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Please refer to page 11 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
AUSTRALIA
BOQ AU Neutral
Price (at 07:20, 30 Mar 2017 GMT) A$12.04
Valuation A$ 12.29-12.67
- Sum of Parts/GG
12-month target A$ 12.50
12-month TSR % +10.1
Volatility Index Low/Medium
GICS sector Banks
Market cap A$m 4,663
30-day avg turnover A$m 25.5
Number shares on issue m 387.3
Investment fundamentals Year end 31 Aug 2016A 2017E 2018E 2019E
Net interest Inc m 937.0 929.2 989.8 1,025.7 Non interest Inc m 173.0 161.5 162.9 167.8 Underlying profit m 590.0 578.3 625.7 651.8
Reported profit m 338.0 341.5 375.1 385.6 Adjusted profit m 360.0 361.1 386.3 396.8 EPS adj ¢ 91.2 89.5 93.8 95.2 EPS adj growth % -2.6 -1.9 4.8 1.5 PER adj x 13.2 13.5 12.8 12.6 PER rel x 0.68 0.85 0.81 0.81 Total DPS ¢ 76.0 76.0 76.0 76.0 Total div yield % 6.3 6.3 6.3 6.3 Franking % 100 100 100 100 ROA % 0.7 0.7 0.7 0.7 ROE % 10.4 9.9 10.2 10.1 Equity to assets % 7.1 7.3 7.2 7.1 P/BV x 1.3 1.3 1.2 1.2
BOQ AU vs ASX 100, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, March 2017
(all figures in AUD unless noted)
30 March 2017 Macquarie Securities (Australia) Limited
Bank of Queensland Is it possible to love a bank? Event
BOQ’s disappointing revenue performance in 1H17 was driven by both
declining margins and poor volume growth trends. While in our view margin
trends should rebound in 2H17 and 1H18, uncertainty remains in BOQ’s
ability to grow volumes without sacrificing margins. Moreover, we continue to
believe that BOQ’s front-to-back book pricing gap will be an ongoing drag to
profitability in the medium term. As a result, we see the current valuation
discount of 5-10% to peers as appropriate.
Impact
BOQ’s 1H17 underlying result was ~2% below our expectation. While
management appears more optimistic about the outlook as mortgage
originations started to show signs of improvement, we note that ongoing
portfolio run-off from branch closures as well as regaining the confidence of
the broker channel are likely to take time and we continue to expect BOQ’s
lending growth trends to underperform peers in the near term. Ultimately we
believe that BOQ should be able to grow ahead of system if the flow from the
broker channel increases towards the level of peers. However, we believe
BOQ will need to address its systems issues and offer more competitive and
consistent pricing in order for broker flow to improve. Moreover, we see
BOQ's deposit gathering capabilities as a constraining factor of growth.
BOQ hasn’t yet repriced its variable investor mortgages following recent
repricing activity by peers. While this arguably presents upside risk to
earnings, we continue to believe that the regionals have less scope to
continue to reprice due to their current elevated pricing. However, we see
opportunity for BOQ to reprice Investor and Interest Only Investor Loans after
it addresses its system issues. We have incorporated 10bps of investor
repricing in May and an additional 15bps of interest-only investor repricing at
the end of June.
While BOQ offers an attractive dividend yield of ~6.3%, this is supported by
~84% 1H17 payout ratio, which we believe is unsustainably high in a more
normal balance sheet growth environment. As a result, we forecast no
dividend growth for BOQ until 2020, when its payout ratio returns to a more
normal level.
Earnings and target price revision
We downgrade EPS by ~2% in FY17 from lower-than-expected margins. Our
target price is unchanged at $12.50.
Price catalyst
12-month price target: A$12.50 based on a Sum of Parts/GG methodology.
Catalyst: Mortgage repricing, 2H17 result, October ’17.
Action and recommendation
BOQ is trading at a PE multiple of 13.1x and offers a dividend yield of 6.3%.
We see the current valuation discount of 5-10% to peers as appropriate and
maintain a Neutral recommendation.
Macquarie Wealth Management Bank of Queensland
30 March 2017 2
BOQ 1H17 Result
What we liked What we didn’t like What else was interesting
Impairment expense down 1bp to
13bps HoH. The impairment charge
came in at A$27m for 1H17 (A$31m
for 2H16), which was 1bps better
than our expectation and 1bps down
HoH. 30dpd arrears deteriorated
slightly, up 2% HoH although 90dpd
improved, down 7% HoH.
Cost growth in line with our
expectation, with guidance
maintained. Costs came in at
$252m (-4% HoH) compared with
our expectation of $253m.
Underlying cost growth (ex 2H16
one-offs of $8m) came in at -1%
HoH aided by a reduction in general
expenses. BOQ's cost-to-income
was 47.4% in 1H17.
