BOQ – Morgan Stanley rates as Underweight

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Morgan Stanley believes the Australian banks’ "super cycle" has come to an end. The combination of high house prices and high levels of household debt suggests to the broker the risk of a housing downturn has increased and credit rationing in some parts of the mortgage market could exacerbate the risk.

Morgan Stanley lowers base case estimates for earnings per share by an average of -2.5% for FY19 and -5% for FY20.

Bank of Queensland has benefited from a margin sweet spot, cost controls and improved franchise performance but the broker considers the trading multiples are not cheap and margins are vulnerable. Underweight maintained. Target is reduced to $9.50 from $10.30. In-Line industry view retained.

Sector: Banks.

Target price is $9.50.Current Price is $10.06. Difference: ($0.56) – (brackets indicate current price is over target). If BOQ meets the Morgan Stanley target it will return approximately -6% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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