Three banks to buy

A lot has been happening in the banking sector with the latest that a majority of banks have increased mortgage rates for landlords by between 7 basis points and 15 basis points owing to concerns over property settlement etc. Given the scenario, we have the following three banks that still weigh high in terms of growth prospects and performance when it comes to core banking sector aspects. 

Bank of Queensland Ltd

BOQ Details
Expanding Finance business: Bank of Queensland Ltd (ASX: BOQ) recently announced about its plan to acquire Centrepoint Alliance Limited’s (ASX: CAF) Premium Funding business for $20m. This is a bolt-on acquisition for BOQ and will extend the BOQ Finance business. Further, Premium Funding has been considered to complement BOQ Finance’s existing product offering, and the acquisition will be immediately earnings accretive for BOQ. BOQ also intends to rebrand the acquired business. BOQ stock had fallen 13.9% this year to date but moved up 7% in last one month (as at December 20, 2016). The group’s loan growth momentum has improved in recent time. Further, solid profitability coupled with reliance on capital-light mortgage growth continue to support organic capital growth. In 2016, BOQ delivered an increased profit for a fourth successive year wherein cash earnings after tax increased by $3 million to $360 million from the prior year. For 2017, the group continues to mature its multiple distribution channels by further building out accredited brokers for Virgin Money to give BOQ access to 75% of the broker market. Further, the group is focusing on managing costs to be delivered through a number of initiatives. We give a ‘Buy’ recommendation on the stock at the current price of $ 12.06

 
BOQ Daily Chart (Source: Thomson Reuters) 

National Australia Bank Ltd

NAB Details
Decent cash earnings growth: National Australia Bank Ltd (ASX: NAB) reported that BlackWall had agreed terms with NAB as per which BlackWall-managed wholesale investment trust, Pyrmont Bridge Trust, will acquire bank’s interest in an $80 million property located at 55 Pyrmont Bridge Road. NAB stock has surged about 18.1% in last six months (as at December 20, 2016). For full year 2016, the group reported cash earnings growth of 4% to $6.48 billion while cash ROE grew 14.3%. The group’s balance sheet is strong with CET 1 ratio of 9.8% which is well above the 8.75% to 9.25% target range. However, the net profit attributable to the owners was down 94.4% to $352 million owing to loss on sale of CYBG and 80% of NAB Wealth’s Life Insurance business. On cash earnings basis, revenues rose 2.5% while expenses rose 2.2% and charge for bad and doubtful debts rose 7%. This was at the back of higher specific charges relating to impairment of small number of large single name exposures in Australian Banking. Otherwise, the group’s retail banking business is delivering strength in new customers, loan growth, and customer deposits.
 

Cash Earnings and underlying profit (Source: Company Reports)
 
In 2017, NAB expects itself to be a reshaped business. The group will also recognise its 20% share of profit associated with retained investment in life insurance business within continuing operations from 2017. We maintain our ‘Buy’ recommendation on the stock at the current price of $ 30.56

 
NAB Daily Chart (Source: Thomson Reuters) 

Australia and New Zealand Banking Group Limited

ANZ Details
Moved up to number three market share position in home lending in Australia: Australia and New Zealand Banking Group Limited (ASX: ANZ) stock has risen 26.24% in the last six months (as at December 20, 2016) although concerns about housing and soft economic conditions have weighed over the stock in the past. For ANZ, lending growth seems to be covered by deposit growth while underlying earnings growth is expected to be moderate. In 2016, the bank also moved up from number four position in home lending in Australia to number three market share position. On the other hand, 2016 was marked as a transitional year wherein statutory profit after tax of $5.7 billion was down 24%. Various items, primarily related to initiatives that have been expected to deliver future benefits, impacted the profit. For instance, restructuring charge and a change to the application of accounting policy to accelerate software amortisation are few of the items that impacted the performance. Further, the total dividend of 160 cents per share fully franked was down 12% against the prior year. However, ANZ believes that this provides a more conservative and sustainable, fully franked dividend base. The group lately announced about removal of the CPS2 of Australia and New Zealand Banking Group Limited from quotation from the close of trading on 19 December 2016 following the cancellation of the securities. We give a ‘Buy’ recommendation on the stock at the current price of $ 30.30

 
ANZ Daily Chart (Source: Thomson Reuters)

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