According to a report in the Australian Financial Review, broker CIMB has upgraded Bendigo & Adelaide Bank (ASX: BEN) to neutral, saying, "it is now the sector's cheapest bank."
Bendigo's Chairman Mr Robert Johanson reminded investors at the Annual General Meeting (AGM) which was held on Monday, 28 October, that financial year 2013 was the bank's largest ever reported profit with earnings per share of 85.4 cents per share. However, possibly the most interesting comment made by the chairman in his address was his observation that "the biggest competitive threat to banks now come from non banks in areas like payments systems where companies like Google and Amazon, unrestrained by the regulatory burdens of Basel II and III compliance, can pick lucrative niches to exploit."
Bendigo didn't provide any updated guidance for FY 2014 at its AGM however according to CommSec, Bendigo is trading on a forecast price-to-earnings (PE) ratio of 12.2 and a forecast dividend yield of 5.7%, making it the highest yielding bank stock and the cheapest based on PE multiples.
In contrast, fellow second tier peer Bank of Queensland (ASX: BOQ) is trading on a forecast PE of 13.5 and forecast yield of 5.4%. Meanwhile, ANZ Bank (ASX: ANZ) which is arguably the cheapest of the 'big four' is trading on a forecast PE of 13.9 and forecast yield of 4.8% and Commonwealth Bank (ASX: CBA), whose share price recently hit a new all-time high, is arguably the most expensive of the majors with a forecast PE of 15 times and dividend yield of 5%.
Based on CIMB's numbers, Bendigo is trading at an 11% discount to the 'big four's' average PE multiple. A discount would appear justified given the better economies of scale the major banks enjoy, particularly in an increasingly burdensome regulatory environment. As such even though Bendigo is perhaps the cheapest in relative terms within the banking sector, investors need to ask themselves if there is much upside at current prices to warrant an investment in any of the banks.