Insights

Here’s why Morgans tips 30% upside for the Bank of Queensland (ASX:BOQ) share price

One broker thinks that BOQ shares could rise 30%.
The post Here’s why Morgans tips 30% upside for the Bank of Queensland (ASX:BOQ) share price appeared first on The Motley Fool Australia. –

The Bank of Queensland Limited (ASX: BOQ) share price has upside of around 30% according to one broker.

Brokers and analysts are always on the lookout for ASX share opportunities that could be at a good price.

Sometimes investors will think that blue chips are materially undervalued to what their true value is.

One broker thinks that challenger bank BOQ’s share price is noticeably undervalued.

BOQ share price target

Morgans has a price target of $10.80 on BOQ. That means the broker thinks BOQ shares could rise by around 34% over the next year.

The current rating from Morgans is obviously a ‘buy’ with that price target.

Various factors have been considered when thinking about that price target. The cash profit wasn’t quite as strong as the broker had been expecting, the net credit loss provision in the second half was less than Morgans expected.

The broker noted that the bank is expecting the net interest margin (NIM) to decline – just like most banks are – but BOQ is hoping that the growth of its loans will be stronger that the overall loan system.

Outlook

A key aspect of an investor’s thoughts on the BOQ share price may include the company’s own thoughts.

After delivering 51% growth of cash earnings per share (EPS), BOQ said that it’s focused on achieving sustainable profitable growth. In FY22 it’s expecting at least 2% ‘jaws’, driven by faster-than-the-system growth from its BOQ and Virgin Money brands, and by returning ME Bank to around system growth by the year end.

As noted by Morgans, the bank is expecting the NIM to decline by between 5 basis points to 7 basis points in FY22, with competition continuing and the ongoing low interest rate environment.

Expenses are expected to grow by 3% on an underlying basis to support business growth, which will be offset by accelerated integration synergies. When BOQ acquired ME Bank, it said that it was expecting annualised pre-tax synergies of between $70 million to $80 million. Including those synergies the acquisition was expected to add to cash EPS in the low double digit to mid-teens in the first year (FY22).

BOQ recently said that the integration of ME Bank is well progressed and it’s continuing to execute against its strategic transformation roadmap. A key part of the strategy is being a strong digital bank for customers.

Valuation and BOQ dividend

For readers wondering what the actual BOQ share price valuation is, Morgans has provided an indication with its projections.

Based on the profit forecast, BOQ shares are valued at 10x FY22’s estimated earnings and 9x FY23’s estimated earnings.

The broker is also expecting a growing dividend from the challenger bank. In FY22, the grossed-up dividend yield could be 8.7% and the FY23 grossed-up dividend yield is projected to be 9.7%.

The post Here’s why Morgans tips 30% upside for the Bank of Queensland (ASX:BOQ) share price appeared first on The Motley Fool Australia.

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More reading

What is Bank of Queensland (ASX:BOQ) doing to compete with BNPL rivals?

The Bank of Queensland (ASX:BOQ) dividend is being paid today. Here’s what you need to know

2 ASX dividend shares to buy this month: experts

The Bank of Queensland (ASX:BOQ) share price is having a lousy start to the week. Here’s why

How does the Bank of Queensland (ASX:BOQ) dividend compare to its sector?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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