Bank of Queensland (ASX: BOQ) has just announced an impressive set of results for the financial year (FY) ending 31 August 2013.
- After-tax cash earnings rose to $248.2 million from $20.9 million in the previous year
- Cash earnings per share (diluted) rose to 76 cents per share (cps) from 7.9 cps
- Net interest margin rose 2 basis points to 1.69%
- A fully franked final dividend of 30 cps was declared, taking the full year dividend to 58 cps – up 6 cents on FY 2012. The stock will trade ex-dividend on 7 November.
A key driver of the bank’s improved cash earnings was a reduction in the loan impairment expense to $114.6 million, down from $401 million. This result was achieved thanks to improved credit management practices and a focus on its risk appetite framework. This has led to the bank establishing what it describes as “a platform of lower risk, lower volatility and sustainable shareholder returns.”
CEO Stuart Grimshaw reiterated that going forward the bank’s strategy is focussed on delivering on the four strategic pillars of multi-channel optimisation, risk/return balance operational excellence and talent, capability and culture.
This strategy will include improving the under-representation of the bank’s products in key distribution channels, such as with mortgage brokers, as well as further productivity and efficiency improvements. Management also expects to see improvements in the Queensland housing market, which should flow through to an increase in business for the bank.
The market’s initial response to the Bank of Queensland’s results was certainly positive; in early morning trade the share price was up around 5% to $11. At this price, the bank is trading on a price-to-cash earnings ratio of 14.5 times and a dividend yield of 5.3%.
While most of the major banks trade at very similar multiples and yields, the management teams at each bank do have different business plans. For example ANZ Bank (ASX: ANZ) is focussed on its Asian strategy while Westpac Bank’s (ASX: WBC) strategy includes expansion of its domestic financial services offering.
These alternate plans can ultimately lead to significantly different outcomes for shareholders and should be given serious attention by investors. Viewing each bank as of equal merit and basing an investment decision on relative valuation alone is unlikely to lead to satisfactory returns for bank investors given the differing strategies being pursued at each bank.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.