Shares in Bank of Queensland (ASX: BOQ) were up over 4% at the open after the country’s seventh largest bank beat consensus forecasts with a first-half net profit of $171 million, up 13%.
While the lender’s net interest margin (1.75%) was flat in 2H FY24, cash earnings at $183 million were up 6% in 1H FY24 after booking $16 million in costs related to branch strategy.
The bank declared an interim dividend of 18 cents per share beating analysts’ expectations of 17 cents per share.
Other core reported financial metrics include total half-year income of $793 million, in line with H1 FY 2024, while net interest income of $725 million was also stable year on year.
Due to lower banking fees and trading income, non-interest income of $68 million was down 3% from the previous period.
While operating expenses of $520 million were down 1% in H1 FY24, loan impairment expenses for the half year were down 80% from the prior corresponding period to $3 million.
“We are making considerable progress transforming to a simpler, specialist bank with a superior customer experience through our digital platform and improved shareholder returns,” said CEO Patrick Allaway.
“Our improved performance and stable margin in the current operating environment validate our strategy to shift our portfolio towards higher-returning segments, and reposition the Retail Bank as a scalable, low-cost-to-serve digital bank.”
Other key 1H FY25 numbers include:
• Statutory net profit after tax of $171 million, up 13% from H1 FY24.
• Cash earnings after tax of $183 million, up 6% year on year.
• Common Equity Tier 1 increased 0.21% to 10.87%.
• Cost to income ratio of 65.6%, a decrease in 1H FY24 of 30 basis points.
• Cash earnings per share increased 6% in 1H FY24 to 27.9 cents per share.
Key developments
Noteworthy developments in the second half included the takeover and conversion of 34 owner-manager branches into BOQ corporate branches, following the 18 that have subsequently closed.
However, closures are not without incident, with branch owners demanding at least double what was paid by the lender and setting the scene for a legal showdown.
It’s understood that branch owners are seeking a further $125 million to $200 million from the bank, in addition to the $115 million to $125 million that the bank set aside and paid for the branch buybacks.
The ongoing dispute with branch owners is only expected to intensify as the bank seeks the compulsory acquisition of all its 114 owner-managed branches.
Owner-branches aside, within 1H FY25, the bank completed the first phase of ME deposit migration with over 140,000 customers migrating to the digital platform, with $9.1 billion in deposits now on the digital bank.
Looking forward
While the bank didn’t offer specific guidance on 2H FY25, management noted that while the evolving geopolitical environment has created significant uncertainty, the group remains optimistic about the long-term view.
The bank didn’t comment specifically on the owner-branch debacle.
However, it did note that expense growth for the year is expected to be broadly flat.
Increased branch network costs, higher amortisation and inflationary pressures are expected to be offset by lower annual investment spend and further simplification benefits.
Meanwhile, capital is expected to remain in the management target range of 10.25 – 10.75%.
UBS, which has a 'sell' rating on the bank and a $6.50 price target, noted that the half-year net profit result was "mostly in line" with its estimates and "slightly better than what most analysts expected".
“We see some positive signs for BOQ as they implement their strategy, with changes in their portfolio mix and digital rollout beginning to show results," the broker said.
Bank of Queensland has a market cap of $4.4 billion; the share price is up 17% on one year.
The stocks' shares are in a downtrend confirmed by multiple indicators.
Consensus is Moderate Sell.
This article does not constitute financial or product advice. You should consider independent advice before making any financial decisions.
