Australia And New Zealand Banking Group Limited

ANZ Details

FY20 Results Highlights: Australia And New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial products and services to individual and business customers. For the year ended 30^th September 2020, the bank recorded a statutory profit after tax of $3.58 billion, reflecting a fall of 40% over FY19 and cash profit for the year moved down by 42% to $3.76 billion. This fall was mainly led by full-year credit impairment charges of $2.74 billion. Despite the fall in profits, the banks Common Equity Tier 1 Capital Ratio stood at 11.3%. Further, the bank reported a liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) of 139% and 124%, respectively. Notably, both the ratios are well above the minimum regulatory requirement of 100%. In addition, the bank has decided to pay a final dividend of 35 cents per share on 16^th December 2020, reflecting a dividend payout ratio of 35% on a cash profit basis for 2H FY20.

Key Metrics (Source: Company Reports)

Outlook: Going forward, the company would continue to reshape the portfolio. In addition, ANZ would also work on priorities established in 2016, which include generating a purpose and values-led transformation.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: ANZ stated that it is set to take benefits of future opportunities and deliver new capabilities. In FY20, the collective provision (CP) balance increased to $5,008 million. The stock of ANZ has provided positive returns of 9.16% and 30.22% in the past three and six months, respectively. The stock is trading lower than the average 52-weeks price level band, offering decent opportunity for accumulation. We have valued the stock using the P/BV multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). On a technical analysis front, the stock of ANZ has a support level of ~$16.941 and resistance level of ~$21.218.  Therefore, considering the banks’ decent capital and liquidity levels, modest outlook, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the current market price of $20.190 per share, up by 5.046% on 10^th November 2020.

ANZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Medibank Private Limited

MPL Details

Growth in Revenue from External Customers: Medibank Private Limited (ASX: MPL) is a private health insurer, which is involved in underwriting and distributing private health insurance policies under its two brands, Medibank and ahm.  Despite the challenges posed by COVID-19, the company’s business is well-placed to deliver future growth. For the year ended 30^th June 2020, revenue from external customers amounted to $6,769.6 million, indicating a rise of 1.7% against FY19. MPL reported a net profit after tax of $315.6 million, reflecting a fall of 27.9% over FY19. This indicates the fall in Health Insurance operating profit as well as the significant fall in investment income. Medibank Health operating profit for the year witnessed a fall of 12.8% and stood at $461 million. The group declared a final ordinary dividend of 6.3 cents per share, representing a payout ratio of 90%.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company is targeting to ramp up its market share and achieve total policyholder growth of over 1%. In addition, MPL is also aiming for inorganic growth for Medibank Health and Health Insurance.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $871.4 million as compared to $656.5 million in pcp. The stock of MPL has corrected 2.47% and 1.77% in the last three and six months, respectively. As a result, the stock is inclined towards its 52-low level of $2.450, offering decent opportunities for accumulation. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). On a technical analysis front, the stock of MPL has a support level of ~$2.546 and a resistance level of ~$2.841.  Thus, in light of the company’s increased cash balance, modest outlook, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the current market price of $2.760 per share, down by 2.128% on 10^th November 2020.

MPL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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