ASX financials are front and centre again this week, as rising yields on US Treasuries and a rotation out of risk assets play havoc on international equity markets.
Investors are flocking to defensive classes – such as financials – in the wake of shifting interest rates talk emerging from central banks in Australia, the US, and Europe.
For instance, the iShares U.S. Financials ETF (NASDAQ: IYF) saw inflows of $126.3 million in the final week of December. That’s a 5% gain on the same time in 2020.
Meanwhile, the Financial Select Sector SPDR Fund (NYSEARCA: XLF) saw the highest volume of inflows last week, reaching $2.34 billion.
In comparison, the SPDR S&P 500 ETF Trust (ASX: SPY) – which is currently 27% weighted towards the rates sensitive tech sector – saw net outflows of $6,523.72 million in the first week of 2022 alone.
Why then, is the Bank of Queensland Ltd (ASX: BOQ) share price struggling of late? It is currently in a 40% drawdown, meaning that’s how far it’s trading off its previous record high.
Let’s take a look at the situation.
What’s up with the BOQ share price?
Over a much wider time frame, say the last 5 years, the downward pressure on the BOQ share price has been more than evident.
The company’s shares have trended downwards from a high of $12.47 back in 2018 and have shown little sign of recovery since.
The COVID-19 selloff in March 2020 was unkind to BOQ shares. Only in October 2021 did the company return to its pre-pandemic levels.
However, whilst it’s prudent to consider a stock’s history, today’s forward estimates on the BOQ share price are equally as important. As legendary fund manager Peter Lynch correctly states, the market prices shares on a combination of past earnings history and future earnings expectations.
Fast forward to the present and the commentary on BOQ is centred around its ability to absorb sector-wide pressures to net interest margins (NIMs) in FY22.
Goldman Sachs considers BOQ’s deposit book is more rate-sensitive while Jefferies is upbeat on the bank’s cost-budgeting measures targeted for 2022. Both are positive inflection points, according to the brokers.
The bank is set to embark on a number of new year’s resolutions as well, following a flurry of complaints at its AGM last year about the old technology underpinning its operations.
As such, the bank has committed to its new “digital transformation strategy”, launched last year.
So, is it a buy in 2022?
When examining the list of brokers provided by Bloomberg Intelligence, the majority of coverage on BOQ is bullish for the remainder of 2022.
Citing the bank’s net interest margin, Jefferies bakes in a 9 basis point contraction in NIM from the previous year in its forward estimates on BOQ.
It values the bank at a bullish $8.50 per share, alongside the team at Citi who rate it a buy on a $10 per share price target.
Goldman Sachs has BOQ as a buy as does Macquarie, each valuing the company at $9.67 and $10 per share respectively.
Meanwhile, JP Morgan favours BOQ the most out of its ASX financial shares. It values the company at $9.80 a share. It also forecasts cash earnings of $507 million for the bank in FY22.
With this in mind, it’s not surprising to see more than 70% of analysts covering BOQ advocate the share as a buy, as opposed to just 1 broker urging clients to sell.
As such, going by these predictions, BOQ could be a buy in 2022. However, with equity markets, and risk assets in general, poised for a year of lumpy performance, only time, market mechanics, company fundamentals, and Captain Hindsight will tell.