Bendigo and Adelaide Bank Ltd (ASX: BEN) shares are under pressure on Monday.
In morning trade, the regional bank's shares are down 3% to $8.91.
Why are Bendigo Bank shares falling?
Investors have been hitting the sell button this morning after the regional bank's FY 2023 results fell short of expectations.
According to the release, Bendigo and Adelaide Bank reported a 14% increase in total income to $1,932.8 million and a 15.3% lift in cash earnings to $576.9 million. While this looks good on paper, the consensus estimate was for cash earnings of $591.2 million,
Nevertheless, in light of its profit growth, the bank declared a fully franked final dividend of 32 cents per share. This took its full-year dividend to 61 cents per share, which is an increase of 15.1% year on year and represents the lower end of its dividend payout ratio target range of 60% to 80% of cash earnings.
Management explained that this reflects its desire to maintain a strong capital position given the uncertain business outlook.
Broker reaction
The team at Goldman Sachs was relatively pleased with the result. Its analysts note that Bendigo and Adelaide Bank delivered cash earnings slightly ahead of its below-consensus estimate. The broker explains:
BEN reported FY23 cash earnings of A$576.9 mn, up 15.2% pcp and +1.4% higher than GSe, characterized by higher than expected revenues (better NIM, volumes, and other income), partially offset by higher than expected operating expenses. BDDs were notably lower than GSe which translated to a PPOP that was broadly in-line (+0.2%) with GSe. BEN announced a final DPS of A32c, which was higher than GSe (A31c), along with a non-discounted DRP that will be neutralized. BEN's CET1 of 11.25%, was up 112 bp for the half, and 22 bp ahead of GSe.
The broker also feels that the company is on course to deliver on its expectations in FY 2024 based on its exit margin. It said:
[G]iven BEN noted its 4Q NIM of 1.96% (2 bp lower than 2H23 NIM), we believe current 1H24 GSe and VA consensus (GSe 1.94%; VA consensus 1.93%) is broadly consistent with the current trajectory.
Is it time to buy?
Goldman has not updated its recommendation yet. However, it currently has a neutral rating and a $9.58 price target on Bendigo Bank shares. This suggests reasonable upside potential from current levels.
