Regional lender Bank of Queensland Limited (ASX: BOQ) suffered its second day of losses as analysts point out the cracks in its first half results.
The stock is down another 2% to a near two-month low of $13.61 during lunch time trade after taking a 3.3% tumble yesterday when it handed in its earnings report card.
Bank of Queensland will be in the timeout corner for a while yet. At least two brokers have downgraded their recommendation on the stock even though the bank delivered what it called a "solid result" with net cash earnings jumping 19% to $167 million and a 13% increase to its interim dividend to 36 cents a share for the six months to end February.
The problem is that the bank may have gone ex-growth and the dividend may not be sustainable.
UBS was surprised that the bank lifted its dividend by 2 cents as earnings per share fell. This puts its payout ratio at 79%, which the broker calls "unsustainable" given the higher reserve requirements that banks will be forced to hold under new (but yet to be enforced) regulations.
To keep yield-hungry investors happy, Bank of Queensland will need to sustain earnings growth and there are doubts that it can.
This is the key reason why JP Morgan cut its recommendation on the stock to "underweight" from "neutral" and Citigroup downgraded its call to "neutral" from "buy".
JP Morgan thinks the bank does not generate enough excess capital to fund growth, while Citigroup thinks that the tailwinds from lower costs and improved product mix have run their course.
The negative sentiment is of particular issue to Bank of Queensland because the stock has outperformed its peers strongly in recent times (see chart below).
Over the past six months, Bank of Queensland has run nearly 18%, well ahead of its peers and its performance (up till yesterday's poorly received result) matches that of Commonwealth Bank of Australia (ASX: CBA) – the rock star of the sector.
Other Queensland-based institutions, such as Suncorp Group Ltd (ASX: SUN) and Wide Bay Australia Limited (ASX: WBB) are miles behind, while the other regional bank of significance, Bendigo & Adelaide Bank Ltd (ASX: BEN) could only produce a 4% gain over the period.
You can read more about Bank of Queensland's result here.
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