BEN 0.29% $10.33 bendigo and adelaide bank limited

bendigo bank--a short?

  1. 5,609 Posts.
    ANALYSTS' REPORT[PARA]Bendigo Shareholders Ordered to Perform Community
    Service[PARA]By Richard Harrison, 04 Dec 2002
    [PARA][PARA]Bendigo Bank Limited (BEN) Rating: SELL
    [PARA]Price:[NL]8.15 @ 3/12/02 (-0.04) Av. Monthly Volume:[NL]0.125 (m)
    Shareholder Benefits:[NL]Yes
    52 Week Range:[NL]$6.30 - $8.52 Market Cap ($m):[NL]978.0 Dividends
    Paid:[NL]Apr, Oct
    %Move Last 3mths:[NL]+2.9% Sector Weight:[NL]0.516%
    Report Contents
    InvestorWeb ViewPoint[NL]Recent Share Price History[NL]Earnings History and
    Forecasts[NL]Activities[NL]Sectoral Comparison[NL]SWOT Analysis

    [NL]InvestorWeb ViewPoint [PARA][PARA]
    [PARA][PARA]Bendigo Bank can boast of providing superior service to its
    customers. That's good news for the customers, but it means higher costs for
    the bank, and lower returns for shareholders: Bendigo's ROE is barely half
    that of three of the majors, ANZ, NAB and Westpac.[PARA]Despite lower
    profitability, the bank can at least boast profit growth. Unfortunately,
    while profit has grown strongly, it has been based largely on the issue of
    scrip. Earnings per share for the last three years have grown at a compound
    rate of 10% per annum, which is respectable, but it is less than the growth
    enjoyed by some of the majors.[PARA]On top of these negatives, the bank's
    high exposure to the housing and rural markets could prove costly in the
    near future. These exposures might make the coming year a difficult one for
    the bank (although the threat disappears in the long term
    perspective).[PARA]With these factors in mind, an appropriate valuation for
    Bendigo's shares would be at a discount to its larger and more profitable
    peers, as measured by PE multiples and dividend yields. With the shares
    currently trading at a significant premium to those peers, the stock is
    substantially overvalued by the market, and we rate the stock a Sell.
    [PARA]Recent Share Price History [PARA][PARA]
    Share Price Performance [PARA][PARA]
    [PARA] 4 wks 3 mths 1 yr
    Bendigo Bank Limited -0.6% 2.9% 12.4%
    All Ordinaries Index 1.0% -1.9% -7.1%

    [PARA]Back To Top
    [NL]Earnings History & Forecasts [PARA][PARA]
    [PARA][NL]Bendigo's profit for the year to 30 June 2002 of $48.8 million was
    up 47% and exceeded market expectations. The bank managed to hold (and even
    slightly widen) its net interest margin, while adding more than $600 million
    to its loan book. [PARA]However, costs also expanded, leaving Bendigo's
    cost-to-income ratio at 69%. As a result, return on equity, while a little
    higher, still came in at 11.6% for the year, compared with 20% and more for
    some of the major banks. Return on assets at 0.72% was similarly
    substandard.[PARA]On the positive side, Bendigo's capital position remains
    strong, with tier 1 capital of 9.28% and total capital of 11.69% of
    risk-weighted assets. The level of impaired assets was reassuringly low, at
    just 0.19% of total loans.
    [PARA]Earnings (cents per share) [PARA][PARA]
    Dividends per share [PARA][PARA]

