Stocks’ Detail
National Australia Bank Limited
Royal Commission final report due in February 2019:National Australia Bank Limited (ASX: NAB) is Australia’s leading bank serving more than 9 million customers through its branches located at more than 900 locations over the continent. It is aiming to diverge MLC Wealth so that it can concentrate on a more straightforward wealth offering. The bank is expected to release its 1Q 2019 update on 8 February 2019 and pay the interim dividend on 3 July 2019 and final dividend on 12 December 2019. During 2018, the Royal Commission set up by the Australian Government conducting various hearings related to the Group, the final report of which is due in February 2019. The bank has plans to launch Open Banking in 2019 giving its customers more control of their data.
FY18 Financial Metrics (Source: Company Reports)
During FY18,the bank reported a net interest margin of 1.86% has declined marginally over the past five yearsand is below the industry median of 1.94%. The efficiency ratio was in line with the industry at 51.9%. Tier 1 Risk-Adjusted Capital Ratio was reported at 12.38% which has improved over the past 5-years and is above the industry median of 11.13% showing that the bank's financial health is improving.
The bank has ~2.78 billion shares outstanding with the market cap of $68.19 billion, annual dividend yield of 8.07%, and a beta of 1.22x as on 14 January 2019. It reported a lower EV/EBITDA of 2.9x and P/E of 12.2x as compared to the industry median of 9.7x and 13.2x respectively showing that the stock is undervalued.
Various hearings by the Royal Commission has led the overall banking industry to fall. But the stock has generated a positive yield of 4.51% over the past one month. Today, the stock was marginally up by 0.489% as compared to the previous close, at the price of level $24.67. It has created a new support level of $23.60. With the board working over streamlining bank’s structure, better financial health, and decent P/E and EBITDA multiples, we maintain our “Buy” recommendation on the stock at the current market price of $24.670.
Australia and New Zealand Banking Group Limited
Demerger plans for FY19 along with decent fundamentals: Australia and New Zealand Banking Group Limited (ASX: ANZ) is one of the five largest banks in Australia by the market capitalization operating in 34 markets across the world. Itprovides various banking and financial products and services.The bank has planned to demerge IOOF Holdings Limited, Zurich Financial Services Australia, Retail, Commercial and SME banking business in PNG region, and 55% stake in Cambodia JV ANZ Royal Bank in FY19. The bank has recently paid a dividend of 80 cents per share on 18 December 2018 and is expected to pay the interim dividend on 01 July 2019 and final dividend on 18 December 2019.
FY18 Financial Highlights (Source: Company Reports)
During FY18, the bank reported a net interest margin of 1.87% which was slightly below the industry median of 1.94%. The efficiency ratio reported at 50.0% was also slightly below the industry median of 52.0% and has declined by 3.6% over the past five years. However, the Tier 1 Risk-Adjusted Capital Ratio was reported at 13.40% which has improved over the past 5-years and is above the industry median of 11.13% showing that the bank's financial health is improving.
The bank has ~2.87 billion shares outstanding with the market cap of $72.42 billion, an annual dividend yield of 6.34%, and a beta of 1.27x (5-Years Monthly basis) as on 14 January 2019. On the valuation front, the P/E of 11.39x and EV/EBITDA of 2.8x are currently below the industry median multiples of 13.2x and 9.7x respectively showing that the scrip is undervalued.
The impact of the Royal Commission is also visible over here as well. Over the past one month, the ANZ stock price has generated a positive yield of 1.90%. Today, the stock was up by 0.515% as compared to the previous close, currently trading at the price of level $25.370. All these indicators along with the bottoming of prices and better than industry P/E and EBITDA multiples exhibits a “buy” recommendation on the stock at the current price of $25.370.
Commonwealth Bank of Australia
Decent financials with better FY19 earnings guidance:Commonwealth Bank of Australia (ASX: CBA)multinational bank based out in Sydney, Australia. It provides services such as retail banking, business, and private banking, Institutional Banking and Markets, Wealth Management segment and general insurance business across New Zealand, Asia, the United States, and the United Kingdom. The company paid a Dividend per share of $4.31 in FY18. For FY19, Net interest income is expected to be $18.616 billion, total revenue of $26.278 billion, and Common Equity Tier 1 ratio of 11.2%. The bank reported a total return to shareholder 222% over a period of 10-years.
FY18 Financial Highlights (Source: Company Reports)
During FY18, the bank reported a decline of 1.6% in Return on equity, reported at 14.1%, on account of regulatory requirements for higher levels of capital. The bank reported a Net interest margin of 2.15% which has been consistent over the past five financial years and is above the industry median of 1.94%. The efficiency ratio has declined over the past five years, currently at 44.7%, and is below the industry median of 52.0%. The Tier 1 risk-adjusted capital ratio has improved by 2.2% over the past five financial years and is currently calculated at 12.3% which is above the industry median of 11.13% showing that the bank's financial health is improving.
The bank has ~1.77 billion shares outstanding with a market cap of $126.86 billion and a beta of 1.01x. It has an annual dividend yield of 6.01%.The EV/EBITDA of 6.6x is currently below the industry median multiple of 9.7x showing that the scrip is undervalued.
In October 2018, the stock has a support level at $68.30. Over the past three months, the scrip has generated a positive return of 6.96% and is currently trading at $71.920. The Relative Strength Index can also be seen in a neutral position, and the price is currently trading near to the Simple Moving Average line of the Bollinger band.With the better-expected earnings guidance for FY19 and a lower than industry EV/EBITD multiple, we maintain our “Buy” recommendation on the stock at the current price of $71.920.
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Stock Price Comparative Chart (Source: Thomson Reuters)
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