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BEN

Bendigo And Adelaide Bank HY20 Report – Soft Result

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Bendigo and Adelaide Bank (ASX: BEN) is the 5th largest retail bank in Australia. BEN has around A$71.4 billion of assets under management and around 1.7 billion customers. BEN has a market capitalisation of A$5.2 billion.

 

BENDIGO BANK

 

What are the key features of Bendigo’s result?

  • Total income on a cash basis for HY20 is A$814.7 million, up 1.4% compared with the corresponding period.
  • Statutory net profit (including a pre-tax software impairment of A$87.1 million and accelerated amortisation of A$19.0 million) for HY20 is A$145.8 million, down 28.2% compared with the corresponding period.
  • Operating expenses for HY20 is A$487.4 million, up 5% compared with the corresponding period.
  • Net interest margin for HY20 is 2.37%, up 2 basis points.
  • Total fully franked dividends for HY20 is A31 cents, down 4 cents per share compared with the corresponding period.
  • Cash earnings per share for HY20 is A43.7 cents per share, down 3.1% compared with the corresponding period.

A key announcement today from Bendigo’s management is the launch of a A$300 million capital raising plan. The plan will comprise a fully underwritten A$250 million institutional share placement and a non-underwritten share purchase plan under which Bendigo is targeting to raise approximately A$50 million. Considering this announcement, Bendigo has placed a trading halt for today (17 February 2020). Trading is expected to recommence on the 18 February 2020.

Bendigo’s management notes:

BEN is seeking to raise A$300 million to support the growth it is experiencing in its residential mortgage business, further strengthen its balance sheet and provide an increased buffer above APRA’s “unquestionably strong” CET1 capital ratio requirements which gives additional capacity to respond to industry wide APRA capital changes.

 

What are the key drivers of this result?

Bendigo’s management notes that the main driver of statutory net profit being down 28.2% for the period is mainly due to ongoing technology investment, regulatory and compliance costs and staff investments.

Bendigo’s management notes:

The first half of FY20 saw an additional A$16.9 million invested in systems and process simplification, automation, strengthened digital services and capability, including open banking, and compliance and regulatory initiatives, to drive a consistent and reliable customer experience across all channels and deliver efficiencies as we target a medium term cost to income ratio towards 50 percent.

 

What is the outlook for Bendigo?

The short-term outlook for Bendigo is unknown. Bendigo’s management notes:

The market faces heightened regulatory focus, below average business confidence, increasing frequency and severity of weather events due to climate change, constantly changing and heightened customer preferences, global trade tensions and the longer-term impacts of drought, bushfires and Coronavirus.

The major banks such as Bendigo, Australia and New Zealand Banking Group (ASX: ANZ), National Australian Bank (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corporation (ASX: WBC) are facing significant headwinds of slow credit growth (also reflecting weak economic growth as shown from the national accounts in the June and September 2019 quarters), pressures on net interest margins (which could lower profitability) and increased regulatory requirements (both capital and lending requirements). That is, in the short term at least, the major banks may have lower growth prospects than other sectors of the market.

 

What is the market reaction?

The initial market reaction to Bendigo’s HY20 results is neutral (due to the trading halt placed for today (17 February 2020). Bendigo is currently trading at A$10.57. Bendigo has a forward P/E ratio in the low-teens and has an annual dividend yield of around 6%.


 

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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