Bendigo and Adelaide Bank’s share price copped another bruising on Tuesday after broking analysts issued a raft of earnings downgrades.
The company’s scrip closed down 36 cents or 3.6 per cent to A$9.52 following the deep selloff on Monday after the release of the 2022 full year profit.
Around 8.3 million shares were traded yesterday, which is more than four times the average daily turnover of the stock this year.
The big takeaway for investment analysts attending an online briefing following the full year profit announcement is that Bendigo is less likely to match the interest margin recovery of other listed retail banks over the next 12 months.
Chief financial officer Andrew Morgan revealed that the benefit of rising official rates on the group net interest margin could be crimped in 2023 by the bank having to claim a smaller proportion of profits generated through a network of 300-plus community-owned branches.
Analysts have published wide-ranging assessments of what the impact of the revenue sharing arrangements with community branches will be on the bank’s margins and earnings in 2023.
However, there is a consensus that the revenue sharing deals are likely to deliver a relatively negative impact on Bendigo’s performance metrics in 2023, including the net interest margin.
Goldman Sachs analyst Andrew Lyons, who previously had a “buy” recommendation on the bank, has lowered his rating to “neutral”.
Lyons has slashed his earnings per share forecasts over the next three years, including a 10.3 per cent downgrade for 2023.
In a report issued late Monday night, Lyons told clients that the 2022 result showed that the market had underestimated the extent to which Bendigo would have to “pay away” the benefits of higher cash rates to its distribution partners such as the community branches.
Lyons now estimates that Bendigo will improve its net interest margin by only two basis points in 2023 – well down on his previous call of a nine bps recovery.
Barrenjoey analyst Jonathan Mott has lowered his investment recommendation to “underperform” from “neutral”.
Mott described the bank’s guidance on the trajectory of its net interest margin as “disappointing” and highlighted future risks to earnings of the company relying on community partners and brokers to originate new loans.
“Third party mortgages have been growing at a 30 per cent compound annual growth rate over the past three years,” he observed in a report.
“In our view, Bendigo should continue to focus on reinvigorating proprietary mortgages, as it is stickier and less price sensitive, leading to higher returns.”
Mott also questioned whether Bendigo was strategically positioned to deliver on its goal of improving its return on equity to around ten per cent.
“Bendigo is targeting increasing its return on equity above its cost-of-capital, which it estimates is around ten percent,” he wrote.
”We believe it will be challenging for it to achieve these targets given an increasing proportion of its net interest income is being paid to partners and third parties, inflationary cost pressure and a normalisation in credit charges.”
Mott has lowered his price target for Bendigo scrip by 9 per cent to $9.
Macquarie analysts Victor