Why Goldman Sachs says the Bendigo and Adelaide Bank share price is great value

This could be a bank share to buy…

| More on:
A couple sits in their lounge room with a large piggy bank on the coffee table. They smile while the male partner feeds some money into the slot while the female partner looks on with an iPad style device in her hands as though they are budgeting.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price could be in the buy zone.

That's the view of analysts at Goldman Sachs, which have just upgraded the regional bank's shares.

What is Goldman saying about the Bendigo and Adelaide Bank share price?

According to a note out of the investment bank, its analysts have upgraded the company's shares to a buy rating from neutral with an improved price target of $11.89.

Based on the current Bendigo and Adelaide Bank share price of $10.67, this implies potential upside of 11% for investors over the next 12 months.

But it gets better. Goldman is forecasting a 54 cents per share fully franked dividend in FY 2022 and then 62 cents per share in FY 2023. This represents dividend yields of 5.1% and 5.8%, respectively, for investors over the next couple of years.

Why is Goldman bullish?

Goldman is bullish on the Bendigo and Adelaide Bank share price for a few reasons.

This includes the bank's strong and improving volume momentum and exposure to rising rates. In fact, the broker thinks it is the best-placed bank for the latter.

Its analysts explained:

BEN provides the best exposure of the banks to rising rates, given its overall higher exposure to deposit funding, and higher exposure to rate inert deposits. Furthermore, BEN does not replicate its exposure to higher rates, which will mean the more aggressive cash rate hikes will flow through its P&L quicker than peers. Furthermore, we highlight that to date, BEN has exhibited better discipline than its regional peers on deposit repricing in the face of higher cash rates, which should also support its NIM performance.

Goldman also believes the bank is well-positioned to cope with an economic downturn and a spike in bad debts should would occur.

Our assessment of mid-cycle losses has BEN's exposures as one of the most conservative of the banks we cover, with an estimated over-the-cycle loss rate of just 15 bp, versus 22 bp on average for the major banks. This leaves it well-placed should the macro environment deteriorate more than what is currently implied by our forecasts.

All in all, the broker sees Bendigo and Adelaide Bank as a great option for ASX investors looking for exposure to the banking sector.

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 positions in and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Bank Shares

Are Westpac shares a buy following the bank's big tech update?

Is now a good time to buy the banking giant's shares? Let's find out.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
Bank Shares

Own CBA shares? It's payday for you!

A dividend is heading to CBA shareholders’ bank accounts.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Are CBA shares really worth $120?

It has been a good year for ASX bank shareholders.

Read more »

a group of people sit around a computer in an office environment.
Bank Shares

Westpac shares push higher on $9.8b technology simplification plan

Westpac plans to spend big on technology to close the gap on its rivals.

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

NAB boss issues dire prediction for Aussie economy

NAB’s CEO has issued a stark warning on the outlook for Australia’s economic growth.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Own CBA shares? Here's the tech stock the banking giant just invested in

CBA has made an interesting investment. Here's what you need to know.

Read more »

A woman gives two fist pumps with a big smile as she learns of her windfall, sitting at her desk.
Bank Shares

ANZ shares charge higher on $57.5 million class action settlement news

ANZ shares have continued their positive run on Monday.

Read more »

Two people comparing and analysing material.
Bank Shares

Better buy: CBA or Westpac stock?

Which ASX bank share is a better buy?

Read more »