Shares in Bank of Queensland Limited (ASX: BOQ) will be on watch today after the bank reported a disappointing full-year result this morning.
BOQ is one of Australia’s leading ‘regional’ banks with more than 180 branches throughout Australia. Unlike most other banks, many of BOQ’s branches are run by their ‘owner-managers’, who are effectively small business owners. Most of BOQ’s loans are mortgages.
Today’s Results
BOQ has announced a somewhat disappointing result in what has been a difficult period for the regional bank. Leading into the announcement, the consensus expectation was for cash earnings of approximately $330 million. However, the bank has come in slightly under at $320 million, down 14% from the previous year.
Net profit after tax (NPAT) fell 11% to to $298 million, with basic earnings per share (EPS) down 16% to 79.6 cents per share.
The disappointing performance this year has led to BOQ cutting its dividend by nearly 15% on last year. The final dividend to be paid will be 31 cents, which will bring the full-year dividend up to 65 cents, an 11 cent reduction on last financial year.
Falling interest rates had a detrimental effect on the bank’s net interest margin, which fell 5 basis points to 1.93% resulting in a reduction of net interest income of $4 million.
Loan impairment expense more than doubled to $74 million, however, underlying asset quality remains strong with impairments and arrears remaining at relatively low levels.
BOQ’s investment in Virgin Money continues to show promise with strong housing loan growth seeing the portfolio growing by $914 million to $2.5 billion. However, the major concern is around the BOQ retail bank which suffered a $1.4 billion contraction in its residential housing loan book.
Management Reaction & Outlook
The bank blamed a challenging operating environment for its lacklustre performance, citing slowing credit demand, lower interest rates and a rise in regulatory costs.
BOQ CEO George Frazis remained upbeat after the announcement, saying: “There are numerous opportunities ahead for a revamped BOQ and I will be working closely with the executive leadership team to complete our strategic and productivity review, with a market update on our plans in February 2020.”
He said that the transformation will take time and initiatives to improve the long term profitability of the bank, along with extra costs related to the Royal Commission, would result in lower cash earnings for the 2020 financial year (FY20).
Investor Reaction
Whilst the result may be disappointing, it isn’t a long way short of what the market was expecting. Confirmation of a weak outlook for FY20 is what might turn investors off, however, the dividend yield remains high at ~6.7% despite the reduction and should provide some downside protection to the share price today.
If today’s result has put you off, you might prefer to look at one of the big 4 banks such as National Australia Bank Ltd. (ASX: NAB) or Westpac Banking Corp (ASX: WBC).
For the names of other proven, dividend-paying ASX shares, check out the companies profiled in the free report below.
[ls_content_block id=”14945″ para=”paragraphs”]
At the time of publishing, Luke has no financial interest in any companies mentioned.
