ASX financials are at centre stage as we start the first week of trading in 2022. Last year was more than interesting, full of controversy and mixed performances across the banking basket in Australia.
Whilst there was a mixed bag of results, the S&P/ASX 200 Financials Index (ASX: XFJ) came out more than 22% higher across the year as the major banks dished out hefty dividends and announced a series of buyback schemes.
Two names at either end of the sentiment spectrum are Bank of Queensland Limited (ASX: BOQ) and its banking competitor Commonwealth Bank of Australia (ASX: CBA).
Many investors tweaking exposures to financials right now are sure to be asking themselves where to allocate their hard-earned capital. So, is BOQ a better buy than CBA right now? Here's what the experts think.
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Is BOQ a better buy than CBA?
When sifting through analyst commentary on both names, it's abundantly clear that the Bank of Queensland is the preferred name of the duo.
With the bulk of analysts bullish on the direction of its share price, BOQ now has a consensus valuation of $9.62 per share.
At the time of writing, that implies a margin of safety of almost 17%, after the Bank of Queensland share price underwent a substantial consolidation from November to December.
The majority of analysts covering the bank like the earnings pull-through from its net interest margin (NIM) forecasts.
For instance, Macquarie reckons that BOQ is absorbing sector-wide margin pressures and striding past peers in this regard. Whilst Goldman Sachs says BOQ can offset mortgage-related pressures to NIMs due to its more rate-sensitive deposit book.
Meanwhile, Jefferies says the bank could achieve a nine basis point year-on-year reduction in NIM coupled with a 1% reduction in operating costs that were forecast at its AGM recently.
Not only that, JP Morgan reckons BOQ's lending growth is one to keep an eye on. It forecasts $507 million in cash earnings for FY22 for the bank.
It recently noted strengths in this segment for the bank and believes numbers here will offset any weakness in other business arms.
Each of these brokers, bar Jefferies, rate BOQ as a buy, with Macquarie most bullish after assigning a $10 per share price target.
On the other side of the equation, brokers aren't so rosy on the outlook for the Commonwealth Bank share price. JP Morgan, for instance, is put off by CBA's "very expensive valuation" trading at almost 22x price to earnings (P/E).
The firm believes that earnings growth will lag revenue growth in FY23/24, even though it sees CBA outpacing its peers at the top line during that period.
JP Morgan says that further capital management is "likely in FY23" for the bank, supported by its residual franking balance.
The team at Citi have a slightly different view, however, and like CBA's buyback program that offers a 13% post-tax return. It notes CBA's repurchase plan will likely offer more value and tax benefits than competitor Westpac's off-market buyback.
What's the sentiment?
A total of 73% of the analysts covering Bank of Queensland have it as a buy, whereas there is just one sell rating, according to Bloomberg Intelligence.
In comparison, the same consensus values Commonwealth Bank at $92.73 per share, whereas 69% of analysts covering the company advocate it as a sell.
That's a stark contrast in sentiment from one name to the other. In fact, CBA's consensus price target suggests it could be overvalued by around $11 per share at the time of writing and has a downside potential of 10%.
Compared to CBA, it's abundantly clear the preference is tilted towards BOQ right now amongst the list of brokers compiled for this report.
Time will tell if the thesis plays out.
