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Bank of Queensland Limited (ASX:BOQ) shares storm higher on full year results release

Credit: BOQ

In morning trade the Bank of Queensland Limited (ASX: BOQ) share price has stormed higher following the release of its full year results.

At the time of writing the regional bank’s shares are up 5% to $11.31.

Here is how the bank performed in FY 2018 compared to a year earlier:

  • Cash earnings after tax down 2% to $372 million.
  • Statutory net profit after tax down 5% to $336 million.
  • Net interest margin increased 5 basis points to 1.98%.
  • Cost to Income ratio up 90 bps to 47.5% and core operating expense growth of 1%.
  • Basic earnings per share down 3% to 94.7 cents
  • CET1 ratio of 9.31%.
  • Fully franked final dividend flat at 38 cents per share.

While this may not look like the strongest result, it was in fact ahead of many analysts’ expectations.

For example, a note out of Morgans earlier this week advised that it was expecting the bank to report cash earnings of $362 million, compared to its actual cash earnings of $372 million.

The broker correctly forecast a final dividend of 38 cents per share, bringing its full year dividend to 76 cents per share. However, it had also predicted a special 10 cents per share dividend, but that failed to materialise.

What were the drivers of the result?

The bank’s managing director and chief executive officer, Jon Sutton, pointed to the success of its evolution as a major factor during the year.

He stated that: “BOQ has transformed into a resilient, multi-channel business that is geographically diverse and serves a broader range of customers. This is a result of the clear and consistent strategy we have been implementing.”

This strategy has seen its Business division become its biggest contributor to earnings by some distance.

Mr Sutton advised: “Loans originated by BOQ Specialist and Virgin Money Australia now account for 20 per cent of the loan portfolio and we have grown the BOQ Business division to a point where it now contributes almost 60 per cent of our cash earnings.”

Overall, he appeared to be rightfully pleased with the solid result given the significant headwinds facing the sector.

He stated: “We have managed for the environment we are faced with, prioritising margin over growth. Our lending growth was funded by an improved mix of deposits through our branch network. Pleasingly, expenses were contained while continuing to invest in the business.”

The bank delivered total lending growth of $1.5 billion for the year, which was driven by above-system growth in its targeted niche commercial lending segments, as well as increases in the mortgage book for both Virgin Money Australia and BOQ Specialist.

Outlook.

Management stopped short of giving any real guidance for FY 2019, but appeared optimistic that it is well-positioned to build on this result.

It advised that although the industry continues to face a number of headwinds, it remains focused on delivering on its strategy.

Should you invest?

Overall I thought this was a solid result and I can’t say I’m surprised that its shares have pushed higher today.

And while I do see value in its shares, I would still choose Australia and New Zealand Banking Group (ASX: ANZ) or Westpac Banking Corp (ASX: WBC) ahead of it after their recent declines.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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