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Product Review Img Vertical

Date : 02/05/2022

Bank of Queensland



Market Cap : $5.12 Billion

Dividend Per Share : $0.44

Dividend Yield : 5.41 %


52 Week Range : $7.49 - $9.84

Share Price : $8.13

BOQ is executing a clear strategic roadmap that we think is the foundation for delivering sustainable and profitable returns. A “Buy” for us.

Company Analysis

Bank of Queensland (ASX: BOQ) is one of Australia’s leading regional banks. The unique strength of the Bank is its long-term customer relationships. Hence, most of BOQ’s branches are run by local Owner-Managers. This means they are running a relatively small business and understand how to deliver personal service. This is a key differentiation and a significant competitive edge over the rest of the large financial institutions and a strategy that increases retention of customers. Over recent years, BOQ has tremendously simplified its banking products to help support its customers’ financial needs. The Bank offers a range of these products and services to individuals and businesses.

As of today, the Group has more than 160 branches across Australia.

Source: BOQ

BOQ has distinctive brands serving attractive niche customer segments

Over time, BOQ has successfully acquired a portfolio of brands that form the basis of the Group’s multi-brand strategy. We believe these different and complementary business lines provide the Bank with a competitive advantage due to its specialised knowledge in these niche segments.

Source: BOQ

In the retail banking segment, the Bank owns three leading brands:

  1. BOQ Retail and SME lending, deposits, credit cards and insurance: BOQ is the Retail banking arm of the BOQ Group and comprises 163 branches across Australia, offering a range of banking products. BOQ’s 103 Owner-Managed Branches, or OMB, are run by local Owner-Managers who understand the importance of delivering high-quality customer service and are deeply committed to the communities in which they operate.
  2. Virgin Money: Digital home loans, deposits, credit cards, insurance and superannuation: BOQ owns Virgin Money (VMA) which is a digital-first retail financial services company that provides a wide range of financial products that are easy to understand. BOQ acquired VMA in 2013, and it operates as a standalone brand within the BOQ Group. Virgin Money is a compelling alternative to the big banks allowing the Group to capture growth from a different retail segment.
  3. Me Bank: Home loans, personal loans, deposits and credit cards: BOQ also owns the ME Bank brand, a branchless retail bank that provides a wide range of banking products to customers through mobile bankers, direct channels and brokers. ME Bank was acquired by BOQ in July 2021 and is operating as a distinct brand within the BOQ Group.

In the business segment, the Bank operates three business divisions:

  1. BOQ Business: Commercial lending, deposits, financial markets and insurance: The BOQ Business division is a relationship led business with specialist bankers providing client solutions across Small Business, Agribusiness, Corporate Banking, Property Finance, Healthcare & Retirement and Tourism, Leisure & Hospitality. BOQ Business also works closely with the Owner Manager network to support commercial customers.
  2. BOQ Finance: Asset finance and leasing: BOQ Finance is a wholly-owned subsidiary of BOQ Group Limited, specialising in asset finance and leasing solutions. BOQ Finance is a mid-market financier providing deep industry and product skills to its partner base. BOQ Finance has been operating in the Australian and New Zealand markets for more than 45 years.
  3. BOQ Specialist: Lending, deposits, credit cards and leasing for medical and professional services: BOQ Specialist delivers distinctive banking solutions to niche market segments, including medical, dental and veterinary professionals. BOQ Specialist operates as a niche brand within BOQ’s Business Bank. BOQ acquired this business, which was Investec Professional Finance, from Investec Bank (Australia) Limited in 2014.

On top of these business segments, BOQ has Group Functions to support the overall Bank’s operation. These Group functions include Group Customer, Technology, Risk, Finance, Transformation & Operations, Legal and HR teams.

BOQ is delivering a strong execution capability whilst transforming its business toward the future of Banking

BOQ is well-positioned for growth upon a return to normal post-COVID

During FY21, we have seen economic conditions improve compared to the previous year due to the commencement of the vaccine rollout and related consumer and business optimism. However, recent lockdowns and restrictions have reminded us that COVID-19 and the associated economic consequences remain present. Although the conditions continue to be challenging, we remain optimistic as BOQ has shown tremendous resilience throughout the last two years, and we believe the Bank is well-positioned for a return to normal. From FY22 onward, BOQ will continue to focus on delivering its strategy to enhance the experience for its customers and stakeholders. We think that BOQ has all it takes to further expand and develop its activities in the year to come as the Company exhibits a strong balance sheet and is well established to contribute to meaningful community initiatives.

