Do you own Bank of Queensland Ltd (ASX: BOQ) shares or are you thinking about investing in the regional bank?
If you answered yes to either, then you will no doubt be interested to know what the market is expecting from Bank of Queensland when it releases its full year results next week.
Ahead of the release, let's take a look to see what the market is forecasting from the bank.
Bank of Queensland full year results preview
According to a note out of Goldman Sachs, its analysts expect the bank to report a sharp decline in profits for the year.
The broker is expecting Bank of Queensland to post a 28% decline in FY 2024 cash earnings to $321 million. This estimate is short of consensus expectations for cash earnings of $328 million.
This is expected to be driven partly by a further decline in its net interest margin (NIM), which is expected to lead to notably weaker net interest income for the period.
In respect to its NIM, the broker said:
BOQ's 1H24 NIM was down -3 bp to 1.55%. Going into 2H24, BOQ highlighted the following considerations: i) competition to continue (however asset spread pressures are continuing to moderate), ii) fixed to variable mix tailwind, iii) increased funding costs (noting some moderation of retail deposits was noted towards the end of the half but the corporate space remains particularly competitive), and iv) replicating portfolio benefit.
We forecast 2H24 NIM to fall a further -2 bp hoh to 1.53% (VAe 1.54%), and we will be looking for management commentary around i) the extent to which BOQ's weak mortgage volume growth has been somewhat offset by a better outcome on NIM, ii) to what extent BOQ can continue to improve its funding base, and iii) the key factors impacting NIM going into FY25.
Also weighing on its profits will be operating expenses, which are expected to increase 7% year on year during the second half.
Unfortunately, Bank of Queensland's earnings decline is likely to result in a significant dividend cut. Goldman is forecasting a 16 cents per share fully franked final dividend, which will be down 24% year on year.
This time around, the consensus estimate is lower than Goldman's estimate. The market expects a dividend cut of almost 29% to 15 cents per share.
Should you invest in Bank of Queensland shares?
Given the above, Goldman Sachs doesn't believe that investors should be buying Bank of Queensland shares right now.
This morning, the broker has reaffirmed its sell rating and $5.54 price target. This implies potential downside of 10.5% from current levels. It commented:
We are 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).
