Adelaide Bank (ADB) Update

Submitted by Craig Strzelecki on 20 March, 2007 - 17:31

Adelaide Bank (ADB) has seen their shares gain 8% over the past 24 hours, observed by analyst Macquarie Research Equities, following speculation that the Bank of Queensland (BOQ) bid for Bendigo Bank (BEN) could lead to further consolidation in the bank sector. With the renewed focus on the next round of consolidation activity in the banking sector, ADB's wholesale business model and currently un-stretched valuation (lack of any takeover premium being price in) make it stand out as a potential breakup target. Ultimately ADB as a whole is unlikely to be attractive to one single party given its range of businesses and wholesaling model, however it could lend itself to being broken up. Interested players could include MBL, GE, CGF, the major banks would be particularly interested in ADB's margin lending book.
The anlayst values Adelaide Bank (ADB) on a stand alone basis of about $13.50-14.00. Assuming 15% cost synergies, one could envisage a takeover valuation of up to $15.65. The 15% assumption is below typical bank merger cost synergy targets but reflects ADB diverse range of businesses and the fact the analyst expects any corporate activity may involve multiple players. Further, the analyst have not been aggressive on takeover synergies given it may be more difficult to extract full value for some of ADB's newer growth businesses (portfolio funding and Adelaide Managed Funds). The most attractive part of ADB's business is margin lending, where ADB is one of the larger players in the market and a significant premium can be justified. ADB's recent 1H07 result did increase confidence that ADB's earnings stumble may be confined to FY07 and the company could return to a 10% EPS growth profile in FY08. This supports a stand alone valuation of $13.50-$14.00 suggesting no premium for the possibility the stock is broken up is factored in at current levels. Given this and the market's focus on potential further consolidation in the sector following BOQ's bid for BEN, ADB could rally further in the short term.

Bendigo Bank Limited is listed on the Australian Stock Exchange (ASX) under stock code BEN. You can view their investor website here. BEN was listed on the ASX on 19 December, 1985. Robert Johanson is the chairman for Bendigo Bank and the managing director is Robert Hunt. The bank provides a range of banking and other financial services, including retail banking, business banking and commercial finance, funds management, treasury and foreign exchange services. Bendigo Bank is a publicly-listed company on the Australian Stock Exchange and is owned by more than 48,000 primarily small shareholders. A retailer of banking and wealth management services to households and small to medium businesses, it has a major presence across Victoria and Queensland and is growing its networks throughout Australia as it responds to new marketing opportunities and develops business alliances. Bendigo Bank continues its tradition of adding value for customers through quality personal service, but also provides customers with a wide range of self-help banking options such as 24-hour telephone and e-banking facilities. Adelaide Bank Limited is listed on the Australian Stock Exchange (ASX) under stock code ADB. You can view their investor website here. ADB was listed on the ASX on 28 May, 1992. The bank provides wholesale and retail banking services across Australia, principally in the business lending residential mortgages, margin lending, managed funds and personal banking sectors. Dr Adele Lloyd is the chairperson of Adelaide Bank and the Managing Director is James Lachlan McPhee. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade ADB. Check your charts and good luck with your share trading!