Capital improved to 9.29% in
1H17. BOQ's CET1 capital came in
at 9.29% (vs 9.00% in 2H16),
slightly below MRE's 9.35% with
subdued RWA growth driving the
increase.
Improved margin outlook for
2H17. BOQ did highlight an
improving margin outlook for 2H17
with deposit spreads contracting and
capital and low cost deposit
headwind reducing and expect the
NIM to return to 1.90% in 2H17.
Given recent deposit pricing trends
we would expect margins to improve
in 2H17.
Other income 3% above
expectations, but down 9% HoH.
Non-NII came in at $80m in 1H17,
ahead of our expectation of $78m
driven by slightly better trading
income despite a decline in banking
fees. BOQ is targeting flat non-NII
growth for 2H17.
Cash profit was 1% below MRE and
2% below consensus due to revenue
weakness. 1H17 cash profit came in at
$175m (-3% HoH growth), compared
with MRE ($177m) and consensus
($178m).
NIM was down 4bps HoH to 1.85%,
below our expectation. NIM was down
4bps HoH to 1.85%, vs. MRE’s 1.89%
as funding costs impacted the NIM by -
3bps, capital by -3bps and front-book
pricing by -4bps. This was despite asset
pricing benefits of 6bps.
GLA growth weak in 1H17 at -1%
HoH, volume outlook improved.
Asset growth was in line with
expectation at -1.0% HoH (MRE: -1.0%)
as BOQ’s troubled trends in housing
persisted (-3% HoH). This was partially
offset by growth in commercial lending
(2% HoH) and BOQ finance (7% HoH).
BOQ noted higher application volumes
over the last six weeks with a 30%
improvement in volumes recently.
However, we remain cautious of a
turnaround given FY16 and 1H17
trends.
ROE down 40bps HoH. BOQ’s ROE
declined 40bps HoH to 9.8% (from
10.2% in 2H16) driven by the decline in
cash earnings and increase in capital.
Banking income declined 8% HoH.
Banking income declined $3m HoH
(and reduced expenses by a
commensurate amount) impacted by a
change in outsourced ATM
arrangements.
Flows through broker channel
significantly down in 1H17. Flows
through the broker channel were just
~$50m in 1H17 compared with ~$500m
in the four prior half years. Broker
originated lending made up 15% of
settlements in 1H17, compared with
19% in 1H16. BOQ noted the drop-off
had been driven by changes to
serviceability requirements as well as its
application process which requires
validation of 100% of loan applications.
Dividend of 38c for 1H17, in line
with expectation. DPS for 1H17
was 38cps, in line with MRE and
consensus, equating to a 1H17
payout ratio of 84%.
DRP Discount of 1.5% remains.
BOQ continued to participate in the
DRP and offered a 1.5% discount,
with the participation rates in the
mid-30s during the period.
NSFR estimated to be c107%.
BOQ estimates that the NSFR is
~107%, above the minimum
requirement of 100%. BOQ’s LCR
was 132% in 1H17, up from 122%
in 2H16 due to $1bn RMBS
issuance during the period.
BOQ closed 14 branches during
1H17. BOQ closed 14 branches
during 1H17 (total 23 branches
closed during FY16) reducing its
branch footprint to 197. BOQ noted
ongoing branch network
optimisation was one of its FY17
priorities.
Deposit to lending ratio
increased to 71% from 68%. The
increase was driven by strong
transaction account growth (10%
annualised) and now sits just
above its target operating range of
65-70%.
Centrepoint alliance acquisition
completed during 1H17. The
acquisition added $120m of loan
balances and is expected to boost
the NIM by 1bps and expenses by
$3m in 2H17 ($1m already
incurred in 1H17).
Replicating portfolio has shifted
to a 3 yr investment horizon. The
portfolio previously had a five-year
investment horizon.
Source: Company data, Macquarie Research, March 2017
Macquarie Wealth Management Bank of Queensland
30 March 2017 3
Key Issues
BOQ’s disappointing revenue performance in 1H17 was driven by both declining margins and poor
volume growth trends. While management appears more optimistic about the outlook as mortgage
originations started to show signs of improvement, we note that ongoing portfolio runoff from
branch closures as well as regaining the confidence of the broker channel are likely to take time
and we continue to expect BOQ’s lending growth trends to underperform peers in the near term.
As the figure below highlights, recent rebalancing in BOQ’s originations away from largely relying
on the proprietary channel and towards the broker channel had its early challenges. We believe
that ultimately BOQ should be able to grow ahead of system if the flow from the broker channel
increases towards peer levels over time (currently ~50% of flow). However, we believe BOQ will
need to address its systems issues and offer competitive and consistent pricing in order for broker
flow to improve. Moreover, in the medium term we see BOQ’s deposit gathering capabilities to
ultimately be the constraining factor of growth.
