Bendigo and Adelaide Bank Ltd (ASX: BEN) this week announced a deal to acquire RACQ Banks' retail lending assets and deposits, which are worth an estimated $2.7 billion and $2.5 billion, respectively.
Managing Director Richard Fennell said the deal, which is expected to be completed in the first half of FY27, would add to Bendigo and Adelaide Bank's current deposit franchise, and "leverages our proven ability to efficiently integrate significant portfolios and is expected to drive improved shareholder returns through cost efficiencies and geographic diversification''.
The transaction is expected to generate $50-$55 million in net interest income and add 4-5 cents to the company's earnings per share.
Strategically sensible move
The team at Jarden has had a look at the proposed deal, which is subject to regulatory sign-off, and said the Queensland-focused deal makes sense.
Bendigo acquired the Queensland-based First Australian Building Society in 2000 and have a reasonably strong presence in Australia's most dynamic state. The acquisition fits well with their strategic pillar of 'optimising their deposit base' with retail deposits representing 92% of the RACQ lending portfolio (with a high proportion of lower-cost deposits). It also supports their ambition in becoming a greater presence in agri, and at book value, we believe the price is full, but fair. We will process the acquisition upon regulatory approval – financially the acquisition is relatively immaterial but strategically it is on par.
Jarden has a neutral rating on Bendigo and Adelaide Bank shares and, following the investor day presentations earlier this week, has kept its price target for the company's shares at $11.
Including a 6.2% dividend yield, this would equate to a total shareholder return of 14.8% over a year based on the company's closing share price of $10.13 on Thursday.
The Jarden analysts said bank strategies in general were focused on two main themes at the moment – optimising lower cost deposit bases and minimising costs generally, "reflecting a difficult environment''.
Both are challenging. Heightened focus on growing deposits (alongside deposit alternatives i.e. stablecoins) is set to only increase competitive pressure on paid rates. Meanwhile, the combination of stubborn inflation and regulatory scrutiny will continue to drive cost expansion. Bendigo's acquisition of RACQ's book is a step in the right direction in growing low cost deposits, but the productivity benefits required to hold business as usual costs to inflation are unclear.
Bendigo and Adelaide Bank was valued at $5.75 billion at the close of trade on Thursday.
