Bank of Queensland: what’s the outlook as FY20 guidance is withdrawn?
'We have a strong balance sheet with solid capital and funding, and robust risk management,’ said BOQ’s Chief Executive, George Frazis.
The Bank of Queensland (BOQ) today joined a growing list of companies who have withdrawn their full-year guidance as a consequence of the coronavirus pandemic.
'Due to the highly uncertain environment and associated challenges in providing accurate forecasts for this year, BOQ believes it is prudent to withdraw [its] FY20 guidance.'
Even so, amid broad market gains, the BOQ share price rose an impressive 5.64% during Monday’s trading session, to close out the day at $5.05 per share.
The announcement at a glance
Besides withdrawing its full-year guidance, the Bank of Queensland today reiterated that its capital and funding positions remain strong. Indeed, as a result of the bank’s recent cap raise, BOQ currently boasts an impressive pro forma FY19 CET1 ratio of 10.07% – putting the regional bank 'in excess of APRA's unquestionably strong capital requirements.'
'BOQ's funding position will also be further enhanced by the provision of the RBA term funding facility to support customers with new lending,’ the bank added.
Finally, in response to today’s announcement, BOQ’s Managing Director and CEO, George Frazis said:
'We have a strong balance sheet with solid capital and funding, and robust risk management. We will support our customers in any way we can, especially at a time when some are feeling at their most vulnerable. We are here for our customers and will work with them through the challenges ahead.'
Bank of Queensland share price: the analyst take
In light of recent share price declines – Citibank last week upgraded its ratings on all of Australia’s banks (including the regionals) – to a Buy.
Overall, Citi believes that the Covid-19 pandemic is a 'transitory economic shock' and that ultimately, the recent sell-off we have witnessed in the banks was overdone.
In the case of the Bank of Queensland, though Citi’s rating has shifted from Neutral to Buy; its 12-month price target has actually been lowered from $7.75 per share to $6.50 per share.
Even so, at current price levels, for equity holders such a price target implies potential upside of ~30%.
Mind you, it's not all positive, with Citi indicating that:
‘While already assuming a dividend cut in our 1H20E forecasts (to 25cps), we now assume that the dividend gets further rebased in 2H20E from bad debt pressure to 20cps (~20% cut).’
Ultimately, though BOQ’s bad debt position may prove problematic in the short-term, the regional bank ‘should benefit from industry wide mortgage repricing and less sensitivity to cash linked SME,’ Citi said.
How to trade the Bank of Queensland
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