Fig 1 Growth in loans (HoH) Fig 2 Housing growth by division and OMB
Source: Company data, Macquarie Research, March 2017 Source: Company data, Macquarie Research, March 2017
BOQ hasn’t yet repriced its variable investor mortgages following recent repricing activity by
peers. While this arguably presents upside risk to earnings, we continue to believe that the
regionals have less scope to continue to reprice due to their elevated rates relative to peers.
However, we see some scope for BOQ to reprice Investor and Interest Only Investor Loans after
BOQ addresses its system issues (introduced differentiated pricing between interest only and
P&I). We have incorporated 10bps of investor repricing in May and an additional 15bps of interest-
only investor repricing at the end of June.
Fig 3 Owner occupier rates for P&I and I/O Fig 4 Investor rates for P&I and I/O
Source: Company data, Macquarie Research, March 2017 Source: Company data, Macquarie Research, March 2017
-1
1
-1
3
-6
-4
-2
-
2
4
6
8
Housing Business Personal Leasing
%
1H15 2H15 1H16 2H16 1H17
768467
242-49
248472
133
603
-650-978
341 923
1068
479 394
11 200
175
200
225
250
275
300
-1000
-500
0
500
1000
1500
2000
2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17
#$m
BOQ BOQ Specialist VMA Home loans Branches (RHS)
0.8 1.0
3.0
3.5
4.0
4.5
5.0
5.5
6.0
CB
A
AN
Z
NA
B
WB
C
BE
N
BO
Q
BO
Q C
P
NA
B
AN
Z
CB
A
BE
N
WB
C
BO
Q
BO
Q C
P
P&I Owner occupier I/O Owner occupier
%
SVR Additional discount req. by majors
0.9 1.0
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
WB
C
CB
A
NA
B
AN
Z
BE
N
BO
Q
BO
Q C
P
NA
B
CB
A
AN
Z
WB
C
BE
N
BO
Q
BO
Q C
P
P&I Investor I/O Investor
%
SVR Additional discount req. by majors
Macquarie Wealth Management Bank of Queensland
30 March 2017 4
1H17 Result Analysis
BOQ delivered a soft 1H17 underlying result driven by margin pressure (mortgage competition,
funding costs and lower rates) and weak volume growth trends. While BOQ appears more
optimistic about the revenue outlook as mortgage originations show early signs of improvement,
we note that ongoing portfolio runoff from branch closures as well as time required to rebuild
confidence in the broker channel suggests that BOQ’s lending growth trends are likely to continue
to underperform peers in the short to medium term. BOQ reaffirmed its cost guidance of 1%
(underlying growth), which should partly offset the revenue pressures.
DPS of 38cps was in line with MRE and consensus. This equates to 1H17 payout ratio of 84%,
which we believe is unsustainably high in a more normal growth environment. As a result we
forecast no divided growth for BOQ until 2020, when its payout ratio returns to a more normal
level.
Fig 5 Result summary compared to forecasts and HoH growth
MRE Actual 2H16 1H17 1H17 Growth % Diff. %
Net Interest Income 470 461 452 -4% -2% Non-Interest Income 88 78 80 -9% 3% Total Operating Income 558 539 532 -5% -1% Total Operating Costs 264 253 252 -5% 0% Pre-Provision Operating Profit 294 286 280 -5% -2% Impairment Charge 31 31 27 -13% -13% Pre-Tax Profit 263 255 253 -4% -1% Tax Expense 82 78 78 -5% 0% Other Post Tax Items 14 5 14 0% nmf NPAT Attributable to Shareholders 167 172 161 -4% -6% Adjustments to stat profit 14 5 14 0% nmf Macquarie Cash Profit 181 177 175 -3% -1%
Source: Company data, Macquarie Research, March 2017
Margins
The NIM performance was disappointing in 1H17, with repricing benefits more than offset by back-
book to front-book pricing differential, elevated funding costs and the impact of lower rates on
capital and low-cost deposits. What is somewhat pleasing however is the margin guidance from
management suggests 2H17 margins will return to the level seen in 2H16. Our analysis supports
this thesis and we currently forecast margins to be slightly ahead of company guidance as we
have incorporated an additional 10bps of investor repricing in May and 15bps of interest-only
investor repricing at the end of June. Furthermore, ongoing normalisation in deposit costs
underpins our favourable outlook for margins in 1H18.
