There aren't too many S&P/ASX 200 Index (ASX: XJO) shares that have sunk at least 25% over the past two months, despite the huge amount of volatility that investors are seeing right now. But, the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price is one of those unlucky few.
At the time of writing, Bendigo Bank shares are down around 26% in just two months.
Losing a quarter of the value in quite a short amount of time shows a sizeable loss of confidence. It now has a market capitalisation of $4.4 billion according to the ASX.
This heavy sell-off is an attractive opportunity, says one leading analyst.
Citi rates Bendigo Bank share price as a buy
The regional bank could benefit from rising interest rates, more so than other ASX 200 bank shares according to Citi, as reported by The Australian.
The broker said:
Bendigo Bank has significantly underperformed the banks index since its fiscal 2022 result.
We view this largely reflects Bendigo Bank's management's net interest margin (NIM) guidance where it guided to replicating portfolio returns and increased share to Community Bank partners, but not overall NIM leverage from unhedged deposits.
We think Bendigo Bank has rates leverage in spades, and see the sell-off from management's poor outlook statement as a buying opportunity.
Bendigo Bank outlined in its FY22 result that it's expecting a benefit of 46 basis points over the next three years from the impact of higher interest rates on replicating portfolio yields. A 27 basis point benefit is expected in FY23. However, the ASX 200 bank share cautioned that actual outcomes will be determined by a range of factors including, but not limited to: competition, future interest rates, capital and low rate sensitivity deposit volumes, AIEA volumes and investment strategy.
Citi noted that this would represent a stronger improvement than what other banks are expecting and what Citi thought Bendigo Bank would be able to achieve.
Another bullish point for the Bendigo Bank share price and profitability is that $50 billion of customer deposits are unhedged. The NIM leverage on the $50 billion of customer deposits is "very real, and playing out larger than what we expected" according to reporting by The Australian on Citi's comments.
Citi wrote:
Bendigo Bank is leading the pack in growing margin on deposits, pricing well below all peers on savings and term deposit rates.
Price target
Citi has a price target of $9.75 on the Bendigo Bank share price. That suggests that Bendigo Bank shares could rise by around 25% over the next year.
