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BEN

Bendigo and Adelaide Bank FY20 Result – Weak result as expected

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Bendigo and Adelaide Bank (ASX: BEN) is the 5th largest retail bank in Australia. Bendigo has around A$71.4 billion of assets under management and around 1.7 billion customers. Bendigo has a market capitalisation of A$3.7 billion.

 

BEN21

 

What are the key features of Bendigo FY20 results?

Bendigo’s statutory net profit for FY20 is $192.8 million, down 48.8% from FY19. Cash earnings after tax for FY19 is $301.7 million, down 27.4% from FY19. Cash earnings per share for FY20 is 59.7 cents per share, down 28.9% from FY19. Bendigo’s management has decided to defer the FY20 final dividend.

The main impact on Bendigo’s FY20 poor FY20 result is the impact COVID-19 has had on the bank. As of 31 July 2020, a total of 24,365 customer accounts have received 3–6-month payment deferrals with 4,041 accounts having recommenced payment. These 20,324 customers represent $4.6 billion of residential and consumer loans (around 9% of the portfolio) and $2.0 billion of commercial loans (around 12% of the portfolio).

An interesting point from Bendigo’s FY20 report is that the bank’s net interest margin is 2.33%, down 3 basis points. This was mainly driven by lower average interest rates (cash rate) in FY20 compared with FY19. The current cash rate is 0.25%, which has been the cash rate since March 2020. The RBA has noted that they do not plan on increasing the cash rate until Australia reaches full employment (4.5% unemployment) or inflation exceeds the 2-3% range. These scenarios are likely to not occur for several years. Therefore, it is likely Bendigo will continue to operate in a low interest rate environment.

Regarding Bendigo’s capital ratio, Bendigo currently has a Common Equity Tier 1 capital ratio of 9.25%.

What is the outlook for Bendigo?

In terms of the economic outlook, the Australian economic outlook is not positive. Bendigo notes that GDP growth ending December 2020 is expected to be around negative 7% (base scenario). Unemployment is currently 7%, but Bendigo expects unemployment will be around 9% by the end of December 2020.

Bendigo notes that due to the current uncertain economic environment the bank cannot provide guidance for FY21. However, it can be expected that Bendigo and the other Australian banks growth prospects are low over the next few years. The banking sector is facing significant headwinds including the economic impacts of COVID-19, slow credit growth (also reflecting weak economic growth), pressures on net interest margins (which could lower profitability) and increased regulatory requirements (both capital and lending requirements).

What is the market reaction to Bendigo HY20 results?

The market reaction to Bendigo’s is negative. Bendigo share price is down 6.5% (17 August 2020) and is currently trading at 6.57. This result is negative as the Australian market is only down around 0.46%. Bendigo is currently trading at a forward P/E ratio in the low-teens.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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