Fig 6 Net interest margin bridge
Source: Company data, Macquarie Research, March 2017
1.90
1.85
1.91
0.06
0.04
0.03
0.030.01
0.05
0.03
0.01
0.04
0.010.02
1.75
1.80
1.85
1.90
1.95
2.00
%
Macquarie Wealth Management Bank of Queensland
30 March 2017 5
Asset Quality
Asset quality trends remained largely benign in 1H17 supported by prevailing low interest rate
environment, with 90 days past due to GLA down 4bps (despite a small pick-up in commercial
90dpd). Total impairment expense was also 1bps lower compared with 2H16.
Despite a small reduction in collective provisions during the period BOQ’s coverage ratio remains
materially better than BEN, but it is slightly below the majors. At this point, we do not see credit
quality deterioration as a material issue for BOQ, particularly as BOQ saw a marked improvement
in new impaireds in 1H17 with no new individual exposures above $10m and overall new
impaireds down to $57m from $80m in 2H16.
Fig 7 Collective provisions to non-housing loans Fig 8 New impaired assets ($m)
Source: Company data, Macquarie Research, March 2017 Source: Company data, Macquarie Research, March 2017
Capital
In our view, further levelling of the playing field in mortgages remains the key area of upside for
the regional banks. As the figure below highlights the regionals capital benefit from Advanced
Accreditation is ~90-130bps+. However, it appears BOQ is still weighing up the timing of the
application. Based on management’s current expectations it will take BOQ two years to be in a
position to submit its application to APRA.
Fig 9 CET1 benefits from reduced risk weights following Advanced Accreditation
Mortgage risk weights $
Mortgage exposures $
Mortgage risk weight %
Reduced mortgage risk weight sensitivity (bps)
25% 30% 35%
BEN 17.0 42.8 39.7 157 97 44 BOQ 12.1 28.6 42.5 201 135 77
Source: Company data, Macquarie Research, March 2017
Furthermore, potential reduction in risk weightings on mortgages for BOQ should improve its
ongoing capital generation and dividend sustainability. BOQ’s current risk weighting on mortgages
is ~43%. Should BOQ be able to reduce it to ~33%, we estimate that this will translate to ~4%
improvement in BOQ’s sustainable payout-ratio and provide ~5% uplift to the fundamental
valuation.
112 110
126
114
102
30
0
20
40
60
80
100
120
140
160
ANZ CBA NAB WBC BOQ BEN
bps
1H14 2H14 1H15 2H15 1H16 2H16 1H17
11 125 5
15
83
111
77 63
59
80
57
0
20
40
60
80
100
120
1H14 2H14 1H15 2H15 1H16 2H16 1H17
$m
Exposure >$10m Exposure >$5m & <$10m Exposure <$5m
Macquarie Wealth Management Bank of Queensland
30 March 2017 6
Fig 10 Capital generation, sustainability of dividends and valuation upside
Current m/gage risk weighting
M/gage risk weightings under Advanced Methodology
FY17 Normalised FY17f NPAT ($m) 362 343 343 343 343 Dividend payout ratio (%) 82% 67% 69% 71% 73% Additions to retained earnings ($m) 66 112 107 99 91 Balance sheet growth (ann) 1.4% 5.0% 5.0% 5.0% 5.0% Implied capital usage -36 -132 -127 -120 -114 Other capital movements -28 -15 -15 -15 -15 Organic capital generation 2 -35 -35 -36 -37 DRP (%) 35% 15% 15% 15% 15% Implied capital generation after DRP 106 0 0 0 0
Implied sustainable dividend (cps) 0.59 0.60 0.62 0.64 Valuation/Share 11.80 12.02 12.43 12.85 Valuation upside (%) -2% 0% 3% 7%
Source: Macquarie Research, March 2017
Costs
BOQ reaffirmed its cost guidance for 1% underlying growth in FY17. While in isolation poor
revenue trends leave BOQ with a challenging earnings backdrop for FY17, cost guidance provides
a partial offset. BOQ’s underlying cost growth guidance does not include $4m in costs associated
with the premium funding acquisition. We expect that BOQ to continue to manage expenses well
in the current challenging revenue environment and partly absorb additional expenses from this
acquisition.
Fig 11 FY17 underlying cost growth guidance of ~1% reaffirmed
Source: Company data, Macquarie Research, March 2017
240 244 249 256
228
279
167
8
4
150
170
190
210
230
250
270
290
1H15 2H15 1H16 2H16 1H17 2H17f
$m
Underlying expenses One-off investment
FY17f: $507m underly ing expense
FY16: $505m underly ing expense
0.5% YoY underlying growth
Macquarie Wealth Management Bank of Queensland
30 March 2017 7
Valuation and risks
Our price target is unchanged at $12.50/share based broadly on the midpoint of our SOTP
($12.29/share) and GG ($12.67/share)-based valuations.
