Although Bank of Queensland Ltd (ASX: BOQ) shares are ending the week in the red, they remain on course to record a decent weekly gain.
If everything stays the same, the regional bank's shares will record a gain of almost 4% for the week.
This has been driven by a positive reaction to its half-year results earlier this week.
As a reminder, the bank reported a 12% decline in total income to $795 million and a 33% reduction in cash net profit after tax to $172 million.
While not great on paper, its cash profit was still better than expected and beat the consensus estimate by 5%.
Is it time to lock in those gains?
One leading broker believes that investors should be locking in these gains and moving on to better opportunities.
According to a note out of Goldman Sachs, its analysts feel that Bank of Queensland shares are overvalued at current levels.
Its analysts have reiterated their sell rating with an improved price target of $5.44. This implies a potential downside of approximately 10.5% from current levels.
Commenting on the result, the broker said:
BOQ's 1H24 cash earnings of A$172 mn were down -33% on pcp and 12%/5% higher than GSe/Visible Alpha consensus estimates (VAe). PPOP was 5%/in line vs. GSe/VAe due to slightly better than expected performance on both revenues and expenses. BOQ announced an interim dividend of A17¢ (GSe A16¢), with a non-discounted DRP, and the CET1 ratio of 10.76% was 23 bp lower than GSe and down 15 bp hoh.
Why are Bank of Queensland shares still a sell?
Despite outperforming expectations in the first half, Goldman Sachs isn't convinced that this is a turning point.
It is warning investors about execution risks with its strategy and potential structural margin pressures. It explains:
We stay Sell-rated on BOQ given: i) while we believe the company's transformation program is a positive long-term strategy (aiming to deliver a lower cost to serve on the back of its digitisation efforts), we remain wary of both the high degree of execution risk and the potential for going over budget on investment spend (as has often been the case historically when banks undergo such large scale initiatives). Furthermore, ii) BOQ's FY26 ROE (>9.25%) and CTI (<50%) targets are premised on a reversal of cyclical factors including margin compression which, if structural, would present additional challenges to an already challenging target, and iii) our target price of A$5.44 offers -11% downside to the current share price, towards the bottom end of our A&NZ Financials coverage.
