Source: Bloomberg
Company Description
We rate BEN as a Neutral for the following reasons:
We see the following key risks to our investment thesis:
Bendigo and Adelaide Bank (BEN) reported solid FY18 results, which were in line with market expectations. Earnings (underlying cash NPAT) was up +6.4% to $445.1m, return on equity (ROE) was up +13bps to 8.23% but return on tangible equity (ROTE) declined -9bps to 11.52%. BEN also noted a Common Equity Tier 1 (CET1) ratio of 8.62% (up +35bps) and continued progress towards Advanced Accreditation.
Net Interest Margins (NIM) showed strong growth, up +14bps to 2.36%, driven in part by favourable repricing of deposit and lending portfolios, however management did signal margin pressures in FY19 due elevated levels of cash bill spread.
We continue to believe that the royal commission into the financial sector continues to be a drag on sentiment towards banking shares. Indeed, on the analyst call, management pointed out that “there’s no doubt that it continues to be a challenging environment for Australian banks with the effects of the Royal Commission into misconduct casting a shadow across the industry and increased regulatory oversight and a renewed debate around culture. Trust in the banking sector is at an all-time low and it’s a subdued banking sector with declining asset growth, diminishing bank margins and increasing costs as banks seek to bolster their compliance functions”.
BEN appears to be unaffected by the Royal Commission at the earnings line. We expect lower loan growth going forward, and lacklustre dividend growth; BEN trades in-line with valuation and on 12.8x PE19; Reiterate Neutral.
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Figure 1: : BEN’s declining cost-to-income ratio
Source: Company
Figure 2: BEN’s FY18 Results
Figure 3: BEN’s Capital Ratios (%)
Figure 4: BEN’s 2H18 Growth Outcomes vs Peers & System (%)
Source: APRA; Company
Figure 5: BEN’s Financial Summary
Source: Bloomberg, Company, BTIG * Line items used for summary purposes only and may not reconcile to total.
Bendigo and Adelaide Bank Ltd (BEN) offers a variety of banking and other financial services including internet banking, housing finance, retail and business banking, commercial finance, funds management, treasury and foreign exchange services, superannuation and trustee services.
1st March 2020
1st October 2019
25th September 2019
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