Can things get better for BOQ shares in FY25?

Can BOQ shareholders bank on a turnaround next financial year?

| More on:
A man looking at his laptop and thinking.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Bank of Queensland Ltd (ASX: BOQ) share price underperformed the S&P/ASX 200 Index (ASX: XJO) during the last year. In the 12 months to 30 June 2024, the BOQ share price rose 5.8% while the ASX 200 went up 7.8%.

BOQ has a different financial year from the regular Australian tax year. The Bank of Queensland's financial year runs to 31 August each year, so there are still a couple of months left to run.

We recently heard from the bank about how it performed in the six months to February 2024, which saw a number of financial measures go the wrong way. The market also heard several interesting comments about the bank's outlook.

Earnings recap

BOQ reported that its HY24 cash earnings after tax fell 33% to $172 million. The ASX bank share reported its housing loan portfolio saw a 1% decline in the second half of FY23 or $411 million in dollar terms. It said a continued focus on economic return resulted in a contraction of the housing portfolio.

The company said its net interest margin (NIM) dropped by 3 basis points (0.03%) – compared to the second half of FY23 – to 1.55%. That means it's making a smaller amount of profit on each dollar it lends.

BOQ blamed "competitive pressures" for its lower margins and the weak lending growth performance. Cash operating expenses also grew by 6% year over year to $524 million.

BOQ also reported that its cash return on equity (ROE) dropped to 5.8%, down from 8.4% in the first half of FY23.

Thankfully, asset quality remains "sound", despite the higher interest rate environment.

The managing director and CEO Patrick Allaway said at the time of the result announcement:

This result has been impacted by continuing industry headwinds, with heightened competition for lending and deposits and higher funding costs. Pleasingly, in a reduced revenue and high inflation environment, we have held BAU [business as usual] cost growth at just 1.2% in the half.

Outlook for BOQ shares

When the bank announced its HY24 first-half result, it also provided some outlook commentary that could apply to the rest of FY24 and FY25.

BOQ said its loan impairment expense is expected to remain below long run averages, which sounds positive. The bank said it remains "optimistic on the long-term view".

However, the regional bank said it expects revenue and margin pressures "to moderate" in the second half of 2024, though deposit competition "to continue." It's also expecting the home lending decline "to moderate", and that business banking growth can increase.

The bank's costs are expected to keep increasing due to inflation and continued investment in the business. BOQ said it's on track to deliver single-digit business as usual (BAU) expense growth in the second half of FY24.

In terms of analyst expectations, the broker UBS is expecting BOQ's cash earnings to drop from $450 million in FY23 to $294 million in FY24. However, the ASX bank share could then see cash profit recover to $320 million, though it would still be lower than FY23.

In fact, while UBS has pencilled in a steady recovery of profit in the coming financial years, FY28 is still only expected to show a cash profit of $406 million – lower than FY23.

The broker suggested that a higher return on equity (ROE) and BOQ share price re-rating depends on improving the NIM and costs.

According to UBS, the BOQ share price is valued at 14x FY25's estimated earnings.

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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

The ASX bank share beating CBA in 2025

Many investors might not realise this smaller bank stock is leading the pack this year. 

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Here's what needs to happen for the CBA share price to try and reach $200

What could drive the CBA share price higher?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

Why now could be an opportune time to sell CBA shares

A leading expert offers his verdict on the outlook for CBA shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Bank Shares

The Westpac share price is a buy – UBS

The broker is optimistic on Westpac shares.

Read more »

Bank building with the word bank on it.
Bank Shares

The biggest buyers and sellers of ASX 200 bank stocks revealed

Macquarie breaks down who’s been buying and who’s been selling the ASX 200 bank stocks.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Resources Shares

Should I switch my ASX 200 banking stocks for ASX 200 miners before earnings season?

The ASX 200 Index is dominated by Australia's bank and materials/mining sectors, which together account for around half of the…

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Bank Shares

Here's when Westpac says the RBA will now cut interest rates

The RBA surprised everyone by keeping rates on hold last week. So, when will the next cut happen?

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Bank Shares

This is the ASX bank stock with the largest dividend yield right now

Looking to ASX bank stocks for dividend income right now?

Read more »