BOQ, a well-established institution in its communities

In the past 12 months, BOQ supported hundreds of customers in hardship with personal and business loan deferrals and in August, the Bank simplified its systems and removed dishonour fees for overdrawn accounts. We have also been pleased to see that BOQ maintained its retail and business Net Promoter Score ranking of 3rd during FY21 by delivering a superior customer experience. BOQ plays surely an important role in the communities in which it operates. We continue to see that the Bank supports the Aboriginal and Torres Strait Islander peoples through its work with the STARS and Clontarf Foundations that provide education and development of life skills for these communities. BOQ also continued its relationship with its community partner Orange Sky during the year to provide laundry and shower vans for people in need.

BOQ is solidifying its leading position through strategic acquisitions

The Bank has an experienced executive team that has shown its capability to deliver even in difficult trading conditions. Thus, BOQ’s management continues to deliver against its strategic transformation programme, which the Bank outlined to the market in February 2020. The ME Bank acquisition underscores BOQ’s growth agenda by significantly expanding the Group’s Retail Bank and allowing the Company to diversify its revenue profile and geographic presence. BOQ has made significant progress against the transformation roadmap throughout the last year, with a key achievement being the launch of savings and transactions accounts for Virgin Money, entrenching its credentials as a digital bank. Another important step on the Bank’s digital roadmap was upgrading and integrating the card management system. This has allowed the Company to put both BOQ and VMA cards on the same platform, enabling improved digital banking app capability. This has also delivered the choice and convenience customers have been requesting, as the new digital wallet capability now allows them to link their cards to Apple Pay, Samsung Pay and Google Pay. The second phase of Virgin Money Digital bank includes home loans and additional deposit products. The API-based digital platform’s scalability allows this technology to be leveraged as a strategic Group platform, with the build of a BOQ Digital Bank substantially underway. The multi-year roadmap incorporates the ME Bank integration to deliver a common, cloud-based Retail platform for all BOQ brands. BOQ continues to work diligently to enhance its lending process from front to back, with its Small Business Enablement program underway to identify efficiencies.

Furthermore, we have been pleased to see that BOQ has delivered an additional $30 million in productivity savings across the Bank in FY21 on top of the $30 million delivered in FY20. These savings have enabled the Bank to invest in new digital, risk and regulatory programmes. Other key investment from BOQ includes building the Intelligent Data Platform foundations that will enable the Open Banking capabilities and a programme to enhance the user experience of its internal systems to improve productivity and efficiency. The sale of St Andrew’s Insurance is expected to be completed by the end of the first half of FY22, enabling BOQ to simplify its business model and focus on niche customer segments.

BOQ has an experienced management team and the right people to support the Company’s expansion

BOQ has built a strong leadership team with the addition of Martine Jager as BOQ’s Group Executive Retail Banking and CEO ME Bank, Danielle Keighery as the Chief Customer Officer and Nicholas Allton in the role of Group General Counsel and Company Secretary. The Bank has recently announced the appointment of Chris Screen to the role of Group Executive Business Banking and David Watts, who joined as BOQ’s Group Chief Risk Officer in early 2022. During FY21, BOQ had significantly increased the number of new employees in the Group through the acquisition of ME Bank. This team enhances the Bank’s presence in Victoria, and we believe this is aligned with BOQ’s customer-focused culture. This expansion is also a successful integration of the ME Bank into the BOQ Group while maintaining a differentiated proposition through the ME brand.

BOQ exhibits robust operating performance despite a challenging economic environment

The execution of BOQ’s strategy throughout FY21 and the first half of FY22 has driven strong business performance across the Bank’s division. For FY21, BOQ reported a total income increased by 13% as we continued to see BOQ growth of its balance sheet above the system whilst preserving its margins. However, the Bank’s expenses grew by 12% during the year as the Company supported volume growth while investing for its future expansion. Impairment expenses decreased during FY21 as BOQ reduced its collective provision due to changes to the economic environment and expected future loan losses.

During FY21, BOQ continues to maintain a strong balance sheet. Moreover, the Bank’s capital remains comfortably above APRA’s benchmark, with a CET1 ratio of 9.8%. Overall, BOQ’s exceptional improvement in statutory NPAT of 221% to $369 million reflects the better business performance, operating conditions and exemplary customer-focused culture.

