The Bank of Queensland Limited (ASX: BOQ) share price will be on watch today after the company achieved an 83% jump in earnings for FY21.
Despite the positive news, the BOQ share price has fallen 4.43% so far to $9.29.
How did BOQ perform in FY21?
Key financial highlights for the year ending 31 August 2021 include:
- Statutory Net Profit After Tax of $369 million, up 221%
- Cash earnings after tax of $412 million, up 83%
- Net interest margin improving 4 basis points to 1.95
- Return on equity of 10.2%, up from 6.9%
- Financial dividend of 22 cents per share, full-year dividend of 39 cent per share
- CET1 ratio of 9.80%
The big jump in cash earnings is largely the result of unwinding loan provisions.
During the early onset of the pandemic, banks put aside cash in the event that households and businesses defaulted on loans. The provision is recorded as an expense and therefore reduces profit in FY20.
However, the economy remained resilient and much of the expected defaults did not occur. As a result, BOQ is releasing those provisions, which increases its profit for FY21 year.
A more accurate estimate of profitability is the underlying profit before tax, which increased 8% for the year to $542 million.
The 8% jump was a result of strong lending growth, which was 1.7x the system average, an improving NIM and cost control.
BOQ has been able to achieve above-average growth by improving its customer experience. Its net promoter score ranks 3rd (FY19: 5th) for consumers and joint 4th (FY19: 11th) for mortgages amongst all banks.
Over the past two years, the business has been undertaking changes to return it to sustainable profitability.
“Our refreshed strategy announced in February 2020 set out a clear path to return the Group to sustainable profitability and today’s results show our momentum with four consecutive halves of improving performance” – Managing Director and CEO George Fraziz
Completion of ME Bank acquisition
BOQ also completed its integration of ME Bank in FY21, which adds 580,000 new customers and $29 billion in assets.
ME Bank will add scale to BOQ’s business. Overall, management expects to derive around $40 million in synergies across the combined entity in FY22.
What’s next for the BOQ share price?
Management detailed its outlook for the next year:
- Above-average system growth across BOQ
- Expenses to grow around 3% on an underlying basis
- NIM to decline 5-7 basis points due to competition and low interest rates
BOQ is currently trading on a 4.1% dividend yield. I think the business looks fairly valued.
Subsequently, I think better returns can be found elsewhere. Check out two other ASX shares I’d buy and hold for the next decade.
