Is the Bank of Queensland share price a smart, ASX 200 bank buy?

The Bank of Queensland Limited (ASX: BOQ) share price has been steadily rising over the past month and is up by more than 8%.

But, there are plenty of other S&P/ASX 200 Index (ASX: XJO) bank shares to pick from.

Names like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG) are among the biggest businesses in Australia.

Bank of Queensland is an interesting company. It has a strong presence in Queensland, as one would expect. But, it also has two other brands – Virgin Money Australia and ME Bank.

In the current environment, could the smaller bank actually be a good pick?

Brokers are widely positive on Bank of Queensland shares  

A number of experts currently like the bank.

Credit Suisse rates it as a buy, with a price target of $10. That implies a possible rise of more than 30% over the next year.

Morgan Stanley rates the Bank of Queensland share price as a buy, with a price target of $8.10. That’s a possible rise of close to 10%.

The broker Macquarie rates it as a buy, with a price target of $8. That’s a possible rise of more than 6%.

Citi also rates the Bank of Queensland share price as a buy, with a price target of $8.75.

One of the main reasons that brokers are optimistic about Bank of Queensland in the shorter term is the rising interest rates. Experts believe that higher interest rates will help bank profit margins.

Digital transformation

Bank of Queensland is working on delivering digital transformation across the bank so that it can give customers a leading proposition while also building a clear competitive advantage and a low cost-to-income ratio.

The bank noted that a cloud-based platform will enable innovation at scale and at pace. It is using Temenos which will provide unlimited scale and services delivered at a fraction of the cost of its legacy systems.

Latest earnings recap

The last profit update from the Bank of Queensland was the FY22 half-year result.

It said that statutory net profit after tax (NPAT) rose 38% to $212 million, while cash earnings after tax increased 14% to $268 million. Operating expenses dropped 3% to $461 million. It declared an interim dividend per share of 22 cents, which was a dividend payout ratio of 53%.

However, while the housing loans grew by 9% compared to the second half of FY21, the net interest margin (NIM) declined 12 basis points to 1.74%. Bank of Queensland put this decline down to a few different factors relating to industry dynamics including ongoing competition, higher fixed rate lending volumes and volatile swap rates, and increased liquidity.

The ME Bank home loan book returned to growth during this period, while Bank of Queensland and Virgin Money grew at 1.8 times the overall system’s rate of growth.

Bank of Queensland dividend yield expectations 

There are a few different estimates of how large the Bank of Queensland dividend yield is going to be in FY22 at the current Bank of Queensland share price.

Morgan Stanley thinks that Bank of Queensland is going to pay a grossed-up dividend yield of 8.6%.

Macquarie’s estimates translate into a grossed-up dividend yield of 8.4%.

Citi’s projection for the dividend yield is 8.75%.

The post Is the Bank of Queensland share price a smart, ASX 200 bank buy? appeared first on The Motley Fool Australia.

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More reading

• How to play ASX bank shares for dividends this reporting season: expert
• Why is the Bank of Queensland share price getting a caning on Monday?
• Experts rate these high yield ASX dividend shares as buys
• What might the ANZ deal mean for Bank of Queensland shareholders?
• What might ANZ’s Suncorp deal mean for competition among ASX 200 banks?

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 and Westpac Banking Corporation. 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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