Are Bank of Queensland shares a buy following the latest results?

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Bank of Queensland Limited (ASX: BOQ) shares fell 6% last week. That’s not exactly a huge plunge, but the bank’s share price is now down 17% from its 2023 high in February. So could the ASX bank share be worth buying?

It was a very interesting result considering everything that’s happened over the past year with strong inflation and interest rate hikes.

Despite common thinking that higher interest rates could be a boost for the bank’s profitability, the statutory net profit after tax (NPAT) took a huge hit.

Let’s have a look at some of the financial highlights that may have affected the BOQ share price.

Earnings recap

Bank of Queensland reported that its cash earnings after tax fell 4% year over year to $256 million. But its statutory NPAT sank 98% to $4 million.

The regional bank reported housing loan growth of $0.2 billion compared to the second half of FY22, while business loan growth was $0.5 billion.

The net interest margin (NIM) improved 4 basis points to 1.79%, compared to the FY22 second half.

However, the operating expenses increased by 7% year over year, which was a major factor in the fall of the cash earnings. The bank put this down to higher inflation and other costs including higher technology expenses and costs for “proactive customer contact, technology, and cybersecurity”.

It also reported a loan impairment expense of $34 million, compared to a credit of $15 million in the first half of FY22. This was because it increased its collective provision, reflecting uncertainty about future economic impacts after inflation, interest rate pressure, and house price declines.

The statutory profit took a $260 million hit with a $60 million provision for the ‘integrated risk program’ provision and a $200 million impairment of goodwill.

BOQ warned that it is possible that additional matters are identified as a result of further analysis or regulator requirements that could increase the scope and cost of the integrated risk program.

BOQ’s interim dividend payment was 20 cents per share, which represented a 9% decline compared to the prior corresponding period.

Is the BOQ share price a buy?

I think that the benefits of increased lending profitability, helping the NIM, may have peaked.

In the ASX bank share’s outlook comments, BOQ noted that it expects to see “heightened mortgage competition continuing as well as escalated deposit competition due to term funding facility refinancing, with interim margin compression anticipated”.

The bank is working on improving its technology, reducing duplication and levering the automation of processes, which should make it a more efficient bank and, hopefully, enable more lending. That should be positive.

Using the estimates on Commsec, BOQ could generate 62.9 cents of earnings per share (EPS) in FY24. That would put the current BOQ share price at under 10x FY24’s projected earnings. It could also pay a grossed-up dividend yield of 9.9% in that year. Those are appealing statistics.

This is the lowest the BOQ share price has been since 2020, so it could be a medium-term opportunity. However, it doesn’t strike me as the highest-quality ASX bank share, so I’m not sure how much long-term growth it will be able to achieve. I’m not looking to buy it for my own portfolio because of the lack of longer-term compounding potential.

The post Are Bank of Queensland shares a buy following the latest results? 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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