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Bendigo and Adelaide Bank: FY21 result disappoints the market

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 and has over 2 billion customers. Bendigo has a market capitalisation of A$5.5 billion.




What are the key features of Bendigo’s FY21 results?

Bendigo’s cash NPAT for FY21 of $457.2 million was 51.5% higher on FY20 due to an improvement in economic conditions and outlook resulting in a lower loan impairment expense and a strong contribution from volume growth in all core markets. Earnings per share (cash basis) for FY21 was 85.6 cents per share, up 43.4% on the previous year.

This growth reflects two key factors, first, residential lending increased 14.8% (which is 2.8 times growth across the entire banking system), while Business Banking grew its market share in its target SME market during the year, accelerating during the second half, resulting in customer growth of 3.5% for the year. Second, bad and doubtful debts were $18.0 million and comprised two basis points of gross loans. Excluding the provision release of $19.4 million announced on 05 August 2021, bad and doubtful debts represents five basis points of gross loans.

Bendigo’s Common Equity Tier 1 increased 32 basis points year on year to 9.57%. Bendigo notes that this capital position reflects a well-managed balance sheet and strong risk management, while supporting continued lending growth and future investment in transform. However, this capital position is not strong enough to support a share buyback program that the Commonwealth Bank (ASX: CBA), ANZ (ASX: ANZ) and National Australia Bank (ASX: NAB) are currently implementing.

Bendigo announced a final dividend of 26.5 cents per share (fully franked). This takes the full year dividend to 50.0 cents per share. This represents a payout ratio of around 58%.


What is the outlook for the Bendigo?

Bendigo did not provide any specific guidance for FY22 earnings as the COVID 19 pandemic continues to have a negative impact on the Australian economy. Bendigo expects that the housing and employment markets to grow nationally, as well as the economic expansion of regional Australia. Bendigo noted that the historic low interest rate environment continues to place pressure on Bendigo’s net interest margins, as is the case for the other banks. Bendigo will seek to take advantage of strong customer lending demand across its consumer, business, and agribusiness divisions.


What is the market reaction to Bendigo’s FY21 results?

The market reaction to Bendigo’s announcement is negative. Bendigo share price is down around 9%. Bendigo trades on forward PE ratio of around 12 times and a dividend yield of just under 5% (fully franked).



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).

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ASR has no position in any of the stocks mentioned.

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