Six Fully Franked Banking Sector Stocks

MyState Ltd

MYS Details
Strong loan book growth: MyState Ltd (ASX: MYS)recorded a 0.8% and 0.7% growth in its first half financial year 2017 operating income and net profit after tax, respectively. Home loan book recorded a strong 15% growth to $3.94 billion, while customer deposits also surged 16% to $2.93 billion. The company believes that it has focused on its approach to low-risk growth, and continued to improve credit performance, with low arrears and loan impairment. Also, during the first half, the company introduced new digital services to benefit customers, including Android Pay, Apple Pay, and new MyState Bank internet banking and mobile banking apps. MYS had announced that it would partially underwrite its Dividend Reinvestment Plan (DRP) for the first half 2017 dividend payment.
 

Applications and settlements (Source: Company Reports)
 
The DRP has been expected to provide almost $6.7 million in capital will price the shares at a 2.5% discount to the volume weighted average price of MYS shares over the trading days between February 27, 2017 and March 03, 2017. The funds will be used to assist further lending growth and currently ongoing technology investments under the MyState transformation program. The stock has been added to S&P/ASX 300 Index effective March 20, 2017. We believe that the stock is a "Speculative Buy" at the current share price of $ 4.65

 
MYS Daily Chart (Source: Thomson Reuters) 

Australia and New Zealand Banking Group Ltd

ANZDetails
Stable first quarter: Australia and New Zealand Banking Group Ltd (ASX: ANZ)has inked an agreement with CMC Markets for providing a market leading share trading solution to customers under the ANZ Share Investing brand. As per the first quarter performance updates, the bank recorded a quarterly cash profit of $2 billion, an increase of 31% mainly driven by a good performance in Australia and New Zealand Retail and Institutional segments along with a lower provision charge and the sale of 100 Queen Street. Statutory net profit rose 8% to $1.6 billion led by market share gains in customer deposits and Australian home lending, and further gains in new-to-bank customers driven by the success of ApplePay and AndroidPay. Also, the bank stated that institutional banking performed well in Australia and Asia and this supported the revenue impact of initiatives to improve capital efficiency and returns. As of December 31, APRA common equity tier 1 (cet1) ratio was 9.5%. Group Net Interest Margin (NIM) declined several basis points reflecting lower earnings on capital and higher funding costs driven by improving liability mix from strong deposit growth. For the quarter, total provision charge stood at $283 million with individual provision charge of $325 million. Looking ahead, provision charge in 2017 is expected to remain broadly similar as a percentage of gross lending assets. ANZ has entered into an enforceable undertaking with Australian Securities and Investments Commission (ASIC) with regards to wholesale Spot FX trading.In the past six months, ANZ stock price has increased 19.61% and we maintain a “Hold” on the stock at the current share price of $ 31.58

 
ANZDaily Chart (Source: Thomson Reuters) 

Bank of Queensland Ltd

BOQDetails
Accretive acquisition: Bank of Queensland Ltd (ASX: BOQ) in December 2016 confirmed that it finished the acquisition of Centrepoint Alliance Ltd’s (ASX: CAF) premium funding business. The acquired business will be rebranded and it will form a new division within BOQ finance. In the 12 months to June 30, 2016, CAF’s premium funding business funded $377 million in Gross Written Premiums through more than 420 commercial insurance broker relationships. Under BOQ ownership, the business will benefit from funding cost synergies and also providing opportunities for expansion. As per the latest report, the bank's total capital ratio decreased to 12.2% ($3.4 billion) as of November 2016 as compared to 12.3% as of August 2016. Looking ahead, although marginal to financial year 2017 earnings, the latest acquisition will be immediately earnings accretive. We give the stock a “Buy” rating at the current share price of $ 11.83

 
BOQDaily Chart (Source: Thomson Reuters) 

Commonwealth Bank of Australia

CBADetails
Positive contribution:For the half year ended December 31, 2016, Commonwealth Bank of Australia (ASX: CBA) recorded $109 billion in new lending to personal and business customers with 140,000 new home loans. This included 15,000 first home buyers. Meanwhile, $3.5 billion new loans were given to $12,700 small businesses, $1.2 billion new lending to farmers and other rural customers. There were 1.5 million new deposit accounts during the first half.
  
In terms of financial performance, statutory profit increased 6% to $4.89 billion and cash net profit after tax rose 2% to $4.9 billion. However, the stock has risen 17.03% in the last six months (as at March 16, 2017) and is placed at higher levels. We rate the stock as "Expensive" at the current share price of $ 84.77

 
CBA Daily Chart (Source: Thomson Reuters) 

National Australia Bank Ltd

NABDetails
Stable financial fundamentals:National Australia Bank Ltd (ASX: NAB) recorded almost $1.6 billion in cash earnings during the three months ended December 2016 while the revenue grew by 1%. Net interest margin remained stable maintaining similar profitability levels on the written loans. Also, bank reported a 23% decline in the charge for bad and doubtful debts for the quarter to $164 million. During the quarter, the bank reported 5% higher expenses eating into profits owing to high staffing costs which is mainly driven by a new enterprise agreement that came into effect in October, and redundancy payments to staff whose jobs had been cut. There have been three new appointments to the NAB Group Executive Leadership team – Mike Baird, as Chief Customer Officer, Corporate and Institutional Banking, Sharon Cook, for the role of Chief Legal and Commercial Counsel, and Patrick Wright, as Chief Technology and Operations Officer. The bank has welcomed the release of ASIC’s report into mortgage broker remuneration structures. NAB is also trying to balance its entire mortgage portfolio and has brought changes to its home loan interest rates, including a new special fixed rate for first home buyers (the lowest rate offered by NAB in its history) and increases to interest rates for new and existing owner occupier and residential investor borrowers. NAB has raised rates by 7 basis points for owner-occupiers and by 25 basis points for investors; and this might help the bank deliver an additional $220 million. The stock has risen 18.07% in last six months as at March 16, 2017, and we give a “Hold” rating at the current share price of $ 32.12

 
NAB Daily Chart (Source: Thomson Reuters) 

Westpac Banking Corp

WBC Details
Rise in bank’s exposure at default:Westpac Banking Corp(ASX: WBC) reported for common equity Tier 1 (CET1) capital ratio of 9.26% at 31 December 2016, down 22 basis points from 30 September 2016. The Total Risk weighted assets (RWA) surged $1.4 billion (0.3%) in the quarter. Further, bank’s exposure at default (EAD) increased $23.4 billion (up 2.4%) owing to a $10 billion increase in sovereign exposures associated with an increase in liquid assets and from growth in residential mortgage exposures of $8.2 billion. Like ANZ, WBC has also entered into an enforceable undertaking with Australian Securities and Investments Commission (ASIC) with regards to wholesale Spot FX trading. WBC also announced about increasing rates by 3 basis points on variable rate loans for owner-occupiers with principal and interest payments, and by 8 basis points for owner-occupiers with interest-only loans. WBC stock price has recorded a 15.82% gain in the past six months peaking relatively closer to its 52-week high levels. We rate WBC as "Expensive" at the current share price of $ 34.65

 
WBC Daily Chart (Source: Thomson Reuters)

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