The Bank of Queensland Limited (ASX: BOQ) share price has upside of around 30% according to one broker.
Brokers and analysts are always on the lookout for ASX share opportunities that could be at a good price.
Sometimes investors will think that blue chips are materially undervalued to what their true value is.
One broker thinks that challenger bank BOQ's share price is noticeably undervalued.
BOQ share price target
Morgans has a price target of $10.80 on BOQ. That means the broker thinks BOQ shares could rise by around 34% over the next year.
The current rating from Morgans is obviously a 'buy' with that price target.
Various factors have been considered when thinking about that price target. The cash profit wasn't quite as strong as the broker had been expecting, the net credit loss provision in the second half was less than Morgans expected.
The broker noted that the bank is expecting the net interest margin (NIM) to decline – just like most banks are – but BOQ is hoping that the growth of its loans will be stronger that the overall loan system.
Outlook
A key aspect of an investor's thoughts on the BOQ share price may include the company's own thoughts.
After delivering 51% growth of cash earnings per share (EPS), BOQ said that it's focused on achieving sustainable profitable growth. In FY22 it's expecting at least 2% 'jaws', driven by faster-than-the-system growth from its BOQ and Virgin Money brands, and by returning ME Bank to around system growth by the year end.
As noted by Morgans, the bank is expecting the NIM to decline by between 5 basis points to 7 basis points in FY22, with competition continuing and the ongoing low interest rate environment.
Expenses are expected to grow by 3% on an underlying basis to support business growth, which will be offset by accelerated integration synergies. When BOQ acquired ME Bank, it said that it was expecting annualised pre-tax synergies of between $70 million to $80 million. Including those synergies the acquisition was expected to add to cash EPS in the low double digit to mid-teens in the first year (FY22).
BOQ recently said that the integration of ME Bank is well progressed and it's continuing to execute against its strategic transformation roadmap. A key part of the strategy is being a strong digital bank for customers.
Valuation and BOQ dividend
For readers wondering what the actual BOQ share price valuation is, Morgans has provided an indication with its projections.
Based on the profit forecast, BOQ shares are valued at 10x FY22's estimated earnings and 9x FY23's estimated earnings.
The broker is also expecting a growing dividend from the challenger bank. In FY22, the grossed-up dividend yield could be 8.7% and the FY23 grossed-up dividend yield is projected to be 9.7%.