Having completed the acquisition of ME Bank on the 1st of July 2021, BOQ’s integration programme has shown solid progress with early momentum and focus, resulting in the acceleration of synergies and the development of a clear integration roadmap.

Looking ahead, we are confident about the ability of BOQ to deliver solid performance in the next three years. Hence, we believe the Bank has the right people to execute its strategy to transform BOQ into a digital bank with a personal touch and create significant value for the shareholders and its customers. Thus, the integration of ME Bank is underway, and so far, we have seen BOQ executing a clear strategic roadmap that we think is the foundation for delivering sustainable and profitable returns.

Company Updates

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Source: Tradingview

FY22 onward outlook: BOQ continues to progress on its strategic business transformation programme

BOQ has tremendously progressed on its plan since FY21 despite the challenging economic environment. The Group has substantially advanced on several milestones of its transformational programme:

  • the Company reported strong financial results, achieving above system mortgage growth whilst maintaining prudent risk settings,
  • strengthening its team with improved leadership and execution capability,
  • further embedding its values-driven performance culture while
  • improving loan approval times for its customers,
  • delivering phase One of its digital-first strategy,
  • and the successful acquisition of ME Bank.

We are convinced that the value-accretive acquisition of ME Bank is strategically aligned and is expected to deliver material scale and synergies, a diversified customer footprint, and rebalanced revenue channels with improved return on equity. The ME Bank integration is on track and is a key strategic deliverable over the next 12 months.

We have seen BOQ making material progress in delivering its growth strategy to uplift its financial and customer performance and build a scalable multi-brand digital-first bold challenger bank with a personal touch. These pleasing results underscore the Bank’s objectives to continuously improve its journey of high ambition to delight its customers, be a great place to work and grow shareholder value.

During FY21, BOQ enhanced its digital bank proposition for Virgin Money Australia customers by offering transaction and saving account services for the first time. This was built on a digital platform that the Bank will extend to form the foundation for its Retail Bank division, delivering improved digital customer offerings and experiences for all the BOQ Group brands. The Bank will continue to work closely with its customers, the government and regulators to ensure that BOQ can support its customers facing hardship or needing help from the COVID-19 pandemic.

BOQ continues to demonstrate its ability to generate cash earnings from its businesses that support a consistent payout ratio of 60% – 75% while maintaining adequate capital to support further growth

The transformative acquisition of ME Bank and the improved performance of FY21 and the first half of FY22 has boosted shareholder value. Furthermore, BOQ recognises the importance of dividends to its shareholders, and the Board has determined to pay a final fully franked dividend of 22 cents per share, bringing the FY21 dividend to 39 cents per share. Barring unforeseen circumstances, BOQ targets a dividend payout ratio between 60% and 75% of cash earnings going forward. We believe this payout ratio enables BOQ to balance an attractive annual distribution to shareholders against the capital needed to support the Group’s business transformation, growth, and the Bank’s resilience.

BOQ remains committed to a prudent balance sheet and capital management. Its CET1 ratio at financial year-end was 9.80 %. During this higher risk period, we believe it is a wise approach from BOQ to retain its CET1 ratio above the top end of its target range of 9% to 9.5%. It is worth noting that BOQ funded the ME Bank acquisition via a $1.35 billion capital raising.

Source: BOQ

Industry Analysis

We believe that Australia remains well placed for continued economic recovery, as the country so far enjoys low unemployment, high terms of trade and a large pipeline of residential construction and infrastructure work. However, geopolitical tensions, elevated inflation, rising interest rates, supply chain, and labour disruptions remain uncertain.

To address these risks, BOQ remains focused on achieving quality, sustainable, profitable growth and delivering 2% positive jaws for FY22. Business momentum continues to build, with BOQ and Virgin Money housing gaining market share. ME Bank housing is returning to net growth, and business lending is growing ahead of the market, particularly SMEs. At the same time, we have seen BOQ optimising its revenue, portfolio quality and returns.

Furthermore, we expect to see Net Interest Margin(NIM) headwinds reducing and, at the same time, continued benefits from the integration and productivity programmes which are driving cost reduction of at least 1%. The ME Bank’s integration is well progressed, and we continue to see BOQ advancing swiftly in its strategic transformation roadmap.

We expect to see a few disruptions ahead due to uncertainty associated with COVID-19 over FY22 and eventually FY23. Therefore, BOQ has announced that it will adequately maintain a prudent approach to provisioning. The Bank has a strong capital position and assumes its CET1 to stay comfortably above 9.5%.