    [NL]Key Financials [PARA][PARA]
    [PARA] 00A 01A 02A 03F 04F
    NPAT ($m) 28.2 33.3 48.8 61.5 68.8
    Diluted EPS (cents per share) 36.5 31.5 41.1 50.0 53.8
    Price-Earnings Ratio 13.5 20.9 16.5 16.3 15.1
    Dividend per share 24.0 41.0 29.0 33.0 36.0
    Yield 4.9 6.2 4.3 4.0 4.4
    Franking 100.0% 100.0% 100.0% 100.0% 100.0%
    [PARA]Back To Top
    [NL]Activities [PARA][PARA]
    [PARA][PARA]Victorian based regional bank Bendigo Bank (BEN) - formerly
    Victoria's largest building society - now operates some 220 branches
    throughout Victoria and interstate, with outlets in each of the mainland
    state capitals. This includes more than 80 Community Bank branches in
    partnership with local communities, with plans to increase that network to
    more than 100 branches by June 2003. BEN boasts total assets in excess of $8
    billion and is the only Australian bank headquartered outside a capital
    city.[PARA]The bank and its subsidiaries offer a wide range of products
    including commercial mortgages and unsecured loans, investment products,
    insurance, superannuation, trustee services and foreign exchange
    services.[PARA]Subsidiaries include Sandhurst Trustees (funds management),
    Worsley Securities Ltd (financial planning and stockbroking) and National
    Mortgage Market Corporation (securitisation and mortgage management). BEN
    has entered into various strategic alliances. Partners include Elders Rural
    Services (joint owner of Elders Rural Bank), IOOF, Tasmanian Trustees and
    Victoria's Country Fire Authority.[PARA]In 2000, the Bank significantly
    broadened its geographical reach through the acquisition of the
    Queensland-based First Australian Building Society.
    [PARA]Back To Top
    [NL]Sectoral Comparison [PARA][PARA]
    Valuation Ratios [PARA][PARA]
    [PARA]Code Name Forecast PE Current PE Price to Cash Flow Price to NTA Price
    to Net Assets
    BEN Bendigo Bank Limited 16.3 19.8 15.4 2.4 6.9
    ADB Adelaide Bank Limited 13.4 15.6 12.8 2.4 -1.2
    BOQ Bank of Queensland Limited 13.6 15.4 11.5 2.3 8.6
    BWA Bank of Western Australia Ltd 13.2 13.9 12.2 2.0 15.9
    [NL]Yield Comparison [PARA][PARA]
    [PARA]Code Name Yield Franking Dividend Cover
    BEN Bendigo Bank Limited 4.0 100.0% 1.5
    ADB Adelaide Bank Limited 4.7 100.0% 1.6
    BOQ Bank of Queensland Limited 4.7 100.0% 1.6
    BWA Bank of Western Australia Ltd 5.3 100.0% 1.4
    [NL]Operating Ratios [PARA][PARA]
    [PARA]Code Name Earnings Growth Return on Equity Return on Assets Return on
    Funds Employed
    BEN Bendigo Bank Limited 21.5 9.9 1.1 -20.6
    ADB Adelaide Bank Limited 16.4 14.0 1.0 -16.1
    BOQ Bank of Queensland Limited 13.2 14.3 0.9 -21.9
    BWA Bank of Western Australia Ltd 5.3 14.6 1.1 -6.5
    [PARA]Back To Top
    [NL]SWOT Analysis [PARA][PARA]
    Strengths [PARA][PARA]
    [PARA]* Strong Brand - Bendigo enjoys a brand that is probably held in
    higher regard than any other in Australian banking, thanks to its community
    bank strategy and other initiatives.[PARA]* Distinctive Strategy - The
    bank's strategy of targeting discrete markets, assisted by acquisitions and
    alliances, allows it effectively to expand its distribution and customer
    base. This distinctive strategy also helps reduce competitive
    pressures.[PARA]* Customer Focus - As part of its strategy, BEN has
    developed a strong customer-oriented focus resulting in a loyal customer
    base. The fruits of this approach are evidenced by its fast-growing customer
    base - the bank is attracting 10,000 to 15,000 new customers per
    month.[PARA]* High Profit Growth - Over the past three years, the bank's net
    profits have grown at a compound rate of 38% per annum (although this is
    expected to slow sharply in the near future).[PARA]* Strong Loan Growth - In
    its latest result, the bank's lending approvals were up 46%, and outstanding
    loans at balance date were up 11%.
    [NL][NL]Weaknesses [PARA][PARA]
    [PARA]* Small Scale - In common with the other regional banks, Bendigo lacks
    scale compared to the four majors. This results in a lower diversity in
    lending (and hence a greater risk of bad loans), a much lower credit rating
    (BBB for Bendigo, compared with the AA category for the majors), and reduced
    economies of scale.[PARA]* High Cost Structure - BEN's cost structure is one
    of the highest among listed banks. In its latest result, the bank's
    cost-to-income ratio stood at 69%, compared with less than 50% for
    ANZ.[PARA]* Geographic Concentration - Even after its Queensland
    acquisition, BEN's asset base remains highly geographically concentrated.
    The latest APRA statistics show that Victoria still accounts for 66% of
    BEN's loans.[PARA]* EPS Dilution - While profit growth has been very strong
    over the past three years (38% per annum, compounded), large issues of new
    shares have diluted growth in EPS to a less spectacular 10% per
    annum.[PARA]* Low ROE - At 11.6%, BEN's return on equity (ROE), a critical
    parameter in the creation of shareholder value, compares unfavourably to its
    banking peers, several of which have ROEs above 20%.
    [NL][NL]Opportunities [PARA][PARA]
    [PARA]* Business Initiatives - The bank's various growth initiatives,
    including strategic alliances, will assist it to expand its distribution
    channels (and hence customer base). This gives the bank the opportunity to
    expand its growth profile. In particular, the Community Banks and Elders
    Rural Bank are anticipated to contribute to strong loan growth. These
    initiatives also enhance BEN's diversification, both in geography and asset
    mix.[PARA]* Non-interest Income - As part of its growth strategy, the bank
    intends to continue to grow non-interest income through product alliances
    and joint ventures. In particular, we favourably rate the bank's increasing
    focus on wealth management. This will enable BEN to further diversify its
    income base.[PARA]* Cost Reductions - Allowing for its small scale, we
    believe that BEN has the opportunity to reduce its high cost structure.
    [NL][NL]Threats [PARA][PARA]
    [PARA]* Asset Quality Concerns - Given its increasing commercial exposure
    and relatively small size, the bank remains vulnerable to the deteriorating
    credit cycle. For example, the result for 2000 was hurt by a single credit
    exposure - Daewoo.[PARA]* Operational Risks - The bank's large number of
    business initiatives (Community Banking rollout and strategic alliances) may
    affect its ability to manage its day-to-day operations. For example, this
    situation may hinder cost reductions.[PARA]* Reliance on Housing - Given
    BEN's current high reliance on this portfolio (64% of gross loan balances),
    the bank's medium-term growth profile may be adversely affected by a housing
    downturn.[PARA]* The Drought - Bendigo's high level of exposure to rural
    Australia leaves it vulnerable to indirect effects from the current drought,
    including a lack of growth and a higher level of bad loans.
    [PARA]Back To Top
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