Bendigo Bank scrip was pummelled on Monday after it unveiled a sharp slide in full year profit and the board deferred a decision on whether to declare a final dividend to shareholders.
The bank reported a 49 per cent fall in annual profit to A$193 million for the 12 months to the end of June as Covid-related costs and margin attrition nullified above-system growth in home lending.
It was the lowest bottom line reported by the bank in eight years and triggered a 6.5 per cent dive in the share price to $6.54.
The stock could come under further selling pressure in coming weeks after managing director Marnie Baker declined to furnish guidance on the likely earnings trajectory for the current year.
“We expect market conditions to remain challenging and because of this we are unable to provide meaningful guidance for the 2021 financial year,” she said.
The uncertain outlook is accentuated by the austere lockdown measures in Victoria – Bendigo’s largest state lending market.
The result came in well below consensus forecasts, which prompted several leading analysts to lower their 2021 earnings estimates.
GoldmanSachs analyst Andrew Lyons has lowered his earnings per share forecasts for 2021 by 7 per cent. Lyons also dropped the 12 months share price target to $7.73 from above $8.
UBS analyst Jonathon Mott has retained a price target of $6.50 – a slight discount to the Monday close.
“It was a weak result given the challenging environment,” Mott told clients in a report.
“The overweight position in Victoria is likely to be drag through 2021.”
Bendigo chair Jacqueline Hey defended the decision to withhold a final dividend from shareholders, saying that it was the appropriate given the continuing impact of Covid-19 and regulatory focus on bank capital.
“Whilst economic uncertainty remains and the full impact of Covid-19 is still evolving, the board has acted prudently in considering the interests of shareholders and APRA’s industry guidance on capital management, to defer a final dividend decision,” she said.
“Ongoing stress testing continues to support the bank’s strong balance sheet and capital position.”
Cost blowouts and the bank’s heavy reliance on retail funding took a toll on group performance in the June half.
Bendigo’s cost to income ratio swelled 350 basis points to 62.7 per cent as it was forced to take on more staff to help service above-system lending growth in lending and more than 25000 applications for customer support packages.
All up, pandemic-related activities bloated the cost line by $146 million.
Full time staff headcount rose by 5.2 per cent, with the bank adding the equivalent of 236 full time positions last year despite a net reduction of 17 branches in the proprietary network.
The expenses blowout weighed heavily on the result and nullified the revenue uplift of the material market share gains the bank made in residential and commercial lending throughout the 2020 financial year.
Baker is under pressure to deliver on her cost reduction program that aims to streamline the group’s brands and technology platforms.
“Our commitment to be Australia’s bank of choice remains as we increase the intensity in our cost reduction programs to target a sustainable cost to income ratio towards 50 per cent in the medium terms.”
Bendigo seems poised to pare more branches from its network in the next 12 months as it tries to stem the likely damage to its bottom line flowing from the continuing economic crisis.
The bank currently operates a branch network of 707 outlets, of which 321 are community branches.
More than a third of the network (280 branches) is located in Victoria.