The Bank of Queensland Limited (ASX:BOQ) share price could be great value according to one leading broker. Here’s why…
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The Bank of Queensland Limited (ASX: BOQ) share price will be one to watch on Friday.
This follows a positive reaction to its half year results by one leading broker this morning.
How did Bank of Queensland perform in the first half?
For the first half of FY 2021, Bank of Queensland reported a 9% increase in cash earnings after tax to $165 million.
Management advised that this was driven by balance sheet growth, disciplined expense management, lower loan impairment expense, and improved net interest margin (NIM).
In respect to the latter, Bank of Queensland finished the period with a NIM of 1.95%. This was up 3 basis points and was driven largely by lower funding costs from reduced deposit rates and lower wholesale funding costs.
This strong form allowed the bank to declare a 17 cents per share interim dividend. This was up 11 cents per share from the prior corresponding period.
What did brokers think?
One broker that was pleased with the result was Goldman Sachs. In response to the release, this morning the broker retained its buy rating and lifted its price target to $9.83.
Based on the latest Bank of Queensland share price, this price target implies potential upside of 11.5% over the next 12 months.
And with Goldman Sachs forecasting a 4% fully franked dividend yield in FY 2021, this potential return stretches to ~16%.
Why is the Bank of Queensland share price in the buy zone?
Goldman was pleased with the result and has upgraded its estimates to reflect a number of trends.
It explained: “We upgrade our FY21/22E/FY23E cash EPS by 4.7%/2.2%/-2.9%, driven by i) a better lending momentum, ii) lower BDDs; partially offset by iii) weaker non interest income; and iv) slightly higher cost growth in the outer years.”
The broker also believes that management’s guidance for the full year is conservative and expects the bank to outperform it.
Goldman said: “Our analysis suggests that BOQ’s 4% FY21E revenue guidance implies average interest earning assets fall 1% hoh in 2H21E. Given momentum in the business is accelerating, we think this is too conservative and therefore forecast 2H21E sequential average interest earning asset growth of c. 2.5%, which drives FY21E revenue growth of 6%. We also see potential upside risk to BOQ’s ‘broadly flat’ 2H21E sequential NIM guidance. Coupling this with our TP of A$9.83 offering 16% TSR over the next 12 months, we reiterate our Buy recommendation.”
This could make it well worth consider Bank of Queensland shares at the current level.
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Motley Fool contributor James Mickleboro 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.