Australia and New Zealand Banking Group
Increasing Shareholder’s Value: Australia and New Zealand Banking Group Ltd (ASX: ANZ) continues to perform well as the company posted good numbers and rewarded shareholders with dividend despite current challenging Banking environment in the country. Furthermore, the company posted higher Gross loan advances and customer deposits in 1H FY18 compared to the previous corresponding period. The group is aiming towards creating a simpler and more agile bank and in this regard, they have reduced operating costs and risks by winding up the low return and non-core business. The company has sold off its six retail and wealth businesses in Asia, stake in Shanghai Rural Commercial Banks and the first tranche of Metrobank Card Corporation. The company also announced the sale of Australian life Insurance business followed by the sale of Australian Pensions and Investments and Aligned Dealer Group. Net interest margin came in at 1.93% in 1HFY18 in line with the Industry median of 1.97%. The bank has also seen an increase in the deposit growth of 2.0% which again meets the industry standards at 2.2%. The company declared an interim dividend of 80 cents per share, fully franked indicating the payout ratio of 66% of Cash Profit on a continuing basis. The dividend payment is aligned with ANZ’s target of fully franked full-year payout ratio of 60 to 65%.
Recently, the group announced interest payment of AUD 225,000,000 with the Interest rate of 4.75% for the fixed rate subordinated notes due 7 September 2032 (Series 1928, Tranche 1) (ANZHAV) payable on 7 September 2019 with the record date on 6 September 2019.
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Risk Adjusted Margins & Returns (Source: Company Reports)
Meanwhile, the stock has been under pressure this year generating negative YTD return of 0.63%. However, the downside in the stock looks limited as it has taken support around the level of $28.12 with the decrease in volume suggesting that selling from the top has slowed down and the rebound from the current levels might be witnessed. Efforts of the bank to streamline its business, cut down operating cost and increase home loan rate to curb the wholesale funding costs are steps in the right direction. We therefore reiterate ‘Hold’ on the stock at the current market price of $28.260.
Rural Funds Group
Diversification underlines the growth: Rural Funds Group (ASX: RFF) has recently declared an unfranked dividend of $0.026075 per share, relating to the period of quarter one, with record date of 28 September 28, 2018 and payable on 31 October 2018. Focused on increasing productivity and diversification, RFF has recently acquired Cerberus – Cattle property acquisition which after the completion of stage one development program would increase the carrying capacity by 28% and enhance the infrastructure.
The company posted upbeat FY18 results with revenue of $51,087,000 compared to $41,573,000 in prior year. Increase in property revenue was largely underlined by rent on new acquisitions, lease indexation and rent on development capital expenditure. Earnings per unit increased to 17.26 cents from 16.73 cents in FY17. With JBS transaction and Comanche acquisition, the company has achieved higher sector diversification. Going forward, in FY19, RFF is looking to capitalize on the strategy further.
Sector-wise Diversification (Source: Company Report)
The company succeeded in earning a profit despite climatic challenges such as drought by devising climatic diversification strategy. Gross margin for the company came in at 97.3%, better than the Industry average of 71.4% indicating that RFF has earned more on each dollar sales after paying the direct cost. Operating margin at 79.7% outperformed the Industry average of 63.9%. The company has maintained a current ratio of 0.58X against Industry average of 0.61% indicating appropriate liquidity.
Stock Performance: The stock has delivered a negative year to date return of 4.30% with investors fearing the effect of droughts on the financial performance of the company. However, as the company defied the challenges of posting good results, the stock price breached its resistance level of $2.10 and moved higher. Going forward, the stock looks poised to grow as the company capitalizes on its diversification strategy and moves higher. We, therefore, maintain ‘Hold’ on the stock at the current market price of $2.170.
National Storage REIT
Unlocking value for shareholders: National Storage REIT (ASX: NSR) has recently announced the change of interest of substantial holder BlackRock Group wherein the voting power of the stakeholder has now been declined from the previous 6.78% to 5.27%. One of the directors, Howard Ewan Brenchley, on the other hand, has increased its stake in the company.
Total revenue in FY18 surged to $139.6 Mn compared to $117.5 Mn in FY17. Profit after tax for the company increased to $145.8 Mn in FY18 against $103.4 Mn in FY17. Based on the performance, NSR declared the final dividend of 4.9 cents per share for the 6 months to 30 June 2018. The total dividend paid for FY18 comes to 9.6 cents per stapled security for FY18.
The company has been consistently posting higher operating margin with the latest one coming at 56.6% compared to the industry median of 63.9%. The company has consistently managed higher ROE with the current being 201.5% against the industry average of 12%. NSR has sufficient liquidity as indicated by the quick ratio of 0.80x against an industry average of 0.72%
FY18 Financial Performance (Source: Company Reports)
Stock Performance: The stock has been rewarding the shareholders, generating Year to date return of 7.54%. The recent fall could have come on the account of profit booking, but the stock held its support of $1.65. Going forward, we believe that the company would keep generating value for its investors in the form of sound bottom line numbers and periodic dividends. We, therefore, maintain ‘Hold’ in the stock at the current market price of $1.670.
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