Company Overview - Australia and New Zealand Banking Group Limited (ANZ) provides a range of banking and financial products and services to retail, small business, corporate and institutional clients. The Company conducts its operations in Australia, New Zealand and the Asia Pacific region. The Company has 1,220 branches and other points of representation excluding Automatic Teller Machines (ATMs). The Company operates on a divisional structure with Australia, International and Institutional Banking (IIB), New Zealand and Global Wealth. ANZ’s business consists of raising funds through customer deposits and the wholesale debt markets and lending those funds to customers. ANZ also operates in other countries, including the United Kingdom and the United States
 

ANZ Dividend Details

 
Enhancing Asian exposure to leverage booming opportunity from China: Australia and New Zealand Banking Group (ASX: ANZ) is positioning itself to leverage the booming potential opportunity from Asia. Based on the recent survey by ANZ regarding Australia’s business experience in Asia, greater than half of the Australian businesses firms which were surveyed were already present in Asia while three quarters reported that their Asian operations boosted respective business profits. Asia represents over a quarter of global economic output, and increased by 17% over a period of last twenty years. ANZ estimates Asia’s share to grow to 35% by 2030, as over three billion people in Asia are expected to reach the middle class. Around 2.5% of the Chinese foreign direct investment was devoted in Australia in 2010, and at the similar rate, Chinese are estimated to invest more $200 billion in Australia by 2030. Over 47% of the surveyed business reported that profit margins in Asia were higher as compared to Australian profit margins. The bank is targeting this potential opportunity and has been expanding its presence in Asia since 2007. Asian region currently contributes over 20% of the Australia and New Zealand Banking Group’s revenues. Greater China region is the third major market for the bank following the Australia and New Zealand regions, and delivered 20% profits increase during 2015. ANZ also expanded their presence into India, Myanmar and Thailand, and has over 11 branches in China. The bank estimates its Asian region to generate a growth of 5% during 2016 with China estimated to deliver over 6% growth despite challenging market conditions in the region.
 

Potential Asian opportunity as compared to US and Europe regions (Source: Company Reports)
 
Improving small business performance: ANZ has been diversifying its portfolio and focused on improving home loans, credit cards and small business during 2015. Accordingly, the bank was able to generate a lending growth of 8% during fiscal year of 2015 on the back of better home loans and business lending as compared to its peers. The group was able to attract around 150,000 new retail customers in Australia in 2015. The group’s Commercial banking in Australia delivered a solid performance during the period while ANZ pledged over $2 billion in lending to boost its small businesses. ANZ is a leading bank in small to medium sized enterprises in New Zealand, indicating its strong customer satisfaction in the region. Strong performance of the group’s life insurance and private banking business drove its overall Global Wealth business, resulting to a cash profit increase by 11% during 2015.
 

Built a diversified business (Source: Company Reports)
 
Solid Core Business performance: Australia and New Zealand Banking Group managed to report a statutory profit after tax increase of over 3% year on year (yoy) to $7.5 billion during 2015, driven by its core Australian and New Zealand business in spite of pressure from China. Australian Division cash profit surged by 7% yoy in fiscal year of 2015, boosted by rising customers from New South Wales while cash profit in New Zealand rose 3% yoy on the back of expanding market penetration in the region’s home loans and credit cards.But, the bank’s cash profit rose only 1% yoy to $7.2 billion impacted by decrease in cash profits from China, which declined  by  2% on a yoy basis. On the other hand, ANZ is strengthening its capital position to comply with APRA standards as well as short term pressure in the market. Accordingly, the group’s Common Equity Tier 1 capital has improved to 9.6% during 2015 as compared to 4% in 2007 while the overall assets more than doubled to over $900 billion. The bank’s loan-deposit ratio also enhanced to over 170% during 2015 from 130%. The group increased its total dividends by 2% to $1.81 in 2015 while maintained its cash earnings per share at $2.60 during FY15, driven by its capital raising initiatives during August. ANZ generated a Return on Equity on a cash basis of 14% during 2015.
 

Strong performance over the past few years (Source: Company Reports)
 
Smooth Management Transitions: Shayne Elliott would be replacing Mike Smith as the new Chief Executive Officer from this month. This is a major transition for the group as Mike undertook major steps during his eight years tenure as a CEO. He launched Super Regional Strategy to target the growing Asian opportunity and strengthened the bank’s brand in core as well as international markets. But Shayne Elliott has been serving the bank as the Chief Financial Officer and comes with more than thirty years’ experience in international banking which includes United States, Australia, New Zealand, Asia, the United Kingdom and the Middle East. Shayne Elliott was involved in several roles related to Finance, Strategy, Legal, Treasury and Investor Relations.
 
Digital initiatives to boost customer satisfaction: Around 2 million of Australia and New Zealand Banking Group’scustomers perform their banking via their mobile phone, while over a half a million transactions are performed from mobile phone via the group’s goMoney or Grow apps. Institutional customers also perform several tasks like payments and managing foreign exchange using ANZ apps or online services. Therefore, ANZ is taking a step forward by redesigning its branches with a ‘digital format’ to ensure that these branches offer more services to meet the growing customer demands. These initiatives include the bank’s social media initiatives like BlueNotes – ANZ digital Publication for news and insight to engage a new generation of customers.
 

Growing Capabilities and delivering strategies (Source: Company Reports)
 
Stock Performance: The shares of Australia and New Zealand Banking Group plunged over 13.3% during 2015 (as of December 31, 2015) as declining commodity prices coupled with increase in levels of liquidity impacted the group’s trade and cash management businesses. Global Markets continued to witness pressure especially during the end of 2015, consequently impacting the bank’s performance. Moreover, ANZ’s impairment for bad and doubtful debts increased by 20% yoy to $1.2 billion during fiscal year of 2015 adding pressure to the stock’s performance last year. The bank’s net interest margin also fell to 2.04% during the period as compared to 2.13% in prior corresponding period. Slowdown in China economy further posed pressure to the stock on investors’ concerns over the bank’s exposure over the region. On the other hand, ANZ’s management clarified that its China’s exposure at default accounted only 3% of the bank’s EAD, even though the bank’s total Institutional Asia Exposure constituted 12% of the group’s EAD. Despite short term pressure, the group expects a strong potential opportunity from China and other Asian regions. The bank also achieved a strong score of 94 out of 100 on the Dow Jones Sustainability Index, indicating the bank’s strong brand presence. ANZ has been enhancing its capital position to offset the short term pressure as well as continues to focus on its core business which would contribute growth in the coming periods. Meanwhile, with the correction in the bank’s share prices during 2015, we believe that investors need to leverage the opportunity to enter the stock. ANZ is also trading at attractive valuations, with a low P/E of about 10.8x, as compared to its peers. Australia and New Zealand Banking Group has a solid annual dividend yield of about 6.5%. The stock has been consolidating since the last three months and slightly rose by 1.5% (as of December 31, 2015). We believe that the stock has the potential to rise further in the coming months and based on the foregoing, we maintain our “BUY” recommendation on the stock at the current levels of  $27.53
 
 
ANZ Daily Chart (Source: Thomson Reuters)

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