Why is December being so kind to Bank of Queensland (ASX:BOQ) shares?

The Bank of Queensland Limited (ASX: BOQ) share price has risen by around 7.5% in December 2021 so far.

This banking business is a lot larger after acquiring the ME Bank business earlier in the year.

What’s going on in December 2021 for the BOQ share price?

The regional bank provided an update for investors earlier this month when it held its annual general meeting (AGM).

BOQ said that its FY22 guidance is still at least 2% positive jaws. That is a comparison between the bank’s income and expenses.

It also said that its growth momentum has continued in the first quarter of its FY22, with “strong” application volumes across both the housing and business lending portfolios.

The BOQ, Virgin Money Australia and BOQ Specialist housing portfolio increased by around $1 billion for the quarter, continuing market-beating growth. ME Bank returned to growth for the month of November 2021, with application volumes in the first quarter up 62% compared to the FY21 average.

Business banking lending grew by around $200 million in the first quarter of FY22. BOQ said the asset finance business is also performing “well”.

Management said that the growth in retail and business remains disciplined and high-quality, with low levels of home loans that have a loan to value ratio of more than 90%. There is a focus on small and medium enterprises (SMEs) in the business bank.

Net interest margin (NIM) difficulties

Whilst BOQ is expecting positive jaws, it highlighted that the industry is experiencing NIM headwinds as a result of tougher trading conditions, including yield curve volatility that happened after the Reserve Bank of Australia (RBA) removed its yield curve control.

Other impacts include intense price competition, increased fixed rate lending and higher liquid asset balances. BOQ noted that this will result in a slightly lower FY22 NIM than previously guided.

Cost focus

BOQ says that FY22 expenses are now expected to be around 1% lower than FY21, reflecting additional productivity benefits. More of the cost cuts will be realised in the second half.

The ME Bank integration program remains on track, with approximately $23 million of full year synergies delivered in the first quarter of FY22 thanks to operating model changes, consolidation of the investment roadmaps and early supply chain benefits.

Is the BOQ share price still an opportunity?

Brokers at Macquarie Group Ltd (ASX: MQG) certainly think so. It rates BOQ shares as a buy with a price target of $10 – that’s approximately 20% higher than where it is right now.

Macquarie thinks that BOQ has a better outlook compared to its banking competitors.

On Macquarie’s numbers, the bank is valued at 11x FY22’s estimated earnings with a projected grossed-up dividend yield of 8%.

The post Why is December being so kind to Bank of Queensland (ASX:BOQ) shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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