Morgans resumes coverage with a Hold rating and $10.20 target. Cash earnings in FY16 were $360m, missing expectations. The main area of disappointment was the net interest margin.
The bank expects net interest margins to continue to contract in the first half. Morgans observes the bank has a greater reliance on term deposits than the major banks so is hurt more when there is a step up in competition in this area.
Morgans expects that, in the event the bank decides to apply for advanced accreditation next year, operating costs may exceed current FY17 forecasts.
If revisions to the standardised approach for credit risk fall in the bank’s favour then Morgans calculates there is potential for a special dividend up to 80c in the first half of FY18.
Target price is $10.20.Current Price is $11.05. Difference: ($0.85) – (brackets indicate current price is over target). If BOQ meets the Morgans target it will return approximately -8% (excluding dividends, fees and charges – negative figures indicate an expected loss).