Australia and New Zealand Banking Group Limited

ANZ Details 

NZ Operations Exhibited an Improved Performance: Australia and New Zealand Banking Group Limited (ASX: ANZ) offers a range of banking and financial products and services. The company's segments include Institutional, Wealth Australia, and Technology, Services and Operations (TSO). The bank is present in Australia, New Zealand, UK, France, the US, Germany, and Asia Pacific. The company’s NZ operation has shown an improved performance in 1HFY21. The NZ division has registered an increase in its Net Interest Income (NII) to NZ$1,661mn in 1HFY21 against NZ$1,648mn in 1HFY20, reflecting a robust home lending market. NZ division has registered an increase in its cash profit to NZ$962mn in 1HFY21 against NZ$677mn in 1HFY20 on the back of lower operating expenses.

ANZ’s NZ Financials (Source: Company Reports)

Interim Dividend Proposed: ANZ has proposed a fully franked interim dividend of 70 cents per share for its shareholders. The ex-date for dividend will be 10 May 2021 and the payment date for dividend will be 1 July 2021.    

Key Dates for Interim Dividend (Source: Company Reports)

1HFY21 Financial Highlights: The company has registered a decline in its net interest income to $6,986mn in 1HFY21 as compared with $7,222mn in 1HFY20 on the back of a decline in average net loans and advances. ANZ has posted an increase in profit to $2,951mn in 1HFY21 against $1,635mn in 1HFY20 on the back of lower operating expenses. ANZ has posted a decline in its cash and cash equivalent position to $124,460mn as on 31 March 2021 against $143,093mn as on 31 March 2020.

Key Risks: The company is exposed to liquidity risk. There is always a risk for the company to get failed in meeting its financial obligations as and when they are due to pay. The company requires regulatory approvals to carry out its banking operations efficiently. Any delay in regulatory approval may result in financial losses for the company. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company.

Outlook: ANZ and other banking operations mainly depend on the growth and performance of the economy. ANZ expects a growth of 3.3% for Australia’s GDP in 2022 against 4.8% in 2021 and 3.7% for New Zealand’s GDP in 2022 against 3.6% in 2021. Residential property prices to grow at 6.5% in 2022 against 17.4% in 2021 for Australia. 

Valuation Methodology: Price/Book Value based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of ANZ gave a negative return of 1.20% in the last one month and a positive return of 12.50% in the last three months. The current market capitalisation of ANZ stands at ~$82.03bn as of 5 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$15.070-~$29.550. On the technical analysis front, ANZ has a support level of ~$25.95 and a resistance of ~$30.47. We have valued the stock using a Price/Book Value per share multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering a decline in its net interest income and decline in cash and cash equivalents. For this purpose, we have taken peers Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC). Considering the company has seen an increase in profit during 1HFY21, robust performance in NZ division, proposed dividend, current trading level and valuation, we recommend a “Hold” rating on the stock at the current market price of $27.90, down by ~3.226% as on 5 May 2021.

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

Medibank Private Limited 

MPL Details

Robust Growth in Policyholder: Medibank Private Limited (ASX: MPL) provides private health insurance and health solutions to the customers. The company has reported robust growth in resident policyholder in April 21 Financial Year till Date (FYTD). The company has reported a 3.3% or 61.1k increase in its policyholders in April FY21 FYTD after adjusting suspensions. The company expects the momentum to continue for the growth of policyholders on the back of increasing healthcare options through Medibank health and increasing engagement with customers to offer health insurance services.  

April FY21 FYTD Resident Policyholder Growth (Figure in 000’s) (Source: Company Reports)

1HFY21 Financial Highlights: The company has registered an increase in its revenue to $3,442.2mn in 1HFY21 as compared with $3,421.5mn in 1HFY20 on the back of an increase in health insurance premium revenue and Medibank health revenue. The company has posted an increase in profit to $321.9mn in 1HFY21 as compared with $254.6mn in 1HFY20. The company has seen a decline in its cash and cash equivalent position to $606.2mn as on 31 December 2020 as compared with $871.4mn as on 30 June 2020.

Key Risks: The company is exposed to Covid-19 related risks. The company has seen higher claims during Covid-19 situation, which has resulted in higher claim expenses, impacting the profitability of the company. The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in financial losses for the company.

Outlook: The company has recently updated its outlook for FY21. MPL expects an increased market share by targeting a growth of policyholders in a range between 3.5%-4.0%, including the growth for Medibank brand by 1.2%-1.4% in FY21. The company forecast its average net claims expense per policy unit to be at c.2.5% for FY21. MPL expects its dividend payout ratio in a range of 75%-85% for FY21. 

Valuation Methodology: Price/Cash Flow based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MPL gave a return of ~8.45% in the last one month and return of ~2.66% in the last three months. The current market capitalisation of MPL stands at ~$8.37bn as of 5 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.45-~$3.13. On the technical analysis front, MPL has a support level of ~$2.95 and a resistance of ~$3.33. We have valued the stock using the Price/Cash Flow multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering a decline in its cash and cash equivalents and an increase in Information Technology expenses. For this purpose, we have taken peers AUB Group Ltd (ASX: AUB), NIB Holdings Ltd (ASX: NIB), PSC Insurance Group Ltd (ASX: PSI). Considering the company is expecting a higher market share through growth in policyholders in FY21, increase in profits during 1HFY21, increase in health insurance premium revenue in 1HFY21, current trading levels, and valuation, we recommend a “Hold” rating on the stock at the current market price of $3.08, up by ~1.315% as on 5 May 2021.

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

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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