Bank of Queensland share price: can the stock rebound in 2020?

The $275 million question remains

It’s been a tough year for the Australian banks – big and small. Save for maybe CBA, which looks to have clawed back its position at the top after a period of uncertainty; many have struggled as regulatory scrutiny – in one way or another – has intensified.

ANZ faces headwinds from the Reserve Bank of New Zealand’s latest ramped-up capital requirements; Westpac is currently besieged by regulators on all fronts; and the Bank of Queensland (ASX: BOQ) – like the rest of the financial players in Australia – is feling the impact of soft operating conditions.

When we covered the Bank of Queensland last – we examined the impact of the bank’s recently-completed $275m capital raise, which saw investors heavily sell-down the stock.

Indeed, prior to the announcement of that cap raise, the bank’s stock traded close to the $8.6 mark. Since then, BOQ’s share price has fallen to $7.41 – representing a roughly 14% decline.

The fact that this cap raise has increased BOQ’s issued capital by roughly 8.0%, and the implications of such an increase, potentially explains this heavy sell-off. Indeed, citing comments from Citi analysts, the Australian Financial Review recently wrote:

‘Dilution from an extra 8 per cent more shares on issue and the 70 per cent to 80 per cent payout ratio meant a cut in reality of dividends of almost 20 per cent to 50¢ per share for the year.’

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Bank of Queensland share price: the 2020 outlook

For all this bearish price action, Goldman Sachs sees some potential in the BOQ share price at these levels.

Centrally, in the wake of the bank’s lastest capital raise, though the investment bank did lower their price target on the Bank of Queensland from $8.77 to $8.36, they upgraded their rating from SELL to NEUTRAL.

The primary impact of this cap raise is two-fold. Though it positively means that BOQ is now comfortably above APRA’s unquestionably strong capital requirements; it also means that that Goldman sees additional near-term earnings (EPS) compression, of approximately 5% to 6%, across FY20 to FY22.

Soft top-line momentum, costs pressures, and a significant payout ratio of 70-80%, also means that BOQ remains in a challenging position, posits Goldman.

For investors however, Goldman’s subdued yet somewhat positive outlook is in the relative minority. Surveying the broader analyst outlook, we see one BUY recommendation, five HOLD recommendations and an overwhelming ten SELL recommendations, according to Bloomberg Data.

Ultimately, analysts generally expect top-line growth to be hard to come by for BOQ: remaining flat across FY20 and FY21. In step with this, the bank’s earnings per share (EPS) are also expected to contract across the coming fiscal years: falling from 0.65 cent per share in FY19 – to 0.65-0.63 cents per share in FY20 and FY21, respectively.

Positively at least, the average 12-month share price target for the Bank of Queensland (ASX: BOQ) currently sits at $8.01 per share, according to Bloomberg Data. Should analysts be proven right (on average) investors would be looking at a return a shade over 8% – not including dividends, of course.

Whether such theoretical returns constitute a ‘rebound’ however, is another matter entirely.