The Bank of Queensland Limited (ASX: BOQ) share price will be one to watch this week when the regional bank releases its half year results.
This will it the first major bank to release its results since the onset of COVID-19 in Australia.
Ahead of the release, I thought I would take a look to see what the market is expecting from the bank on Wednesday.
What does the market expect from Bank of Queensland?
According to a note out of Goldman Sachs, its analysts expect Bank of Queensland to report first half cash earnings of $119 million. This will be a 29% decline on the prior corresponding period.
In light of this decline in earnings, the broker expects a similarly sharp reduction in its dividend. Goldman Sachs has pencilled in an interim fully franked dividend of 25 cents per share, down from 34 cents per share a year earlier.
What else should you look out for?
Goldman Sachs has suggested that investors look out for a rise in collective provisions due to the economic deterioration.
It explained: “We will be interested to see the extent to which IFRS9 drives collective provisions higher via either elevated economic overlays, or forward looking adjustments.”
It has forecast bad and doubtful debts as a proportion of gross lending assets to rise to 33 basis points in the first half and then 38 basis points in the second half. This will be a sharp increase on the 14 basis points recorded during the first half of FY 2019.
The broker also expects the Reserve Bank’s cash rate cuts to weigh on the company’s margins. It expects Bank of Queensland to report a 2 basis point half on half decline in its net interest margin to 1.9%. This is then expected to soften by a further 8 basis points in the second half.
Goldman commented: “On this front, we would be very interested in management commentary on how they can sustain NIMs in a lower for longer rate environment, particularly given their medium-term targets are heavily dependent on only a relatively small amount of NIM decline out to FY22E.”
One positive, though, is that the broker expects the bank to report solid volume momentum. It notes that following a subdued period of volume growth, Bank of Queensland’s lending trends showed a marked improvement in the first half. This is based on APRA’s monthly statistics.
“We estimate that it grew its mortgage book by +1.8% sequentially (system +1.6%), while business lending came in at +1.7% (system +1.2%). On this front, we would be particularly interested in management expectations into 2H20E,” the broker added.
Incidentally, Goldman Sachs has a neutral rating and $5.50 price target on the company’s shares going into this results release.
It has a preference for National Australia Bank Ltd (ASX: NAB) and has a conviction buy rating and $17.76 price target on its shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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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