Bank of Queensland's second-half operating trends were better than Morgan Stanley expected. A final dividend of 12c equates to a full-year payout ratio of circa 47%.

FY21 guidance was optimistic and provides for broadly flat jaws with circa 2% cost growth.

With revenue increasing by circa 2.5% in the second half, management believes momentum is building and expects "above system" loan growth. Margin decline is expected to be circa 2-4bps. 

To achieve a loan growth of circa 6%, Morgan Stanley thinks the bank's retail net run-off will need to end in the second half of FY21. Specialist home loan growth and commercial loan growth will need to return to pre-covid levels. The broker also thinks it will be challenging to achieve margin guidance.

Earnings growth forecasts for FY21-22 have been upgraded.

Considering the stock fairly valued, Equal-weight rating has been retained. Target rises to $6.20 from $5.70. Industry view: In-line.

Sector: Banks.

Target price is $6.20.Current Price is $6.88. Difference: ($0.68) - (brackets indicate current price is over target). If BOQ meets the Morgan Stanley target it will return approximately -11% (excluding dividends, fees and charges - negative figures indicate an expected loss).

© 2020 Acquisdata Pty Ltd., source FN Arena