BOQ is one of Australia’s largest regional banks, with approximately 200 bank branches across Australia. Unlike most large banks, many of BOQ’s branches are run by their ‘owner managers’. Meaning, they are effectively small business owners themselves. Most of BOQ’s loans consist of mortgages.
BOQ share price
How can analysts study culture?
For long-term investors looking to invest in great companies and hold them for 5, 10 or 20 years, at Rask we think it’s fair to say that a good workplace and staff culture can lead to better retention of high-quality personnel and, in turn, a company’s long-term financial success.
A way in which Australian investors can be exposed to a company. BANK OF QUEENSLAND LIMITED or BENDIGO AND ADELAIDE BANK LIMITED (ASX: BEN) HR/Jobs website to use eg to search. Sec’s website includes data on company culture, including things like employee reviews. According to the latest data we pulled from BOQ, for example, the company had an overall workplace culture rating of 2.6/5. Under the Sector average 3.1.
Is lending profitable?
ASX bank shares like BOQ need deposits and good profit margins to make their business profitable. Meaning, a bank receives money from term deposit holders and wholesale loan investors and lends that money to homeowners, businesses and investors. What is the difference between a bank? pays What else is it for savers? Makes from A mortgage holder (for example) has a net interest margin or NIM. Remember: When it comes to NIMs, the wider the margin the better.
If you are planning to forecast the profitability of a bank like BOQ or Westpac Banking Corp (ASX: WBC), knowing how much a bank lends and what it earns per dollar lent to borrowers. This is why NIM is the most important measure of BOQ’s profitability. Among the ASX’s major bank shares, we calculated an average NIM of 1.78% while Bank of Queensland Limited’s lending margin was 1.56%, highlighting that it delivered a below-average return on lending compared to its peer group. This could be for a number of reasons, which are worthy of investigation.
The reason analysts study NIM so closely is that Bank of Queensland Ltd derived 93% of its total income (equivalent to income) from lending last year alone.
Why is Bank of Queensland Limited’s ROE important?
Return on shareholder equity, also known as ‘ROE’, helps you compare a bank’s profitability to its total shareholder equity, as shown on its balance sheet. high ROE better. Bank of Queensland Limited’s latest full-year ROE was 4.7%, meaning it generated $4.70 in annual profit for every $100 of shareholder equity in the bank. This was lower than the sector average of 9.35 percent.
A decline in bank shares such as BOQ
For Australian banks, the CET1 ratio (aka ‘common equity tier one’) is the most important. CET1 represents a bank’s capital buffer that can go towards protecting it from financial disaster – basically, it’s the proportion of total assets that are ‘liquid’ or readily available. According to our numbers, Bank of Queensland Limited had a CET1 ratio of 10.7% last year. This was lower than the sector average.
Bank of Queensland Limited dividend rates are simple (and very simple!).
The Dividend Discount Model or DDM is one of the most efficient ways to calculate ASX Bank shares. To do DDM we have to take the bank’s last full year profit and then apply the risk rating. Last year the total profit was $0.34. Let’s assume that the BOQ dividend is paid at a constant rate every year into the future, somewhere between 2% and 4%. We will use multiple risk rates (between 6% and 11%) and then average the prices. The calculation we use is: Share price = Full year dividend / (Rate of risk – Rate of return).
| Growth rate | ||||
| 2.00% | 3.00% | 4.00% | ||
|
Hazard ratio |
6.00% | $8.75 | $11.67 | $17.50 |
| 7.00% | $7.00 | $8.75 | $11.67 | |
| 8.00% | $5.83 | $7.00 | $8.75 | |
| 9.00% | $5.00 | $5.83 | $7.00 | |
| 10.00% | $4.38 | $5.00 | $5.83 | |
| 11.00% | $3.89 | $4.38 | $5.00 | |
According to this quick and simple DDM model, the estimated average price of BOQ shares is $7.19. However, using an ‘adjusted’ dividend payout (expected future dividend) of $0.35 per share, which is the preferred measure because it uses forecasted profits, the price jumps to $7.40. The price compares to BOQ’s current share price of $6.80. Since the company’s dividend is fully transparent, we can make further adjustments and make a valuation based on the ‘gross’ dividend payment (this is the value of the dividend including the franking credit). Using gross dividend payments, the ‘fair value’ forecast becomes $10.57.
This means that the BOQ share price may look expensive using the DDM model. It is important to consider all of the risks and considerations we have presented here, including the benefit of increased profitability and the positive effects of franking credits.
To learn more about analysis and evaluation, consider emailing our free investment report to you (keep reading). This should be one of many steps when making an investment decision. Consider reading at least two or three years of annual reports for Bank of Queensland Limited and then look for good investors and analysts who disagree with your view – an informed way to find out if you’re making a good decision based on rigorous analysis and considering alternative opinions. Finally, before going any further with BOQ or BEN shares, I recommend getting a copy of our free investment report.
