Bendigo and Adelaide Bank (BEN) shares are down a further 2.7 % after losing a whopping 4.4 % yesterday.
In addition to general weakness in the banking sector, shares of BEN are feeling the fallout from alleged accounting discrepancies from their reverse mortgage division, Home Safe.
From a technical perspective, the next significant level of support will be found around the August 8th lows of $9.75.
We would urge caution to investors considering buying BEN above the $10.00 handle.
On March 16th, the ALGO engine flagged a buy sign for Bendigo Bank (BEN) at, or near, the $11.00 level.
BEN shares have reached $11.68 in early trade today.
Looking from a broader perspective, we believe the chart reflects a mean-reversion pattern, as opposed to the beginning a protracted trend higher.
On January 12th, BEN posted a high of $13.40 before reversing lower. On March 24th, BEN traded as low as $11.20 and then began to move higher.
Taking into account the high valuation of the domestic banking sector, we would expect the upside in the current move to be capped at or near $12.30, which is the 50% reversion level of the move from $13.40 to $11.20.
Prudent money management on this trade would be to work a sell stop at last week’s low of $11.20.
Our Algo Engine is flagging BEN with a technical buy signal.
We’re mindful of the downward pressure on the banking sector following today’s weak employment data.
Therefore, we’re not buyers at present, but we’ll be watching BEN and looking for the short term indicators to turn positive at or near the $11.00 support level.
SCG and WFD went ex-dividend yesterday at $0.105 and $0.125, respectively. With both names we’ve added tight covered calls to boost the cash flow to 10 – 12% on an annualised basis.
Ansell is a relatively new addition to portfolios and yesterday’s earnings result was slightly disappointing. Again, we’ve been aggressive with the covered calls so we’re not looking for too much on the upside with ANN and we collected between $0.80 to $1.20 for the covered calls. We will look to exit on a rally back towards $23 by April/May.
Amcor reported a terrific earnings result with underlying growth running ahead of market expectations at 5%. This could accelerate up to 8 – 10% in the second half. This supports our $15.50 price target.
CBA’s earnings result tomorrow will be key for the banks. Thus far NAB and BEN have failed to deliver growth on the revenue and profit lines. We shorted BEN from $13.00 and we’ve been aggressive with selling call options over the top 4 banking names.
AZJ reported earnings in-line with market expectations. We remain cautious of the group’s high payout ratio with almost 100% of earnings being paid in dividends. This looks unsustainable in the medium term.
Tomorrow we will be focused on the earnings results for BLD, CBA, CPU, CSL, SHL and WES.
Bendigo Bank announced that they will keep its dividend steady at 34 cents per share, but a rise in bad and doubtful debts has pressured the stock 4% lower at the open of trade.
The bank posted a net profit of $209 million , up 0.1% from the previous period, and cash earnings were up 0.4% to $224.7 million. These results were pretty much inline with expectations.
However, after the bank reported bad and doubtful debts increased by $16.3 million to $39.8 million, the share price broke down through the recent support level at $12.25.
We believe that increased bad debts and loan provisions may be a recurring theme in the banking sector and limit share price appreciation across the big four banks.
BEN will report 1H17 earnings on Monday the 13th. We’re expecting 1 – 4% growth on the same time last year. Full FY17 forecast profit should be around $450m.
In general, across the bank names we expect margins and credit quality to be the key areas of focus at the upcoming results. Benign credit growth conditions underpinned by slowing housing credit & flat growth in business lending.
Highly leveraged household balance sheets and ongoing pressure from the regulator to improve the quality of housing lending, should restrict the growth outlook into FY18.
Bank profit announcements start in February with the following key dates worth noting.
SUN 9 February, BEN 13 February, CBA 15 February along with 1Q17 trading updates from ANZ and NAB in February.
Following the recent rally in bank shares, we see the current trading range as full value, therefore, placing the banks at risk of being buffeted by any increase in market volatility. Although net interest margins have improved, the prospects of earnings growth is modest with the outlook between 1% – 4% growth at both top and bottom-line.
We also remain concerned that the cycle for bad debts is likely to rise from the current historic low levels.
We now have ANZ and WBC creating a higher low formation. However, CBA and NAB still remain below the recent highs within the downtrend that’s been in place since May 2015.
Back in August, ANZ was the first to break the downtrend and now WBC has followed. Within the regional banks, between BOQ and BEN, it’s Bendigo that’s displaying a more bullish price pattern.
Although the breakout in financials is strong at present, we don’t see too much further upside. As reflected in the recent earnings results, the banks are having difficulties growing top line revenue. Our largest bank exposure in client portfolios is Westpac. We’ve left this name uncovered at present, however, it’s likely we’ll identify a point this week to add covered calls to enhance the yield.
ANZ goes ex-dividend $0.80 on Monday & WBC also goes ex-dividend $1.00 on Monday.
A quick look at Bank of Queensland and Bendigo following the release of the BOQ FY16 earnings result. BOQ.ASX Underlying result was weaker than market expectations, predominately driven by greater than expected margin pressure.
BOQ.ASX FY17 outlook now appears to offer flat EPS growth at best, assuming a $0.78 FY17 dividend, it places the stock on a 6.9% fully franked forward yield.
BOQ.ASX
BEN.ASX
A technical summary of where we see price action heading is different in BOQ opposed to BEN, whilst we see short term downside pressure in both names, (despite the yield support), a retracement in BEN.ASX back to $10 will likely trigger a buy signal in our algorithm engines. Whereas, BOQ.ASX remains in a structural downtrend and it’s the current short signal that draws our attention.
Bendigo (BEN.ASX) 2H16 result confirmed that underlying operating conditions remain challenging. Revenue grew by 2% compared to the 1H16 and the outlook remains challenging with subdued volume loan growth and ongoing pressure on margins from competition and lower interest rates.
FY17 outlook is for cash earnings of around $450m on EPS of $0.96 and dividend payout of $0.67 placing the stock on a forward yield of almost 6.8%.
No signal present.
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Bendigo and Adelaide Bank
