Broker says Bank of Queensland share price is great value

This bank share could be in the buy zone…

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Key points

  • Bank of Queensland's shares were sold off last week follow the release of its half year results
  • Goldman Sachs sees this as a buying opportunity
  • The broker believes its shares could provide a total return of 22% over the next 12 months

The Bank of Queensland Limited (ASX: BOQ) share price was sold off last week.

This followed a negative reaction to the regional bank’s half year results release.

This latest decline means the Bank of Queensland share price is now down 14% over the last six months.

Is the Bank of Queensland share price good value now?

According to a note out of Goldman Sachs, its analysts believe the recent weakness in the Bank of Queensland share price has opened up a buying opportunity for investors.

In response to its half year results, the broker has retained its buy rating but trimmed its price target slightly to $9.34.

Based on the current Bank of Queensland share price of $7.99, this implies potential upside of approximately 17% for investors over the next 12 months.

Goldman is also expecting the bank’s shares to provide investors with a fully franked 5.6% dividend yield over the same period. If we add this into the equation, the total return stretches to over 22%.

What did Goldman say about the result?

The broker appeared to be reasonably happy with Bank of Queensland’s half year result. Though, while the bank smashed its earnings estimates, it notes that this was due almost entirely to lower bad debts.

Goldman explained: “BOQ’s 1H22 cash earnings were up 14% on pcp to A$268 mn, 17% above previous GSe, driven by a much better-than-expected performance on BDDs. As such, PPOP [pre-provisioning operating profit] was only 0.9% higher than our estimates, driven by better than expected expenses, partially offset by lower margins. BOQ announced an interim dividend of A22¢, which was in line with GSe (with a 2.5% discounted DRP), while CET1 was 9.7% (vs GSe 9.5%).”

Why are its shares good value?

Goldman notes that the Bank of Queensland share price is trading at a material discount to peers and historical averages.

It said: “BOQ’s 12-month forward PER (ex-dividend adjusted) is trading at a 30% discount to the sector versus a 15-year average discount of 2%.”

In addition, the broker highlighted: “Our Buy rating on BOQ is predicated on i) BOQ’s cost performance and its continued delivery of ME Bank synergies, which have been accelerated and increased, ii) continued strong above system volume growth, supplemented by its transition to digital platforms and its associated process improvements.”

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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