The Bank of Queensland Ltd (ASX: BOQ) share price has fallen more than 30% in three years, as shown on the chart below. There hasn't been a lot to be positive about in recent times.
The ASX bank share is facing a lot of competition in the banking sector, this is limiting the net interest margin (NIM) and the loan volumes as well.
Just think how many listed banks there are on the ASX, including Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Bendigo and Adelaide Bank Ltd (ASX: BEN) and AMP Ltd (ASX: AMP). Brokers and non-ASX businesses such as ING Groep also add margin headwind dynamics.
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Potential turnaround on the cards?
No matter the industry, when a company's net profit after tax (NPAT) is going down, it's likely to lead to a falling share price, as we've seen with BOQ shares.
The BOQ FY24 first-half result saw the bank's NIM fall 3 basis points to 1.55%, and the cash earnings after tax dropped by 33% to $172 million. The interim dividend was cut by 15% to 17 cents per share.
However, there are some positives to keep in mind. In the HY24 result, BOQ said its loan impairment expense is "expected to remain below long run averages", and it has "prudent provision settings".
It's also expecting the revenue and margin pressures to "moderate" in the second half of 2024 and that its business banking growth can "increase".
The broker UBS expects BOQ to generate a net profit of $294 million in FY24, which would represent a painful decline compared to FY22 and FY23. However, UBS is projecting that net profit could rise in each of the next few years to FY28.
Investors are much more likely to be willing to pay a higher price/earnings (P/E) ratio for a business growing profit than one where profit is declining.
In FY25, profit is projected to grow by 8.8% to $320 million. In FY26, the net profit could grow by 14.4% to $366 million. In FY27, BOQ's net profit could rise another 2.5% to $375 million. Finally, in FY28, the broker projects BOQ could see net profit growth of 8.25% to $406 million.
Is the BOQ share price a buy?
I'm not calling BOQ a bargain buy, and I don't think it's the best S&P/ASX 200 Index (ASX: XJO) opportunity right now.
However, the prospect of BOQ's profit decline being halted would be positive. If the company can grow its profit as predicted, it could lead to a recovery of both the BOQ share price and the dividend payout, which would be welcome news for long-suffering shareholders.
