Australia And New Zealand Banking Group Limited

ANZ Details

A Look at Full-Year 2019 Results: Australia and New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial products and services to individual and business customers. The market capitalisation of the bank stood at ~A$78.35 Bn as on 31^st October 2019. Recently, the bank has updated the market with its results for the 12 months ended 30^th September 2019, wherein it reported cash NPAT amounting NZ$1,933 Mn, reflecting a rise of 2% as compared to the previous year. It added that this has been benefited from the sales of life insurance company OnePath Life (NZ) Limited and ANZ New Zealand’s 25% share in Paymark Limited. The Acting CEO of ANZ New Zealand stated that the bank’s full-year result reflected a solid underlying performance. However, it had been a challenging 12 months for ANZ New Zealand reputationally.

ANZ announced a proposed 2019 final dividend amounting to 80 cps, partially franked at 70%. New Zealand imputation credits of NZD 9 cents per share would also be attached. The following picture provides an idea of key dates for 2019 final dividend and the associated DRP and BOP (Bonus option plan):


Key Dates (Source: Company Reports)

What to Expect:ANZ’s key personnel stated that the housing market of Australia is slowly recovering, however, it anticipates challenging trading conditions to be continued for the foreseeable future. ANZ anticipates the operational improvements made to its Australian home loans business to help restore market share in its targeted segments. Record low-interest rates and intense competition would continue to impact profitability.

Stock Recommendation:The bank is engaging with APRA and Reserve Bank of New Zealand on their announced proposals, which could lift the amount of capital that is required in order to support its New Zealand subsidiary. Onthevaluation front, the stock of ANZ is trading at a price to book multiple of 1.3x as compared to the industry average of 2.8x on TTM basis. It has EV to Sales multiple of 4.1x as compared to the industry average of 10.2x on TTM basis. CET1 capital ratio for the bank stands at 11.4%, in-line with FY18 levels. On the stock’s performance front, it produced a return of 15.84% on YTD basis and witnessed a rise of 7.72% in the time span of one year. Therefore, considering the recovery in the housing market, operational improvements, decent outlook along with a track record of paying dividends consistently (while franking has been lowered to a new base), we give a "Buy" recommendation on the stock at the current market price of A$26.740 per share, down 3.256% on 31st October 2019.

 
ANZ Daily Technical Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation

WBC Details

Ratings Upgraded by S&P:  Westpac Banking Corporation (ASX: WBC) is one of the leading banks in Australia and has a market capitalisation of ~A$99.64 Bn as on 31^st October 2019. As per the recent release dated 28^th October 2019, WBC has acknowledged the judgment by the Full Federal Court, which is related to the provisioning of financial product advice, in which the Court allowed ASIC’s appeal and dismissed Westpac’s cross-appeal. It was also mentioned that this decision relates to a test case brought by ASIC against Westpac Securities Administration Limited and BT Funds Management Limited in relation to calls to 15 customers concerning the rollover of their superannuation accounts. However, WBC is carefully considering the judgment.

In another update, it was mentioned that S&P Global Ratings has upgraded WBC’s stand-alone credit profile as well as the rating on certain capital instruments.After a regular review of its Banking Industry Country Risk Assessment, S&P Global Ratings has raised its Economic Risk assessment of Australia to 3 from 4. Post this change S&P upgraded WBC’s stand-alone credit profile by one notch to ‘a’ from ‘a-’.
S&P also increased the rating on certain capital instruments issued by WBC by one notch.  Securities impacted include (1) Basel III compliant Tier 2 instruments to 'BBB+' from 'BBB' and (2) Basel III compliant Additional Tier 1 capital instruments to 'BBB-' from 'BB+'.


Cash Earnings Impact (Source: Company Reports)

Future Aspects:In 1H FY19 results, the bank stated that the economy would be supported by the robust government investment and exports, in resources and services. The bank also expects that its service-led strategy remains the best way when it comes to create value for its shareholders.

Stock Recommendation:As at 30^th June 2019, the bank reported a CET1 capitalratio of 10.5% as compared to 10.6% in March 2019, reflecting a marginal decline. The bank is currently trading at a price to book multiple of 1.6x against the industry average of 2.8x on TTM basis. It has a price to cash flow multiple of 11.9x as compared to the industry median of 13.3x on TTM basis. The stock generated a return of 3.78% and 6.37% in the time period of six months and one-year, respectively. Currently, the stock is trading close to its 52-week higher levels of A$30.050 with a price earnings multiple of 13.85x and an annual dividend yield of 6.58%. Hence, considering the recent upgrade of ratings by S&P, decent fundamentals, and current trading levels, we reiterate our “Hold” recommendation on the stock at the current market price of A$28.210 per share, down 1.191% on 31^st October 2019.

 
WBC Daily Technical Chart (Source: Thomson Reuters)

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