Stocks’ Details

Australia and New Zealand Banking Group Limited

Impact on 2H FY19 Results: Australia and New Zealand Banking Group Limited (ASX: ANZ) is a large-cap bank with the market capitalisation of ~A$77.38 Bn as on 8^th October 2019.  ANZ, through a release, provided an update on customer remediation impact on 2H FY19 results. It added that the cash profit of 2H FY19 would be impacted by a charge of $559 Mn (after-tax) due to increased provisions for customer-related remediation. It mentioned that within continuing operations, the remediation charges recognised in the 2H FY19 would be $405 Mn after-tax ($485m before tax), mainly related to product reviews in Australia Retail & Commercial for fee and interest calculation and related matters.


FY18 and Estimated FY19 Impacts to Profit After Tax (Source: Company Reports)

What to Expect:When it comes to discontinued operations, the remediation charges recognised in 2H FY19 would be $154 Mn after-tax ($166 Mn before tax), largely associated with the advice remediation program and customer compensation charges for other Wealth products. As per the release dated 23^rd September 2019, ANZ stated that it has wrapped up the sale of retail, commercial and small-medium sized enterprise (or SME) banking businesses in Papua New Guinea to Kina Bank, which allows it to focus on institutional and large corporate banking business. It was added that ANZ has been in PNG for 109 years and it continues to witness significant opportunities for business and economic growth via long-term investment and support of the resources, energy, infrastructure and agriculture sectors.

Stock Recommendation:On the analysis front, the stock of ANZ is trading at the P/E multiple of 12.46x on TTM basis against industry median (Financials) of 14.4x. The price to book value ratio stood at 1.3x in comparison to the industry average (Financials) of 2.8x on a TTM basis. It produced a return of 3.47% in the span of six months and, on a YTD basis, ANZ witnessed a rise of 13.87%. Currently, the stock is trading at the upper band of its 52-week trading range of $22.98 to $29.30. Hence, considering the above-stated facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of A$27.420 per share (up 0.44% on 8^th October 2019).
 
 

Westpac Banking Corporation

Trading Close to 52-week High: Westpac Banking Corporation (ASX: WBC) provides banking, financial and related services and has a market capitalisation of ~A$99.85 Bn as on 8^th October 2019. As per the release dated 30^th September 2019, WBC updated the market with its Self-Funding Instalments over securities in Vanguard Australian Shares Index ETF (VAS). WBC, as an issuer of Self-Funding Instalments over the following securities, notifies of a distribution/entitlement in respect of those securities:


Westpac Self-Funding Instalments over securities in VAS (Source: Company Reports)

In another update, the bank announced that on 13^th September 2019, it has issued 6,000 Series 2019-8 Notes at the consideration of A$100,000 fully paid per Series 2019-8 Note.  However, the net proceeds of the issue of the Series 2019-8 Notes would be used for its general corporate purposes.

Outlook: As mentioned in the interim financial results announcement, WBC is dealing decisively with a difficult commercial environment for banks, delivering productivity savings while it continues to simplify its products, digitise its business, and modernise its platforms. It is also implementing the recommendations of the Royal Commission and other industry initiatives while continuing to invest in technology and digital platforms. WBC stated that the second half would continue to be challenging, it believes that its service-led strategy remains the best way to create value for its shareholders.

Stock Recommendation: From the analysis standpoint, the stock of WBC is trading at the P/B multiple of 1.6x against the industry average (Financials) of 2.8x on a TTM basis. As per ASX, the bank has a price to earnings ratio of 13.88x in comparison to the industry median (Financials) of 14.4x on a TTM basis. In Q3 FY19, the bank reported average liquidity coverage ratio of 137%, net stable funding ratio (NSFR) of 111% and both are well above regulatory minimums. Currently, the stock is trading at the upper band of its 52-week trading range of $23.30 to $30.05. Therefore, considering the above-stated facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of A$28.680 per share (up 0.245% on 8^th October 2019).
 
 

Bank of Queensland Limited

Proceedings Against BOQ: Bank of Queensland Limited (ASX: BOQ) has a market capitalisation of A$3.92 Bn as on 8^th October 2019. The bank, through a release dated 4^th September 2019 advised the market that the Australian Securities and Investments Commission has started proceedings against BOQ in the Federal Court of Australia related to contract terms in certain small business contracts entered into between November 2016 and June 2019 that ASIC asserts are unfair contract terms. It was mentioned that BOQ takes compliance with its legal and regulatory obligations seriously and has proactively commenced a review of all small business lending contracts entered from November 2016. BOQ will compensate small business customers if it identifies that these customers have been adversely affected. The following picture provides an idea of key numbers for the quarter ended 31^st May 2019:

Capital Structure (Source: Company Reports)

Future Guidance: BOQ’s capital management strategy targets to ensure adequate capital levels are maintained in order to protect deposit holders. The Bank’s capital is measured and managed in accordance with Prudential Standards issued by APRA. The Board of the bank has set the Common Equity Tier 1 Capital target range to be between 8.25% and 9.5% and the Total Capital target range to be between 11.75% and 13.5%.

Stock Recommendation:As per ASX, the stock of BOQ is trading at the P/E multiple of 12.08x in comparison to the industry median (Financials) of 14.4x on a TTM basis. Its P/B ratio stood at 1.0x while the industry average (Financials) of 2.8x on TTM basis. On the stock’s performance, it produced returns of 2.22% and 2.33% in the time frame of three months and six months, respectively. Currently, the stock is trading towards its 52-week high levels of $10.85. Hence, in light of above-stated facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of A$9.650 per share on 8^th October 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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