On Wednesday, JPMorgan adjusted its outlook on Bank of Queensland Ltd. (BOQ:AU) (OTC: BKQNY), increasing the price target to AUD5.50 from the previous AUD5.20. Despite this change, the firm maintained an Underweight rating on the bank's shares. The adjustment follows the bank's fiscal year 2024 results, which surpassed JPMorgan's estimates by 3% due to lower than anticipated credit costs. Pre-tax pre-provision (PPOP) earnings matched the firm's forecasts.
The bank's guidance for a flat net interest margin (NIM) in the first half of 2025 aligns with JPMorgan's previous analysis. However, concerns have been raised regarding the bank's mortgage growth outlook, which appears to be weakening as a result of a pullback from broker channels. Despite these challenges, the bank's management has reiterated its commitment to maintaining costs at current levels for the fiscal year 2025, even in the face of a predicted 4% cost increase from the One Management Board (OMB) conversion in March 2025.
The Bank of Queensland has previously announced significant productivity and OMB conversion programs. JPMorgan notes these initiatives are ambitious and cautions that they could significantly affect revenue generation if not implemented carefully. The bank's strategy to shift its focus towards business lending is also seen as complicated by its constrained capital position.
JPMorgan remains skeptical about the bank's ambitious 8% return on equity (ROE) target for the fiscal year 2026. Despite upgrading pre-provision profit forecasts by approximately 3% on average, the firm views the balance of risks and rewards as challenging. The bank's current trading multiples are 13.9 times and 12.7 times price-to-earnings ratio (PER) for fiscal years 2025 and 2026, respectively, which JPMorgan considers expensive given the execution risks involved.
Additionally, the bank's projected price-to-book value (P/BV) of 0.71 times for a 6.1% ROE in fiscal year 2026 is deemed unattractive.
InvestingPro Insights
Recent data from InvestingPro adds depth to JPMorgan's analysis of Bank of Queensland Ltd. The bank's P/E ratio stands at 16.38, while its adjusted P/E ratio for the last twelve months as of Q2 2024 is 9.33. This lower adjusted P/E ratio suggests the stock might be more attractively valued than initially apparent, potentially contradicting JPMorgan's view of the stock as expensive.
InvestingPro Tips highlight that Bank of Queensland is trading at a low P/E ratio relative to its near-term earnings growth, which could indicate undervaluation. Additionally, the bank has maintained dividend payments for 33 consecutive years, demonstrating a strong commitment to shareholder returns. This consistent dividend history might appeal to income-focused investors, despite JPMorgan's cautious stance.
The bank's price-to-book ratio of 0.69 for the last twelve months as of Q2 2024 aligns closely with JPMorgan's projected P/BV of 0.71, supporting their assessment. However, with a dividend yield of 7.69%, the stock may offer attractive income potential for investors willing to accept the execution risks highlighted by JPMorgan.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Bank of Queensland's financial health and market position.
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