Why the Bank of Queensland (ASX: BOQ) share price is struggling this week
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The Bank of Queensland Limited (ASX: BOQ) the stock price struggled this week. BOQ shares had fallen about 2.5% between Friday and Wednesday. It is down around 1% at the start of today’s session.
While each bank has its own buyers and sellers, there has also been volatility for other banks in recent times, such as National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).
Did something happen to BOQ?
This week it was reported by the Australian Financial Review that ME Bank could be fined up to $ 100 million for criminal charges.
ASIC alleges that ME Bank made “false and misleading statements in letters to borrowers and failed to notify customers when repayment rates changed.”
Why does this have an impact on the BOQ? The regional bank recently acquired ME Bank. Apparently, BOQ discovered this during the due diligence phase, before the acquisition. He has reportedly already paid more than $ 100,000 in compensation for this case.
ME Bank appeared in court on Tuesday and is expected to return in November.
Of course, the figure of $ 100 million is apparently the maximum that could be applied.
How important is ME Bank to the BOQ share price?
If a fine of $ 100 million were applied, it would represent a large portion of ME Bank’s annual profits. BOQ bought ME Bank for $ 1.325 billion, or 11.9 times ME Bank’s underlying cash earnings for fiscal year 20.
BOQ decided to buy the bank to create a compelling alternative to the big banks. Management characterized the acquisition as transformational and strategic alignment.
It will offer a “material scale”, largely doubling retail banking and offering greater geographic diversification. As the name suggests, Bank of Queensland is weighted towards the Sunshine State.
BOQ noted that there is a clear path to a scale, common, cloud-based digital retail banking technology platform.
In financial terms, management thinks ME Bank is convincing. It is expected to increase cash earnings per share (EPS) in low double-digit rates through mid-teens by including full run rate synergies in the first year (being FY22).
It is also expected to increase cash return on equity (ROE) by over 100 basis points, including full rate synergies in the first year.
Referring to the synergies mentioned by BOQ, he expects pre-tax annualized synergies of between $ 70 million and $ 80 million.
Do analysts rate the BOQ stock price as a buy?
Macquarie Group Ltd. (ASX: MQG) is one of the brokers that currently rates BOQ stocks as a buy – and there are currently several buy ratings.
The broker has a target price of $ 10 per share on the bank. This suggests that the BOQ stock price could rise by more than 5% over the next 12 months. The broker likes the acquisition of ME Bank.
Based on Macquarie’s profit estimates for FY 22, the broker estimates the BOQ stock price at 13 times the estimated profit. The projected increased dividend yield for FY22 is 7.2%.