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-Brokers point to low quality
-Management's targets set to be lowered
-Digital transformation offers execution risk
Brokers assume the market must have held rather underwhelming expectations for
It is true that cash earnings, which were down -33% year on year, came out better-than-expected but it is agreed the 'beat' was of low quality, driven partly by lower bad debts, temporary margin tailwinds and slower expensing of investment spend.
The 17c dividend was either in line with or better than brokers had estimated.
Net interest income (NII) contributes around 91% of
Return on equity fell -40 basis point to 5.8%.
Management expects "margin pressure to moderate in the second half", but
Going Digital
Brokers agree the regional lender's digital transformation program is a positive long-term strategy, aiming to deliver a lower cost, but remain wary of both the high degree of execution risk and the potential for going over budget on investment spend, as has often been the case historically when banks undergo such large-scale initiatives.
The structural headwinds for the bank are still fairly obvious in
Brokers agree management's FY26 targets of a cost to income ratio of 50% and better than 9.25% return on equity are likely to be lowered.
The bank's targets are premised on a reversal of cyclical factors including margin compression,
Citi agrees FY24 is likely to be the bottom for the current earnings contraction cycle. Therefore, looking forward, it will be the medium-term outlook that will drive the share price, and this is where uncertainty for investors has increased.
Management conceded there is no discernible path to the FY26 targets. With these targets likely to be relinquished in the second half, this creates uncertainty around future returns for a bank with a too-high cost of funds trying to compete in very competitive asset markets, Citi warns.
Management appears to be accepting the difficulty in achieving FY26 targets, Macquarie agrees. While this shouldn't surprise the market, given the structurally challenging operating environment for a small player with a weak deposit franchise, this broker continues to see a large risk to consensus numbers in FY25-26, particularly if rates stay higher for longer.
Management now concedes reaching the targets requires margin expansion, which may no longer be on the cards, says Jarden. Hence, management is considering other options such as a "bolder simplification" cost-out program, which the broker expects to hear more about at the full-year results.
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Bad Debt Risk
While the loan-loss charge was low, leading asset quality indicators deteriorated,
Capital was broadly in line with
The first half result lacked positive catalysts, says Macquarie, which about sums things up.
No Love
Last week
All of the other five brokers monitored daily by FNArena have a Sell or equivalent rating on the stock.
The consensus target among the six daily-monitored brokers is
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