Is the Bendigo & Adelaide Bank Ltd share price good value?

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With the BEN share price trading around $8.84, are Bendigo & Adelaide Bank Ltd (ASX: BEN) Sharing today, tomorrow or next month is as good as a guess. However, over the longer term, stocks with a consistent track record of earnings, dividends and/or cash flow will often return to their underlying price target for analysts.

Bendigo and Adelaide Bank, more commonly known as Bendigo Bank, was created following the merger of Bendigo and Adelaide Banks in November 2007 (at the height of the credit markets!). BEN operates primarily in the retail banking sector through a network of over 500 “community branches” and agencies. These are usually found along the east coast and South Australia.

Is the Bendigo & Adelaide Bank Ltd share price good value?

what’s going on inside

For long-term investors looking to invest in great companies and hold them for five, 10 or 20 years, at Rask we think it’s fair to say that a good workplace and a good staff can lead to better retention of high quality staff and, in turn, the long term financial success of a business.

One way for Australian investors to peek inside a company like Bendigo & Adelaide Bank Ltd or Macquarie Group Ltd is to use HR/jobs websites such as Look for. Seek’s website includes company human resources data, including things like employee reviews. According to the most recent data we pulled on BEN, for example, the overall workplace culture rating of 3/5 was underneath the industry average of 3.71.

Watch those (net) margins

ASX bank stocks such as BEN need debt and good profit margins to make their business profitable. This means that a bank receives money from term deposit holders and wholesale debt investors and lends that money to homeowners, businesses and investors. The difference between what a bank is pay to savers and what made of mortgage holders (for example) is the net interest margin or NIM. Remember: when it comes to NIMs, the wider the margin, the better.

If you plan to estimate the profits of a bank like BEN or Bank of Queensland Limited (ASX: BOQ), it is important to know how much money the bank lends and what it earns per dollar lent to borrowers. This is why the NIM is arguably the most important measure of BEN’s profitability. Across major banking stocks on the ASX, we calculated the average NIM to be 1.92%, while Bendigo & Adelaide Bank Ltd’s lending margin was 2.3%, meaning the bank produced a betterabove-average return on lending money to customers compared to its peers.

The reason analysts are studying the NIM so closely is that Bendigo & Adelaide Bank Ltd earned 85% of its total income (income-related) from loans alone last year.

Return on equity (ROE)

Return on equity or simply “ROE” helps you compare a bank’s profit to its total equity as shown on its balance sheet. The highest the RE the best. Bendigo & Adelaide Bank Ltd’s ROE over the last full year was 8.6%, meaning that for every $100 of bank equity it produced $8.60 in annual profit . This figure was lower than the industry average of 11.33%.

The capital of BEN’s relief bank

For Australian banks, the CET1 ratio (aka “common equity tier one”) is essential. CET1 represents the bank’s capital buffer that can help protect against financial collapse. According to our figures, Bendigo & Adelaide Bank Ltd had a CET1 ratio of 9.4%. It was below the industry average and not as much as the commonly accepted “unquestionably strong” level of 10%.

BEN dividend valuation – some tips for bank stocks

A Dividend Discount Model or DDM is one of the most effective ways to create a rough estimate of ASX bank stocks. To do a DDM, we need to arrive at an estimate of the bank’s future dividends (i.e. the next dividend for the full year) and then apply a risk rating. Assume that BEN’s dividend payment increases at a constant rate each year in the future, somewhere between 2% and 3%. We will use multiple risk rates (between 6% and 11%) and then average the valuations.

According to this quick and easy DDM model, a BEN stock valuation is $9.26. However, using an “adjusted” or expected dividend payment of $0.54 per share, which is the preferred metric because it uses expected dividends, the valuation jumps to $9.18. The valuation compares to the current BEN stock price of $8.84. Since the company’s dividends are fully franked, we can make an additional adjustment and make a valuation based on a “gross” dividend payment. Using gross dividend payments, which factors in franking credits, the valuation is estimated at $13.11.

Although BEN shares may appear to be decently valued right now based on this statistical method, please do not make a decision to buy or sell BEN shares based on this article. Consider reading at least two or three years of Bendigo & Adelaide Bank Ltd annual reports and then researching good investors and analysts who disagree with your view – it’s a reliable way to determine if you make a solid decision based on rigorous analysis. and counter-opinion. Finally, before going any further with BEN or MQG stocks, I suggest you get a copy of our free investment report.

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