Question 1: What is your opinion regarding Bank of Queensland (BOQ)? I bought the stock at $9.30 and it is now down to $7.79. Do you think it is a stock to get out of?
Answer: The major brokers are very bullish on BOQ. They have a target price of $10.45 comparted with a last ASX price of $7.64 – implying about 36.8% upside. Range is a low of $10.00 through to a high of $11.00. All have “buy” recommendations.
To invest in the regional banks, I think you need a reasonable discount compared to the major banks. Their asset mix is more concentrated, they are under-invested in technology and really, the customer offering is not that much different to the major banks. In some cases, it is inferior.
At $7.64, BOQ is trading at a multiple of 10.3 times forecast FY22 earnings and 10.0x forecast FY23 earnings, with a forecast yield of in excess of 6.0%. By contrast, ANZ is trading at a multiple of 12.4x forecast FY22 earnings and 11.8x FY23, Westpac is 13.3x forecast FY22 earnings and 11.0x FY23. So BOQ is at a bit of a discount, and on that basis, is probably worth holding.
Question 2: Is Washington Soul Pattinson (SOL) worth holding as the share price has been falling?
Answer: The problem with Washington H Soul Pattinson (SOL) is that a number of institutions won’t touch it (due to governance considerations) and it has very limited broker analyst coverage. It is a conglomerate, with major and very diverse holdings in Brickworks, TPG, New Hope and Round Oak Minerals (copper & zinc miner).
On the plus side, it boasts an impressive long term performance record.
Only one major broker covers it – that’s Morgans, who have a target price of $36.78 compared to a last ASX price of $30.76.
I would only hold SOL if I was bullish about the underlying assets.
Question 3: How will the Westpac off-market share buyback go? What will be the tender discount?
Answer: Because the Westpac share price has fallen more than 20% since the buyback was announced, and it has a relatively high capital component, this buyback will not be as keenly supported as either the Commonwealth Bank or Woolworths buybacks. Its significantly lower franked dividend component makes it much less attractive.
I expect the tender discount to be about 8%. I certainly can’t see the market pricing it at a 14% discount. At the end of the day, it will depend on the major super funds (and they play their cards pretty closely). My take – only tender if you are in pension phase (i.e. a 0% rate taxpayer), and then probably at the minimum of 8%.
Question 4: What was the outcome of the Macquarie Share Purchase Plan?
Answer: Somewhat surprisingly, Macquarie elected not to scale back its share purchase plans, so participants got whatever they requested (up to $30,000). As a result, Macquarie raised $1.3bn in new equity.
New shares were issued at a price of $191.28.
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