Shares in Bendigo and Adelaide Bank Ltd (ASX: BEN) crawled higher today, finishing 1.5% up at $10.07.
Following the release of the bank's interim results for 1H FY22 yesterday, investors are piling in to secure a spot for the ride in 2022. This sent the bank's shares soaring to five-month highs.
Analysts aren't as agreeable, however. As the bank posted its results yesterday, several teams have come out with their outlook for Bendigo Bank investors in 2022.
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Is Bendigo Bank a buy?
Analysts at investment bank JP Morgan aren't so certain at the moment. They note Bendigo's cost projections are aggressive and will require near pin-perfect execution to materialise.
Although, Bendigo did come in with a fairly robust set of results, as reported by Mitchell Lawler of The Motley Fool yesterday. Revenue grew by 8.5% year on year, whereas cash earnings gained 19%. As such, the bank declared a 26.5 cents per share dividend, up 13% from last payment – well ahead of inflation.
Not only that, but the bank completed the acquisition of Ferocia Pty Ltd. This gives it full ownership of the neobank Up. Bendigo now boasts 460,000 new customers to its database as a result of the transaction.
Yet, in a recent note, JP Morgan highlights the bank is now aiming to flatten its cost base over FY22–FY24. This is a change in course from previous guidance that signalled a 3% increase.
The broker questions if Bendigo can hit these targets, "despite rising wage pressures in the industry, with 60% of the cost base being staff expenses."
Even though the cost targets could be a benefit to the bank, JP Morgan is happy to sit on the sidelines with Bendigo on grounds of the broker's valuation, which is tracking near the current share price.
Meanwhile, analysts at fellow broker Jarden Securities are constructive on Bendigo's cost management initiatives planned for the coming years.
Whilst the firm tips Bendigo to incur a period of margin pressures into the coming periods – particularly to net interest margins (NIMs) – it reckons these pressures should level off into Q4 FY22, as the fixed rate mortgage market undergoes a repricing.
This, combined with the bank's cost targeting measures, could potentially offset headwinds to revenue growth over the coming periods, analysts say.
However, even though Jarden is constructive on the company, as an investment, it rates Bendigo as a hold after assigning a price target of $9.80 per share.
Then there's the bulls
Elsewhere, both Barclay Pearce and Evans & Partners rate the bank as a buy. They are joined by analysts at Macquarie who value Bendigo at $11 per share.
Analysts at Barclay updated their target on Bendigo from $11.59 to $12.24 per share following the bank's earnings. The firm forecasts $1.74 billion in revenue for 2022. It reckons investors could be in for a 53.9 cents per share dividend this year as well.
Analysts are forecasting a gain in earnings per share (EPS) for Bendigo over the next six to 12 months. That's according to data compiled by Bloomberg Intelligence.
The data also shows that, historically, this has been a good sign for Bendigo. Its share price tends to dance to the tune of forward EPS estimates.
Let's take a closer look at what that means. Going back to September 2019, each period when analysts tipped the bank's EPS to rise for the next 12 months, its share price followed suit, rising in unison.
Similarly, when EPS was forecast to decline, the Bendigo Bank share price either remained flat or headed south.
In actual fact, the forward EPS estimates are what is known as a leading indicator in this case (insight into market sentiment) and thus could be useful information for market pundits.
Bendigo Bank share price snapshot
In the last 12 months the Bendigo Bank share price has faltered over 10%. Year to date, however, shares are up more than 10%, and have shot up another 9% in the last month.
