I am a keen supporter of BEN also.If i were to own a banking...

I am a keen supporter of BEN also.

If i were to own a banking stock, this would be the ONE & ONLY.

The risks are higher with BEN (high exposure to swings in the residential property market & small/business loans)... however, the rewards are infinantly higher also.

BEN are on an expansion party that could last a decade.

They've primarily rolled out their franchised banking model in small/medium towns. They've still got the major capital cities to expand into- enormous opportunities.

The fact that their expansion is in the preliminary stages naturally means that their cost to income ratio will be higher than other banks. This is not a threat- it's an opportunity, 'cause as their established branches mature (with bigger customer bases), their cost/income will naturally reduce.

The beaut thing about their business model is that they don't commit alot of capital to local franchised branches. They provide the intellectual capital, training, skills base, access to capital markets, etc... which are critical to the success of the branches, but which cost BEN only a few pennies.

In return for use of their name "the Bendigo Bank', and intellectual capital, the franched branches return a significant portion of the after tax profits to BEN. ie. BEN shares in very little risk, but a large part of the returns.

The owners of the branches (the franshisees- ie. the community member who have provided capital) are shareholders in each individual branch, and are thus incenticised via a share of the after tax profits. ie. their interests are alligned with those of BEN.

The recognition of the' Bendigo Bank' name in the capital cities is quite high already, imho, but will only increase further as the expansion gathers pace. High recognition, combined with an unrivaled level of trust in the brand name will ensure Bendigo Bank will be very successful in their capital city expansion when growth opportunities in regional areas reduce.

The key risks for BEN in the medium term, imho, are:

1. A downturn in the property market/ business cycle- leading to increased bad debts.

2. A competitor duplicating their business model, which would lead to competition, and thus BEN being in a less powerful position when negotiating with potential franchisees in future (would lead to a lower share of margins). The sheer scale of the Aussie market versus BEN's current size, however, would ensure that the impact of such an event on BEN as minimal.


Looking forward, if bad loans are kept under control (which they could easily achieve by securitising), BEN should continue delivering PAT growth in excess of 30% for atleast the next five years.

BEN are currently positioned for growth as was Harvey Norman in later 80's/early 90's, imho.

They have a huge competitive advantage (their community banking model) which their competitors have not as yet recognised...

... and they know it!