Australia And New Zealand Banking Group Limited

ANZ Details

Sale of Asset Finance Business: Australia and New Zealand Banking Group Limited (ASX: ANZ) provides banking, financial and related services. The market capitalisation of the bank stood at $51.85 Bn as on 1^st September 2020. Recently, the bank announced the successful completion of sale of UDC Finance (Asset finance business in New Zealand) to Shinsei Bank Limited, which was announced in the month of June 2020. This transaction is likely to cement the balance sheet. The bank has also issued $1,250,000,000 subordinated notes due February 2031 with respect to its Australian dollar debt issuance programme.

For Q3 FY20, the bank reported unaudited statutory profit after tax amounting to $1,327 million with an unaudited cash profit from continuing operations of $1,498 million. Net interest margin for the period stood at 1.59% as compared to 1.69% in 1H FY20. At the end of the quarter, the Group’s CET1 ratio (APRA Level 2) stood at 11.1%, while Pro Forma Group CET1 ratio (APRA Level 2) stood at 11.3%. ANZ has resolved to pay an interim distribution of 25 cents per share on 30^th September 2020, which was previously deferred due to COVID-19.

Key Financials (Source: Company Reports)

Outlook: The bank is committed to its cost ambition of $8 billion and is dedicated towards managing the COVID-19 crisis. ANZ continues to focus on strategic clarity, prudent risk settings, and execution discipline. In addition, the bank is uncertain about the depth of the economic impact & length of recovery.

Key Risks: The bank’s business could be impacted by low-interest rates, high liquidity, low volatility, and heightened geopolitical tensions. In addition, rising competition and regulatory requirements create pressure on margins and customer volumes.

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

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

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

Stock Recommendation: During 1H FY20, the bank reported an efficiency ratio of 59.0% against the pcp ratio of 50.8%. This indicates that ANZ has decent capabilities to convert its resources into revenues. On the technical analysis front, the stock of the company has a support level of ~A$16.928 and a resistance level of ~A$19.191. We have valued the stock using the Price to Book Value multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), etc. Hence, considering the commitment to cost ambition, sale of asset finance business, and decent capabilities to convert its resources into revenues, we give a “Buy” recommendation on the stock at the current market price of $17.770 per share, down by 2.79% on 1^st September 2020.

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

Bank of Queensland Limited

BOQ Details

A Look at 1H FY20 Results: Bank of Queensland Limited (ASX: BOQ) is a well-known bank of Australia, with a market capitalisation of $2.79 Bn as on 1^st September 2020. During 1H FY20, the bank recorded cash earnings after tax amounting to $151 million with a fall of 10% on 1H FY19, mainly due to restructuring charges and intangible asset review. Net Interest Margin (NIM) for the period stood at 1.89%, reflecting a fall of 3 basis points against FY19. The bank closed the half-year in a well capitalised position with good liquidity. This follows a $340 million capital raising, which is ensuring stability during economic uncertainty. As on 31^st May 2020, the Common Equity Tier 1 Ratio stood at 9.91%.

Key Financial Summary (Source: Company Reports)

Targets: The capital management strategy of the bank targets to ensure adequate capital levels to protect deposit holders. BOQ has set the Common Equity Tier 1 Capital target in the range of 9.0% and 9.5% and the Total Capital target range to be between 11.75% and 13.5%.

Key Risks: The bank is largely exposed to operational risk, which arises from inadequate or failed internal processes, people, and systems, or from an external event. In addition, the business is also sensitive to credit risk and insurance risk.

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

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

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

Stock Recommendation: The bank is focused on protecting its strong foundations and executing against its strategic plan. The stock of BOQ is inclined towards its 52-week low of $4.510, offering decent opportunities for accumulation. On the technical analysis front, the stock of the company has a support level of ~A$5.661 and a resistance level of ~A$6.85. We have valued the stock using the Price to Book Value multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), etc. Thus, considering the decent liquidity position, focus on protecting its strong foundations, capital management strategy and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $6.040 per share, down by 1.468% on 1^st September 2020.

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

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