Investment Thesis

BOQ’s FIRST HALF OF fy22 results reflect strong business momentum, tightly managed costs and improved portfolio quality

BOQ’s financial results for the first half of FY22 highlight the strong progress of the Bank on delivering quality, sustainable, and profitable growth. This reflects the sharp focus on BOQ’s strategic priorities. The first half of the financial year results demonstrate the Company’s disciplined execution of the ME integration and digital transformation programme and represent BOQ’s fifth consecutive half of improved underlying performance. At a time of notable change, the Group has successfully accomplished the integration of ME and upgraded its overall digital capability. It is important to stress that this has been exceptionally achieved during ongoing economic uncertainty from the pandemic.

Disciplined costs management allowed BOQ to report a 38% increase in the Group’s statutory NPAT

As a result of an exceptional execution of its operation across the Group, BOQ’s statutory net profit after tax increased by 38% to $212 million. This was contributed by a steady flow of cash earnings of $268 million, an increase of 14% from the first half of FY21, reflecting the ongoing business momentum through the half, the Bank’s stringent costs management and the benefit of lower loan impairment expenses.

BOQ businesses and brands continue to exhibit growth despite tough market conditions

BOQ’s vision is to help more Australians into their homes continue to drive performance with the ME home loan book returning to growth in the period and BOQ and Virgin Money (VMA) brands showing continued strong growth at 1.8x system. Moreover, the Bank’s refocused on helping family businesses has resulted in above-market growth in the SME segment of 2.5x system and Corporate business lending of 1.2x system. We continue to see BOQ executing its plan diligently with its digital transformation and the ME integration.

We think the Bank is a step closer to realising its bold strategy of building a truly multi-brand, cloud-based, digital retail bank with the launch of the “myBOQ” programme, joining VMA on the common core banking platform that enhances customer experience. Furthermore, we have seen that BOQ’s integration programme progresses well with key milestones delivered on the accelerated timeline and within the committed expense profile and $33 million of run-rate synergies delivered during the half. The synergy benefits have been estimated to have increased from $70 million to $95 million in FY24 and beyond.

And finally, BOQ’s capital strength has enabled the Group to grow and invest in its transformation. We believe the Bank’s asset quality remains sound with prudent collective provisioning levels. Accordingly, the Bank has decided to pay an interim fully franked dividend of 22 cents per share, representing a 53% payout ratio for the first half of FY22.

Overall, the Company is firmly focused on executing its strategy to transform BOQ into a unique digital bank with a personal touch and create compelling value for shareholders, customers, and the community.

ME Bank: Integration and strategic transformation are on track and delivering results

The acquisition of ME Bank was a defining moment for BOQ. Hence, the addition of ME Bank delivers material scale, broadly doubles the Group’s Retail Bank and provides geographic diversification.

BOQ has a strong history of servicing its customers, focusing on niche segments through its structure of owner-managers and specialised bankers. The Company has evolved from a Queensland focused, retail branch-based bank to a national diversified financial services business through its multi-brand strategy and building relationships with its communities.

ME Bank is a branchless retail bank that provides a wide range of banking products to customers through mobile bankers, direct channels and brokers. ME Bank was acquired by BOQ in July 2021. It operates as a distinct brand within the BOQ Group. We expect the ME Bank Acquisition to deliver strategic and financial benefits to the BOQ Group, such as:

  • a significantly enhanced scale that broadly doubles the retail Bank and provides geographic loan portfolio and revenue diversification,
  • a strong complementary trusted brand with shared customer-centric culture and differentiated customer segments,
  • a clear pathway to a scaled, common cloud-based digital retail bank technology platform, and
  • an attractive financial outcome, including improved returns on equity and earnings per share while maintaining a strong balance sheet.

The selloff is over and it might be time to consider buying BOQ shares

Solid net profit to support BOQ’s expansion and consistent dividends growth

For the first half of FY22, BOQ reported a compelling Statutory NPAT of $212 million, a 38% increase on PCP, driven by lending momentum, rigorous expense management and lower impairment provisions. The Cash NPAT was $268 million for the period, a 14% increase compared to the first half of FY21. The increase is primarily attributable to the underlying business growth, higher non-interest income, judiciously managed costs and a loan impairment expense credit. This was supported by a solid total income growth of 1% on PCP to $831 million. The increase was driven by higher asset balances and non-interest income revenue, partially offset by the decline in net interest margin. Net Interest Income decreased to $741 million, down 2% from the first half of FY21, driven by the net interest margin decline and the impact of the ME Bank’s decline in average interest-earning asset balances before the acquisition. Non‐interest income increased by 30% to $90 million, driven by some one-off revenue items, including incentive income from an updated card services arrangement and a termination fee relating to a third party insurance provider. Net Interest Margin was 1.74% for the half, representing a decrease of 12bps over the half. This comprised 7bps of underlying decline primarily due to industry dynamics, including ongoing competition, higher fixed rate lending volumes and volatile swap rates, and a further 5bps relating to increased liquidity.

