Bendigo and Adelaide Bank Limited (ASX: BEN) has just reported its FY19 results to the market. Is the share price a buy?
Bendigo and Adelaide Bank was formed following the merger of Bendigo Bank and Adelaide Bank in November 2007. The bank operates primarily within the retail banking space and has a network of more than 500 branches and agencies across Australia, predominantly on the East Coast and South Australia.
What Bendigo Bank Reported In Its FY19 Results
Bendigo Bank reported that statutory net profit after tax (NPAT) fell 13.3% to $376.8 million. Cash earnings were down a more mild 6.6% to $415.7 million.
Operating income for the bank was down 4.6% whilst operating expenses increased $53.6 million or 5.9%, mainly due to an increase in staff and redundancy costs, remediation costs and technology costs. The net interest margin remained steady at 2.36%.
It wasn’t all bad though with the bank’s Common Equity Tier 1 ratio (the ratio used to measure the capital strength of the banks) up 0.3% to 8.92%.
Dividend Maintained
Pleasingly for shareholders, Bendigo Bank maintained a final dividend of $0.35 per share. The payment of the final dividend brings the total dividend for the financial year to $0.70 which at the current share price equates to a fully franked dividend yield of 6.5%.
This compares favourably to Commonwealth Bank of Australia (ASX: CBA) who, after reporting last week, are trading on a dividend yield of 5.4%.
Management Comments
Bendigo Bank CEO Marnie Baker said, “During the 2019 financial year we began our multi-year journey to reshape our business for the future.”
“Earnings for the year were impacted by remediation and redundancy costs. Despite this, we delivered total income of $1.6 billion, in line with the prior year, in an environment of low growth, political uncertainty, subdued consumer confidence and increasing competition.”
Baker praised the bank’s ability to attract new customers as well as its net promoter score which sits well above the average of the big four banks.
She added, “Our long term focus and prudent risk management saw Common Equity Tier 1 improve by 30 basis points to 8.92%. This strong capital position reflects a stable balance sheet and the continuing movement to lower risk exposures.”
Is The Bendigo Bank Share Price A Buy?
Whilst it was great to see that the final dividend was maintained, falling profit means that the bank now trades at 14 times FY19 earnings.
With credit growth likely to be subdued for the foreseeable future, Bendigo Bank may find it difficult to grow profits meaningfully in the near term. Hopefully, for the sake of shareholders, the burdensome costs from the Banking Royal Commission are largely behind it and management can move on with their long term strategy.
I am steering clear of the banks for now, instead looking more to ASX shares with an ability to generate high returns on equity in all market environments.
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At the time of writing, Luke has no financial interest in any of the companies mentioned.