SOTP (sum of the parts) valuation $12.29/share
Our SOTP valuation attributes a peer-based multiple to normalised bank earnings. We apply a
13.1x FY18F P/E multiple to our BOQ earnings, which is representative of the peer average
banking P/E multiple after adjusting each bank’s multiple to exclude the funds management
business. We assume that BOQ should trade at a 7% discount to the sector, which is in line with
the 5yr average.
Fig 12 Segment valuation
Division Cash Earnings (EPS) PE Multiple (x) Adj. PE Multiple (x)
ANZ 2.39 13.5 13.5 CBA 5.89 14.7 14.8 NAB 2.42 13.9 13.9 WBC 2.52 14.0 14.1 Average 14.0 14.1 LT premium to sector -7.0% Implied multiple 13.1
BOQ Valuation 0.94 13.1 12.29
Source: Macquarie Research, March 2017
Note: Wealth Management multiple is based on AMP FY18 multiple. Bank multiple is based on the average of peers adjusted for their respective WM contributions.
Gordon Growth (GG) valuation $12.67/share
We have derived a GG valuation of $12.67, based on BOQ’s estimated return on tangible equity of
~13.0% in FY18. Based on this methodology BOQ is currently trading at a ~5% discount to its
fundamental valuation.
Fig 13 Gordon Growth valuation
Source: Macquarie Research, March 2017
Risks
Key upside for BOQ is from continued levelling of the playing field and achieving Advanced
Accreditation. Key downside risks stem from ongoing aggressive competition in mortgages and
deposits and a continuation of subdued growth trends.
0.5
1.0
1.5
2.0
2.5
3.0
3.5
8 10 12 14 16 18 20 22
P/NTA (x)
RoTE (%)
ANZ
CBA
WBCNAB
BOQBEN
Macquarie Wealth Management Bank of Queensland
30 March 2017 8
Fig 14 BOQ Financial Summary
Source: Company data, Macquarie Research, March 2017
Bank of Queensland Year Ending 31 August 1H16 2H16 2016 1H17 2H17 2017 2018 2019
Neutral PER SHARE DATA
Cash EPS (AUD) - Macquarie Diluted Basis 46 45 91 44 46 89 94 95
Current Price Target Price Cash EPS Growth (%) -6% -1% -3% -3% 4% -2% 5% 2%
A$12.04 $12.50 DPS (AUD) 38 38 76 38 38 76 76 76
Total Shareholder Return 10.1% BVPS (AUD) $9.37 $9.41 $9.41 $9.53 $9.64 $9.64 $9.87 $10.12
NTA PS (AUD) $7.07 $7.13 $7.13 $7.28 $7.42 $7.42 $7.67 $7.94
Bloomberg: BOQ AU Shares on issue (m) 376 381 381 387 392 392 396 401
Reuters: BOQ.AX
VALUATION METRICS
Macquarie Equities | Australian Banks P/E (Cash) 13.1x 13.3x 13.2x 13.8x 13.2x 13.5x 12.8x 12.6x
Analyst(s) Contact(s) P/B (Stated) 1.3x 1.3x 1.3x 1.3x 1.2x 1.2x 1.2x 1.2x
Victor German +61 2 8232 6089 P/NTA 1.7x 1.7x 1.7x 1.7x 1.6x 1.6x 1.6x 1.5x
Anita Stanley +61 2 8232 9869 RoE (%) 10.3% 10.2% 10.2% 9.6% 10.0% 9.8% 10.1% 10.0%
Brendan Carrig +61 2 8237 6043 RoA (%) 0.73% 0.71% 0.72% 0.69% 0.72% 0.71% 0.73% 0.72%
Dividend Yield (%) 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3% 6.3%
Dividend Payout (%) 80% 80% 80% 84% 80% 82% 78% 77%
PROFIT & LOSS (AUDm)
Net Interest Income 467 470 937 452 477 929 990 1,026
Non-Interest Income 85 88 173 80 82 162 163 168
Fees & Commissions 49 50 99 46 47 93 94 97
Insurance Income 15 11 26 11 11 22 22 23
Other 21 27 48 23 23 46 47 48
Total Operating Income 552 558 1,110 532 559 1,091 1,153 1,193
Total Operating Costs 256 264 520 252 260 512 527 542