Compared to 1HFY21, the operating expenses declined by 3% to $461 million. The ongoing productivity initiatives and synergy savings from the ME Bank integration have more than offset higher expenses to support the digital transformation and increased business volumes. Loan Impairment expense was a credit of $15 million, reflecting an improvement in the collective provision due to the more favourable economic outlook and a rebound in the housing market. Specific provisions were also in credit during the period, driven by writebacks across the retail and commercial portfolios.

As BOQ managed its operations well during the period, the cost to income ratio improved by 20bps to 55.5%. This was due to revenue uplift while expenses were held flat during the period, reflecting the positive jaws of 1% achieved in the first half.

Cash earnings per share increased by 16% to 41.1 cents per share. The uplift was due to the strong profit growth for the period. Accordingly, BOQ has determined to pay an interim first half of FY22 fully franked dividend of 22 cents per share on the 26th of May 2022, representing a 53% cash payout ratio.

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The strong capital position has enabled the Group to grow its business and invest in its transformation plan. Cash return on average equity (ROE) increased by 130bps to 9.1% from the first half of FY21, driven by positive jaws and the loan impairment expense benefit. CET1 at 9.68% was 12bps lower than the second half of last year but remained above the target range of 9% to 9.5%. In addition, BOQ completed a securitisation transaction in March 2022, increasing the CET1 ratio to 9.76% on a pro forma basis. Housing Loan growth momentum continued, with $2.6 billion of growth in the half across all brands. BOQ and VMA growth of 1.8x system and ME Bank returned to growth at 0.3x system. Business Loan growth of $0.6 billion with strong growth in both the Corporate and SME businesses. Small and medium business lending grew at 2.5x system, whilst Corporate grew at 1.2x system. The Asset Finance business achieved growth as well in the core equipment finance business, offset by declines in other areas due to COVID and supply chain issues.

Source: BOQ

BOQ’s customer deposit growth continued with an additional $1.8 billion of balances added during the year’s first half. Moreover, the growth across the transaction account, savings and investment products have reduced the Bank’s reliance on term deposits. The deposit to loan ratio was 74% at the end of the period, and BOQ’s customer deposits totalled $58.3 billion.

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Source: Tradingview

Over the last twelve months, BOQ has been quite undervalued by the market compared to its peers. BOQ shares were down by about 13.3%, whilst its competitors’ share prices returned 19.6% and 14.43% for its top gainers in the sector, namely, the National Australia Bank (ASX: NAB) and the Commonwealth Bank of Australia (ASX: CBA). Otherwise, BOQ shares’ performance remains in line with Bendigo and Adelaide Bank (ASX: BEN), Westpac Banking Corporation (ASX: WBC), and Australia and New Zealand Banking Group (ASX: ANZ), which returned 1.15%, -6.76%, and -6.91%, respectively.

As BOQ exhibits strong fundamentals with the recent acquisition of ME Bank, we believe the Bank of Queensland is strategically aligned and could deliver material scale and synergies. This will lift the Company’s long-term revenue as the Bank increases its diversified customer footprint and rebalance revenue channels with improved return on equity.


Australia remains well placed for continued economic recovery, as the country reports low unemployment, high terms of trade and a large pipeline of residential construction and infrastructure work. However, we remain mainly concerned by geopolitical tensions, elevated inflation, and rising interest rates. Although, we think that this will not slow down BOQ’s growth going forward. Hence, BOQ delivers solid operating performance, and we believe the Bank has the right people to execute its strategy to transform BOQ into a digital bank with a personal touch and create significant value for the shareholders and its customers. Furthermore, the integration of ME Bank is underway, and so far, we have seen BOQ executing a clear strategic roadmap that we think is the foundation for delivering sustainable and profitable returns. The dividends are healthy and the growth outlook is positive, a “Buy” for us.


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