The S&P/ASX 200 Index (ASX: XJO) bank share Bendigo and Adelaide Bank Ltd (ASX: BEN) recently reported its results, which actually beat what market analysts were expecting in terms of profit.
However, broker UBS thought the report was a "mixed result", with the group net interest margin (NIM) improving by 4 basis points (0.04%) half over half to 1.92% thanks to an improving deposit base and asset mix.
However, lending was down 1.9% half over half with weakness in residential and agri-related loans. But at the same time, costs increased by 4.2% half over half, despite investment spending down by 12% half over half.
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What did UBS think of the result?
UBS noted that the bank has focused on expanding its proprietary channels, while improvements in funding costs and mix supported the NIM.
The broker said the result was "disappointing" on lending growth, though it increased its expectation for cash earnings per share (EPS) for FY26 due to a lower-than-expected credit provision. It also reduced the cash EPS expectation for FY27 by 2.9% and cut the FY28 EPS forecast by 0.2%. This reflected UBS' views on the ASX 200 bank share's loan book growth and costs, with this offset somewhat by reduced credit charges.
UBS also highlighted that costs related to anti-money laundering and counter-terrorism financing (AML/CTF) led to the Bendigo Bank share price falling 2% on the day.
The broker wrote:
Looking ahead, the bank aims to align lending growth more closely with system growth, though this strategy may exert pressure on margins. We revise our projections for BEN to reflect the reduced loan growth and updated cost estimates related to the $70-90M program aimed at addressing AML/CFT compliance issues. Additionally, we slightly increase our NIM assumptions, taking into account BEN's growth targets for 2H 26, which are balanced by enhancements in their liability structure and anticipated cash rate hikes.
Expert rating on the Bendigo Bank share price
UBS thinks the ASX 200 bank share could make EPS of 82 cents in FY26, 75 cents in FY27, and 80 cents in FY28. That would put the business at less than 14x FY26's estimated earnings.
The broker has a neutral rating on the ASX 200 bank share, with a price target of $11.20. A price target is where analysts expect the business to trade in 12 months from the time of the investment call. Therefore, UBS suggests the business could slightly decline from where it is today.
UBS suggested that the business is trading above its long-term price-earnings (P/E) ratio average.
