The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has tumbled lower in morning trade following the release of its full-year results.
At the time of writing the regional bank's shares are off 1.5% to $11.25.
Here is a quick summary of FY 2018 in comparison to the prior period:
- After tax statutory profit up 1.1% to $434.5 million
- Underlying cash earnings of $445.1 million, up 6.4%.
- Cash earnings per share of 92.1 cents, up 3.6 cents.
- Fully franked final dividend of 35 cents per share, up from 34 cents.
- CET1 ratio increased 35 basis points to 8.62%.
- Net interest margin of 2.36%, up from 2.22%.
While I felt this was a reasonably solid result from the regional bank, it has fallen short of the market's expectations.
According to the Bloomberg consensus estimate, the market was looking for net profit after tax of $453.9 million. This may explain why its shares have taken a bit of a tumble today.
Management advised that its result was driven by solid growth in earnings across its Local and Partner segments despite the lending market remaining highly competitive. Earnings in its Local segment grew 6.4% and 21.8% in the Partner segment.
In addition to this, its focus on cost management has proven to be a success. The bank's cost to income ratio has continue to decrease and finished the year at 55.6%.
Pleasingly, management doesn't anticipate any material change in its cost to income ratio, despite switching its focus to accelerating revenue growth.
Managing director Marnie Baker appears optimistic on Bendigo and Adelaide Bank's prospects in FY 2019.
Ms Baker stated that: "The time for our Bank is now. Our strategy is to focus on the success of our customers, people, partners and communities to be Australia's bank of choice. Our history of delivering and innovating, and the uniquely nimble composition of our business, will ensure shared success through our strategic partnering mindset. Our proposition is strong; our customer focus, high trust ratings and customer advocacy, provide a great platform for business growth."
Should you invest?
I thought this was a reasonably solid result, but not enough to make me want to invest in its shares ahead of larger rivals Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).
I think both these banking giants' shares are cheap and offer better value for money, whereas Bendigo and Adelaide Bank's shares look about fair value to me at 12x cash earnings. As such, I would suggest investors wait patiently for a better entry point.