Employee Costs 126 127 253 126 129 255 258 264
Other Costs 130 137 267 126 131 257 269 278
Pre-Provision Operating Profit 296 294 590 280 298 578 626 652
Impairment Charge 36 31 67 27 31 58 70 81
Pre-Tax Profit 260 263 523 253 268 521 556 571
Tax Expense 81 82 163 78 82 160 170 174
Minority Shareholders 0 0 0 0 0 0 0 0
Other Post Tax Items 8 14 22 14 6 20 11 11
Stated Net Profit 171 167 338 161 180 341 375 386
Extraordinary & Other Items -8 -14 -22 -14 -6 -20 -11 -11
Preference shares 0 0 0 0 0 0 0 0
Macquarie Cash Profit 179 181 360 175 186 361 386 397
BALANCE SHEET & CAP AD (AUDm)
Risk Weighted Assets 27,467 28,054 28,054 28,014 28,433 28,433 29,724 31,327
Average Interest Earning Assets 47,506 49,353 48,430 49,237 49,517 49,377 50,950 53,491
Gross Loans, Advances & Acceptances 42,924 43,152 43,152 42,995 43,640 43,640 45,626 48,029
Total Deposits 36,080 36,720 36,720 37,096 37,652 37,652 39,366 41,439
Total Assets 49,841 50,853 50,853 50,956 51,707 51,707 54,020 56,820
Shareholders Equity 3,525 3,587 3,587 3,691 3,776 3,776 3,912 4,056
Tier 1 Capital 2,866 2,974 2,974 3,052 3,134 3,134 3,266 3,405
Tier 1 Ratio (%) 10.4% 10.6% 10.6% 10.9% 11.0% 11.0% 11.0% 10.9%
Core Tier 1 Ratio (%) 8.80% 9.00% 9.00% 9.29% 9.44% 9.44% 9.48% 9.43%
ASSET QUALITY
Impairment Charge / GLAA (bp) 17 14 16 13 14 13 16 17
Impairment Charge / NHL (bp) 57 47 52 40 45 43 50 55
Provisions / NPLs (%) 54% 55% 55% 59% 59% 59% 59% 59%
KEY RATIOS & GROWTH
Net Interest Income growth (%) 1.7% 0.6% 3.3% -3.8% 5.6% -0.8% 6.5% 3.6%
Non-Interest Income growth (%) -11.5% 3.5% -3.9% -9.1% 1.9% -6.6% 0.9% 3.0%
Total Revenue growth (%) -0.5% 1.1% 2.1% -4.7% 5.0% -1.7% 5.7% 3.5%
Cost growth (%) 4.9% 3.1% 4.0% -4.5% 3.3% -1.5% 2.8% 2.8%
Pre-Provision Profit growth (%) -4.8% -0.7% 0.5% -4.8% 6.5% -2.0% 8.2% 4.2%
RWA growth (%) 4.4% 2.1% 6.6% -0.1% 1.5% 1.4% 4.5% 5.4%
GLAA growth (%) 3.7% 0.5% 4.3% -0.4% 1.5% 1.1% 4.6% 5.3%
Deposit growth (%) 3.9% 1.8% 5.7% 1.0% 1.5% 2.5% 4.6% 5.3%
Net Interest Margin (%) 1.98% 1.89% 1.93% 1.85% 1.91% 1.88% 1.94% 1.92%
Cost / Income Ratio (%) 46.4% 47.3% 46.8% 47.4% 46.6% 47.0% 45.7% 45.4%
-1%
0%
1%
2%
3%
4%
5%
6%
1.70%
1.75%
1.80%
1.85%
1.90%
1.95%
2.00%
1H17 2H17 2017 2018 2019
Volumes and margins
Net Interest Margin (%) GLAA growth (%)
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
44.0%
44.5%
45.0%
45.5%
46.0%
46.5%
47.0%
47.5%
48.0%
1H17 2H17 2017 2018 2019
Efficiency and Costs
Cost / Income Ratio (%) Cost growth (%)
10
12
14
16
18
20
22
24
9.10%
9.20%
9.30%
9.40%
9.50%
9.60%
1H17 2H17 2017 2018 2019
CET1 ratio and BDD/GLA
Core Tier 1 Ratio (%)
Impairment Charge / GLAA (bp)
Macquarie Wealth Management Bank of Queensland
30 March 2017 9
Fig 15 Australian Bank Investment Fundamentals
Source: Company data, Macquarie Research, March 2017. Closing prices as of 30 March 2017
ANZ CBA NAB WBC BEN BOQ CYB (£)
Recommendation Neutral Neutral Outperform Outperform Underperform Neutral Neutral
Price target (A$) 33.00 89.50 35.00 37.00 11.50 12.50 2.93
Upside/downside to TP (%) 2.2 3.5 4.8 4.8 -4.2 4.0 5.5
12 month TSR (%) 7.4 8.7 10.2 10.2 1.4 10.3 8.8
Last Price (A$) 32.28 86.48 33.40 35.30 12.01 12.02 2.78
