Earnings preview: What to expect from the Bendigo and Adelaide Bank FY 2020 result

The Bendigo and Adelaide Bank Ltd (ASX:BEN) share price could be on the move this month when it releases its full year results. Here’s what to look for…

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Bendigo Bank shares

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The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price will be one to watch this month when it releases its full year results.

Ahead of the release, I thought I would take a look to see what was expected from the regional bank when it hands in its report card on 17 August.

What to look out for with Bendigo and Adelaide Bank FY 2020 results.

According to a note out of Goldman Sachs, its analysts are expecting the bank to report an unsurprisingly sharp decline in profits in FY 2020.

The broker has forecast cash earnings of $315.3 million for the full year, which will be down 24.2% on the prior corresponding period.

This is expected to be driven by a large increase in bad and doubtful debts. Goldman has pencilled in a provision for bad and doubtful debts of $177 million, up from $50 million a year earlier.

If you exclude this from the equation, Bendigo and Adelaide Bank’s result would have been reasonably solid. On a pre-provisioning basis, it expects operating profit to be down 3.6% year on year to $635 million. This is due largely to a 3.4% increase in operating costs to $987 million.

What about its dividend?

Unfortunately, a severe cut to the bank’s dividend is expected in FY 2020.

Goldman has forecast a final dividend of 9 cents per share, which will take its full year dividend to 40 cents per share. This will be down 43% on the prior corresponding period. Though, the broker acknowledges that there are a wide range of possible outcomes.

It commented: “Following APRA’s announcement on 29-July allowing banks greater flexibility to pay dividends through the remainder of CY20, we forecast BEN to pay a A9¢ final FY20 dividend (46% 2H20 payout).”

“On the capital front, we forecast a 9.4% CET1 for BEN in FY20, noting it reported a pro-forma Mar-20 9.3% CET1. We expect BEN’s dividend and any capital management commentary to be a key focus area at the upcoming result and concede there remains a wide range of potential outcomes on the dividend front despite APRA’s recent guidance,” it added.

Should you invest?

Goldman Sachs has a neutral rating and $8.14 price target on Bendigo and Adelaide Bank shares at present. This compares favourably to the current share price of $6.83.

Its preference in the sector remains National Australia Bank Ltd (ASX: NAB). The broker has a conviction buy rating and $21.70 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 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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