Market backs BOQ buy
Shares surge as investors and analysts welcome purchase of ME Bank
INVESTORS have endorsed Bank of Queensland’s purchase of ME Bank and its earnings trajectory, sending the stock up more than 9 per cent on Tuesday, as it ruled off the issue of new shares to institutional investors.
BoQ on Tuesday said of about $673m raised in the institutional component of its $1.35bn capital raising, the entitlement offer raised $323m at the issue price of $7.35 a share.
Take up reflected about 98 per cent of eligible institutional shareholders. The placement to fund managers raised about $350m, representing 48 million new shares.
BoQ’s shares surged as high as $9.33 on Tuesday, before retracing some ground to close 9.5 per cent up at $9.21.
The strong rally follows BoQ’s $1.325bn purchase of ME Bank, announced on Monday, that will create a lender with more than $88bn in assets, and $56.8bn in deposits.
“We are pleased that investors recognise the compelling strategic and financial proposition of this transaction and we are excited to work hard to deliver better outcomes for our customers, employees, the community and our shareholders,” BoQ chief executive George Frazis said on Tuesday.
The retail component of the BoQ’s capital raising — which starts on March 1 — together with the institutional entitlement offer, takes the expected size of the total equity raising to $1.35bn.
Several banking analysts revised their views on BoQ on the back of the ME transaction and an update on the bank’s interim earnings.
Jefferies analysts raised their rating on BoQ to “hold”, while Morgan Stanley upped its price target to $8.60 and held its “equalweight” rating on the stock.
“BoQ’s pre-provision profit is tracking 6-7 per cent above our forecast, while the financial implications of the acquisition are positive,” Morgan Stanley’s Richard Wiles said.
Credit Suisse analyst Jarrod Martin raised his BoQ price target to $9.50 from $7.60, after the ME transaction and a profit update was announced the bank.
“While not without risk we find the financial outcomes compelling with plenty of buffers. Versus our previous review the underlying earnings of ME Bank are higher, the expected synergies greater and integration costs appear conservative,” he said. “With complementary technology platforms execution risk appears less. As such we see this acquisition as a spring board to increase scale and lower risk.”