistant
612 8224 2825
tpiper
Quantitative
Such investments may carry an
Tim Piper
exceptionally high level of capital risk and
Fixed Income
volatility of returns.
Damien Williamson
Fixed Income
613 9235 1958
dwilliamson
Barry Ziegler
Fixed Income
613 9235 1848
bziegler
Bell Potter Securities Limited ACN 25 006 390 7721 Level 38, Aurora Place 88 Phillip Street, Sydney 2000 Telephone +61 2 9255 7200 www.bellpotter.com.au
The following may affect your legal rights. Important Disclaimer: This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. In Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives (‘relevant personal circumstances’), a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arraignment with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document. While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued. Except insofar as liability under any statute cannot be excluded. Bell Potter Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other person. Disclosure of interest: Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may from time to time hold interests in the securities referred to in this document. TS Lim owns 407 shares in BOQ. ANALYST CERTIFICATION Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to Bell Potter, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.TS Lim owns 407 shares in BOQ.
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