The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has fallen 16% in two days, making it one of the worst performers in the S&P/ASX 200 Index (ASX: XJO). This decline has come after the ASX bank share reported its FY25 half-year result.
Investors clearly didn't like what they saw in the update, with margins and profit lower than expected.
Strong reaction like this to a result is normally when the business underperforms to what the market was expecting, rather than the financial numbers being bad themselves.
Let's look at what went wrong and whether the Bendigo Bank share price may be a buy.
Bendigo Bank reported that in the first six months of FY25, its cash earnings after tax of $265.2 million declined by 9.7% compared to the second half of FY24.
The net interest margin (NIM) – a measure of how much profit banks are making on their lending, including the funding costs – declined six basis points (0.06%) half over half to 1.88%.
The ASX bank share said it "experienced significantly increased demand for both lending and deposit products". However, it also said its earnings have been challenged on both the income and expense lines. The income was impacted by margin pressures due to higher funding costs to support faster loan growth.
Bendigo Bank revealed that, compared to the second half of FY24, residential lending increased 5.3% to $65.2 billion, and customer deposits rose 5.4% to $72 billion.
Broker UBS said the HY25 result was "disappointing", with cash earnings per share (EPS) down 10% half over half, with the main focus being the "substantial miss" on NIM when UBS was expecting 1.94% (compared to the reported 1.88%).
The broker also noted that the ASX bank share's return on equity (ROE) of 7.6% remained below Bendigo Bank's cost of equity (COE).
UBS decided to reduce its EPS estimates for FY25, FY26, and FY27 by 2.5%, 5.8%, and 4.1%, respectively.
The broker explained what could influence the bank's attractiveness from here:
The outlook for an improvement in structural profitability for BEN, in our view, continues to hinge on its ability to protect NIM (declining interest rates and funding above mkt loan growth). We think BEN has valuable distribution options via Tiimely and a large client base through Up, and white label arrangements. In a commoditised, balance sheet-driven banking market, however, BEN's smaller size and weaker per-unit economics remain constraints to delivering higher levels of profitability with ROE > COE , in our opinion. Credit costs should revert at some stage, too, negatively impacting ROE.
UBS decided to lower its price target on Bendigo Bank shares from $11.50 to $11. That's where the broker thinks the share price will be in 12 months, which implies a possible fall of 2%. UBS rates the stock as a sell.
The broker noted that the company is now trading closer to its long-term averages for the price-earnings (P/E) ratio and price-to-book ratio.
According to the estimates, the Bendigo Bank share price is trading at 13x FY25's estimated earnings.
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