Cash NPAT (A$mn)
2016a 5,889 9,450 6,483 7,822 439 360 178
2017f 7,050 9,854 6,627 8,280 457 361 182
2018f 7,361 10,605 6,841 8,796 464 386 204
2019f 7,677 11,046 7,046 9,136 488 397 237
Fully diluted EPS (cps)
2016a 193 544 235 229 86 91 20
2017f 229 555 237 239 88 89 21
2018f 239 592 241 252 88 94 23
2019f 250 612 245 260 91 95 27
EPS growth (%)
2016a -22.7 0.5 -0.8 -6.0 -4.1 -2.6
2017f 18.6 1.9 0.7 4.4 2.6 -1.9 2.1
2018f 4.5 6.7 1.9 5.4 0.3 4.8 11.4
2019f 4.5 3.4 1.7 3.1 3.7 1.5 15.6
Price/Earnings Ratio (x)
2016a 16.8 15.9 14.2 15.4 14.0 13.2 13.8
2017f 14.1 15.6 14.1 14.8 13.7 13.4 13.5
2018f 13.5 14.6 13.8 14.0 13.6 12.8 12.1
2019f 12.9 14.1 13.6 13.6 13.1 12.6 10.5
PE rel to All Industrials ex banks (x)
2016a 0.88 0.83 0.74 0.81 0.74 0.69 0.69
2017f 0.71 0.79 0.71 0.75 0.69 0.68 0.68
2018f 0.74 0.80 0.75 0.76 0.74 0.70 0.61
2019f 0.77 0.84 0.81 0.80 0.78 0.75 0.53
Price/Earnings rel to bank sector (x)
2016a 1.08 1.02 0.91 0.99 0.90 0.85 0.88
2017f 0.96 1.06 0.96 1.01 0.93 0.92 0.92
2018f 0.97 1.04 0.99 1.00 0.97 0.92 0.86
2019f 0.95 1.04 1.00 1.00 0.97 0.93 0.77
DPS (A$)
2016a 1.60 4.20 1.98 1.88 0.68 0.76 0.00
2017f 1.65 4.31 1.86 1.88 0.68 0.76 0.07
2018f 1.69 4.55 1.77 1.89 0.68 0.76 0.11
2019f 1.78 4.71 1.85 1.91 0.68 0.76 0.16
Current Yield (%)
2016a 5.0 4.9 5.9 5.3 5.7 6.3 0.0
2017f 5.1 5.0 5.6 5.3 5.7 6.3 2.6
2018f 5.2 5.3 5.3 5.4 5.7 6.3 4.1
2019f 5.5 5.4 5.5 5.4 5.7 6.3 5.7
Price/Book ratio (x)
2016a 1.6 2.5 1.7 2.0 1.1 1.3 0.9
2017f 1.6 2.4 1.7 2.0 1.1 1.3 0.8
2018f 1.5 2.2 1.6 1.9 1.1 1.2 0.8
2019f 1.5 2.1 1.6 1.8 1.0 1.2 0.9
ROE
2016a 10.2 16.8 12.1 14.1 8.9 10.4 6
2017f 12.0 16.0 12.6 13.9 8.8 9.9 5
2018f 12.2 16.2 12.4 14.1 8.5 10.2 6
2019f 12.3 16.0 12.1 13.9 8.6 10.1 7
Price/NTA ratio (x)
2016a 1.9 3.0 1.9 2.5 1.6 1.7 1.0
2017f 1.8 2.8 1.9 2.3 1.6 1.7 0.9
2018f 1.8 2.6 1.8 2.2 1.5 1.6 0.9
2019f 1.7 2.5 1.7 2.1 1.4 1.5 1.0
1 yr fwd PE ratio 13.8 14.9 14.0 14.4 13.6 13.1 12.8
1 yr fwd PE ratio (adj for div) 13.5 14.8 13.6 14.1 13.5 12.4
Relative premium/discount -3% 5% -3% 1% -3% -12%
1 yr fwd div yield 5.2 5.2 5.4 5.3 5.7 6.3 3.4
Victor German
[email protected]+612 8232 6089
Anita Stanley
[email protected]+612 8232 9869
Brendan Carrig
[email protected]+612 8237 6043
Macquarie Wealth Management Bank of Queensland
30 March 2017 10
Macquarie Quant View
The quant model currently holds a reasonably positive view on Bank of
Queensland. The strongest style exposure is Valuations, indicating this
stock is under-priced in the market relative to its peers. The weakest style
exposure is Earnings Momentum, indicating this stock has received
earnings downgrades and is not well liked by sell side analysts.
Displays where the
company’s ranked based on
the fundamental consensus
Price Target and
Macquarie’s Quantitative
Alpha model.
Two rankings: Local market
(Australia & NZ) and Global
sector (Banks)
283/747 Global rank in
Banks
% of BUY recommendations 21% (3/14)
Number of Price Target downgrades 3
Number of Price Target upgrades 1
Macquarie Alpha Model ranking Factors driving the Alpha Model
A list of comparable companies and their Macquarie Alpha model score
(higher is better).
