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The Experts

Banking on Queensland

Michael McCarthy
July 04, 2018

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Bank of Queensland is a stock that polarises analysts, according to Bloomberg. Of 16 analysts, 5 say “buy”, 6 say “hold” and 5 rate BOQ a “sell”. The target prices reflect this honest disagreement. The average 12 month target price is $11.08. However the range of target prices is wide, starting at $9.50 and peaking at $13.03. What are investors to do when even the “experts” can’t agree?

One of the drivers of the fall in BOQ’s share price is the earnings downgrades that flowed from the half year results announcement in April. Cash earnings rose 4%, and net profit increased 8%. It’s arguable this was a good result in the current banking environment, but was lower than many forecasts. Commentators honed in on increased funding costs, despite a stable Net Interest Margin.

The effect on the share price was substantial:

This monthly chart of the BOQ share price shows trading this century. The recent, dramatic 30% + fall is at the extreme right of the chart. Perhaps of more importance to investors is the fact that it has now reached an important long-term inflection point at $10.00.

Last month BOQ fell through the level, but then rejected lower levels and bounced back over $10.00. From a technical point of view this is a positive development, and suggests there is a higher probability of further gains.

The rising borrowing costs given as a rationale for the fall are an industry concern, not stock specific. Despite this BOQ shares have dropped more than their peers. Another major challenge for financial institutions is the ongoing Royal Commission into the industry. In my view BOQ’s smaller size and stronger regional focus means it is likely to suffer less from any regulatory fall out.

Good investment choices are a function of investor circumstances as well as the market outlook. If an investor’s portfolio is already 75% banks, buying more bank stock may not add value. However, any investors underweight banks (given 2017/18 performance, well done) or looking to increase portfolio income, could be looking at BOQ right now.

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