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Is the Bank of Queensland (ASX:BOQ) share price in the buy zone ahead of its results?

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The Bank of Queensland Limited (ASX: BOQ) share price will be one to watch closely this week.

The regional bank is due to hand in its eagerly anticipated half year results on Thursday morning.

What is the market expecting from Bank of Queensland?

The market is expecting a strong half year result from Bank of Queensland. This is particularly the case given solid updates from some of the big four banks earlier this year.

According to a note out of Goldman Sachs, its analysts are expecting the bank to report cash earnings of $164 million. This will be an increase of 9% over the prior corresponding period.

The broker expects this to allow the Bank of Queensland board to declare a fully franked interim dividend of 17 cents per share.

Based on the current Bank of Queensland share price of $8.93, this implies a 3.8% dividend yield if you annualise it.

What else did Goldman say?

Goldman Sachs is expecting a higher net interest margin (NIM) and sees upside risk to the metric.

It commented: “BOQ management expects NIM to be up c.3bps on 2H20 and slightly positive overall in FY21. This is consistent with what we currently forecast.”

“In addition to this, we see potential for near term funding cost tailwinds given the current level of deposit repricing already announced (with room for further repricing) and BOQ’s ability to drawdown on its remaining allotment of Term Funding Facility (TFF),” it added.

The broker is also expecting Bank of Queensland to deliver above system lending during the half.

It explained: “Housing loan growth should be above system with BOQ expecting 1H21 annualised housing loan growth of 5%, and slightly negative to flat business loan growth (GSe FY21E: BOQ housing +6.5% vs. system at +4.0% and BOQ business +0.6% vs. system at +1.6%). We will be interested in management commentary around the sustainability of this better than system growth.”

And finally, Goldman Sachs is forecasting low bad debts and sees potential for a reversal in impairments. This follows reversals by Australia and New Zealand Banking GrpLtd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).

It said: “Our current forecast for 1H21E BDDs is at 10bp of total loans, consistent with what BOQ pre-announced. In light of the continued improvement in asset quality, coupled with recent industry trends (ANZ and WBC reported 1Q21 BDD contributions of A$150 mn and A$501 mn respectively), we will be particularly interested on whether BOQ follows this trend, or whether it takes a more conservative approach given the recent roll off of government support packages.”

Is the Bank of Queensland share price in the buy zone?

Although the Bank of Queensland share price is up 19% so far in 2021, partly due to excitement around its acquisition of ME Bank, the broker still sees value in it.

According to the note, its analysts have a buy rating and $9.68 price target on its shares. Based on the current Bank of Queensland share price, this implies potential upside of almost 8.5% excluding dividends. If you include them, the potential return stretches to over 12%.

This could make it worth considering if you don’t already have exposure to the sector.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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