Bendigo and Adelaide Bank (BEN)
BUY

Strong margin performance

 20 Feb 2023
Sector: Financials

1H23 RESULT

Need To Know

  • Result ahead of market, with strong margin performance
  • December exit NIM margin > November
  • Formal NIM guidance removed from outlook statement 

The mid-teens earnings beat vs market is overstated given the mid-December earnings upgrade does not appear to have been reflected in market numbers.

Suffice to say, the run-rate of ~$50m of cash earnings per month was maintained in December. Dividend of 29cps, which is perhaps the best way to look at this result, was in line with the market.

The margin improvement story continued, with Net Interest Margins (NIM) +18bps vs 30 June, Dec 22 exit NIM 2.03% vs 2.01% Nov 22.  

On the outlook, BEN removed the prior guidance around margins, “NIM tailwinds expected to continue into the second half of FY23” and instead provided a potential list of plus/minus contributions to margin.

Costs were well controlled during the period, +1.1% (ex-investment) driving a 5% drop in cost-to-income ratio. Guidance for costs include ‘operating expenses expected to increase modestly in FY22’ which compares to the market at 3.8%. 

Capital – Core Equity Tier 1 (CET1) came in at 10.1%, slightly ahead of the market as assets fell in the period.

Investment View

We rate BEN Buy. BEN has had a clear preference for margin improvement over volume growth in recent times, and the 1H result is no different.

BEN offers a strong valuation appeal on both an absolute and relative basis. Higher interest rates are now providing clear evidence of margin improvement.

Whilst industry structure and BEN’s lack of scale ultimately cap the return on equity (ROE) over the cycle, this debate can be had when the stock is closer to book value (currently 0.65x). Further evidence of margin improvement should see a further re-rating in the share price.

We expect today’s results to be neutral for earnings revisions for BEN.

Figure 1: BEN P/B multiple remains depressed vs pre-COVID levels

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Stock Overview

Share Price

Company Overview

BEN is an Australian regional bank that provides banking, financial products and services to retail customers and small to medium sized businesses in Australia.

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