For the comparable firms this chart shows the key underlying styles and their
contribution to the current overall Alpha score.
Macquarie Earnings Sentiment Indicator Drivers of Stock Return
The Macquarie Sentiment Indicator is an enhanced earnings revisions
signal that favours analysts who have more timely and higher conviction
revisions. Current score shown below.
Breakdown of 1 year total return (local currency) into returns from dividends, changes
in forward earnings estimates and the resulting change in earnings multiple.
What drove this Company in the last 5 years How it looks on the Alpha model
Which factor score has had the greatest correlation with the company’s
returns over the last 5 years.
A more granular view of the underlying style scores that drive the alpha (higher is
better) and the percentile rank relative to the sector and market.
Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])
Fu
nd
am
en
tals
Quant
Local market rank Global sector rank
Attractive
0.6
0.7
1.2
1.7
1.7
1.7
2.3
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
Bank of Queensland
MyState
Bendigo and Adelaide Bank…
Commonwealth Bank
Westpac Banking Corporati…
ANZ Bank
National Australia Bank
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
Bank of Queensland
MyState
Bendigo and Adelaide Bank…
Commonwealth Bank
Westpac Banking Corporati…
ANZ Bank
National Australia Bank
Valuations Growth Profitability Earnings
Momentum
Price
Momentum
Quality
-0.8
-0.8
0.1
0.5
0.3
0.4
-0.2
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
Bank of Queensland
MyState
Bendigo and Adelaide Bank…
Commonwealth Bank
Westpac Banking Corporati…
ANZ Bank
National Australia Bank
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%
Bank of Queensland
MyState
Bendigo and Adelaide Bank…
Commonwealth Bank
Westpac Banking Corporati…
ANZ Bank
National Australia Bank
Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
-34%
-24%
-24%
-21%
31%
31%
32%
34%
-40% -20% 0% 20% 40%
⇐ Negatives Positives ⇒
Earnings Stability
Momentum 3 Month
Operating Margin FY0
Net Income Margin FY0
Price to Book FY0
Price to Earnings NTM
Price to Earnings FY1
EV/EBITDA (NTM)
0 1
Technicals & TradingRisk
LiquidityCapital & Funding
QualityPrice Momentum
Earnings MomentumProfitability
Growth
ValuationAlpha Model Score
-0.80 0.18
-0.87 0.03
-0.09-0.23
-0.27-0.18-0.23
0.57 0.63
0 1
Normalized
Score
0 50 100
Percentile relative
to sector(/747)
0 50 100
Percentile relative
to market(/421)
Macquarie Wealth Management Bank of Queensland
30 March 2017 11
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA
Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 31 December 2016
AU/NZ Asia RSA USA CA EUR Outperform 57.53% 50.72% 45.57% 42.28% 60.58% 52.79% (for global coverage by Macquarie, 8.71% of stocks followed are investment banking clients)
Neutral 33.90% 33.97% 43.04% 50.11% 37.23% 35.62% (for global coverage by Macquarie, 8.05% of stocks followed are investment banking clients)
Underperform 8.56% 15.30% 11.39% 7.61% 2.19% 11.59% (for global coverage by Macquarie, 4.63% of stocks followed are investment banking clients)
Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
Date Stock Code (BBG code) Recommendation Target Price 19-Jan-2017 BOQ AU Neutral A$12.50 16-Dec-2016 BOQ AU Neutral A$12.00 29-Jul-2016 BOQ AU Neutral A$11.50 07-Apr-2016 BOQ AU Neutral A$12.00 09-Feb-2016 BOQ AU Neutral A$12.50 21-Jan-2016 BOQ AU Neutral A$13.00 09-Oct-2015 BOQ AU Neutral A$13.20 26-Mar-2015 BOQ AU Underperform A$13.66 19-Dec-2014 BOQ AU Underperform A$11.74 09-Dec-2014 BOQ AU Underperform A$12.88 09-Oct-2014 BOQ AU Neutral A$12.88 25-Sep-2014 BOQ AU Neutral A$12.34 11-Sep-2014 BOQ AU Underperform A$12.34 13-Aug-2014 BOQ AU Underperform A$12.11 05-Jun-2014 BOQ AU Neutral A$12.11 11-Apr-2014 BOQ AU Neutral A$11.81 07-Apr-2014 BOQ AU Underperform A$11.34
Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited (“MENZ”) an NZX Firm. Macquarie Private Wealth’s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) (“MBL”) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research, , is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary’s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or
Macquarie Wealth Management Bank of Queensland
30 March 2017 12
other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group‘s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures © Macquarie Group
This publication was disseminated on 30 March 2017 at 11:07 UTC.