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Bendigo & Adelaide Bank reports: Are the shares cheap for dividend seekers?

Tom Richardson
Bendigo Bank shares

This morning Bendigo & Adelaide Bank Ltd  (ASX: BEN) released its results for the financial year ending June 30, 2019. Below is a summary of the results with comparisons to the prior year. 

  • Total income $1.6b, flat
  • Statutory net profit: $376.8 million, -13.3%
  • Cash earnings after tax $415.7m, -6.6%
  • Earnings excluding “remediation and redundancy costs” $435.7m, -2.5%
  • Net interest margin 2.36%, flat
  • Earnings per share 85c, -8%
  • Final dividend 35cps, full year dividends 70cps, fully franked
  • Bad and doubtful debts: $50.3 million, -28.8%
  • Total lending: $62.1 billion, +1.1%, residential lending above-system +3.5%
  • Total deposits: $64.0 billion, up 1.5%, with retail deposits +3.3%

The regional lender’s shares are up 3% to $11.04 on the news, but are still lower than the $11.39 price this time last year to suggest today’s result beat some low expectations on the back of a tough year for bankers.

The highlight of the result is probably the bank reporting that “new customers are up by almost two-thirds for the full year”.

In total it added 109,081 Millennial age-bracket customers to equal growth of 453%. This may be a response to customer dissatisfaction with major banks like Commonwealth Bank of Australia (ASX: CBA) or Australian & New Zealand Banking Group (ASX: ANZ) amidst the Royal Commission and other regulatory scandals recently.  

Bendigo also managed to keep its net interest margin flat at 2.36% which is a decent result. Over the year it flagged lower wholesale funding and hedging costs as tailwinds offset by mortgage repricing as benchmark lending rates fall.

Notably, it also managed to eke out a 3bps NIM benefit on retail deposit funding costs over the second half of the year despite savings rates sinking lower. 

Its CEO, Marnie Baker, warned today though that further cuts to benchmark lending rates in 2019 or beyond will hurt the bank’s NIM as it runs out of wriggle room to gouge borrowers or depositors any further.

The current NIM of 2.36% is relatively high compared to European peers or big 4 Aussie rivals like National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).

One upside for the banks in today’s ultra-low rate world is that the bank bill swap rate is falling in line with the RBA’s benchmark rate. This in turn tends to equal lower wholesale funding costs. 

Outlook

At $11.04 the stock trades on 12.9x the “adjusted” cash earnings of 85.4 cents per share, with a 6.34% yield plus full franking credits.

This is about in line with historical averages. However, dividend seekers need to consider the CEO’s warning that profit margins could come under pressure due to falling benchmark rates as many cash depositors are already earning not much more than 0% on their money. This is important as retail deposits still making up a total of 81.7% of group funding. 

Of course if the bank can grow its lending and deposit books then this should offset that potential headwind as bad debts also continue to fall in part due to the benign rate environment.

The stock then is probably around fair value today as analysts also hedge their bets on the year ahead with flat dividend forecasts.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019