Stocks’ Details
 

Westpac Banking Corporation

Sound Credit Quality: Westpac Banking Corporation (ASX: WBC) provides financial services including lending, deposit taking, general finance, etc. As on 17 March 2020, the market capitalization of the bank stood at $57.71 billion. Westpac Banking Corporation has notified the market about the interim dividend of $0.3000 per security in respect of Crown Resorts Limited which is to be paid on 3 April 2020. The bank has recently released its capital, funding and credit quality report for 1Q20 wherein it reported Common equity Tier 1 capital ratio 10.8% and Level 1 common equity Tier 1 capital ratio 11.1%. Over the quarter, CET1 ratio has been impacted by institutional share placement, Share Purchase Plan and payment of dividend and higher RWAs. WBC also reported a sound credit quality with an increase of 1.7% in total provision balances. 

 
Capital Ratios (Source: Company Reports)
 
Future Expectations and Growth Opportunities: While the bank may face some challenges in short-run due to softer market conditions, long-term outlook for WBC is positive because of its size and strength of its balance sheet, quality and scale of customers and financial resources.
 
Valuation Methodology: Price to Earnings Multiple Based Relative Valuation

Price to Earnings Multiple Based Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of WBC is trading close to its 52-weeks’ low level of $15.530, proffering a decent opportunity for accumulation. During FY19, net interest margin of the company stood at 2.16%, higher than the industry median of 1.93%. In the same time span, efficiency ratio of the company witnessed an improvement over the previous year and stood at 49.7%, up from 44% in FY18. Considering the current trading levels, improvement in margins and modest outlook, we have valued the stock using the price to earnings based relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $17.250, up by 7.947% on 17 March 2020. 
 

Australia And New Zealand Banking Group Limited

Decline in the Total Provision Charge: Australia And New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial products and services to individual and business customers. As on 17 March 2020, the market capitalization of the bank stood at $46.66 billion. The company has recently released its pillar III report for the period ending 31 December 2019, wherein it reported Group Common Equity Tier 1 Capital ratio of 10.9% and total risk-weighted assets of $424 billion. In the same time span, ANZ witnessed a decline in the total provision charge to $116 million, driven by a reduction in collective provision charge from an improved delinquency profile in the Australian mortgage portfolio in 1Q20.


Capital Ratios (Source: Company Reports)

What to Expect: The bank is focusing on competition and capital efficiency. ANZ remains confident for the future owing to its strong balance sheet. The bank will continue to simplify its business, improve customer proposition and will invest in innovations in order to improve efficiency in operations. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation

Price to Earnings Multiple Based Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of ANZ is trading close to its 52-weeks’ low levels of $16.050, proffering a decent opportunity for accumulation. During FY19, net interest margin of the company stood at 1.76%. In the same time span, efficiency ratio witnessed an increase over the previous half and stood at 52%, up from 50.5% in FY18. Considering the current trading levels, higher margins and positive outlook, we have valued the stock using the price to earnings based relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and Bendigo and Adelaide Bank Ltd (ASX: BEN) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $18.40, up by 11.854% on 17 March 2020. 

National Australia Bank Limited

Increase in LCR: National Australia Bank Limited (ASX: NAB) provides banking, financial and related services. As on 17 March 2020, the market capitalization of the company stood at $50.75 billion. The company has recently released its pillar III report for the quarter ended 31 December 2019, wherein it reported an increase in Liquidity Coverage Ratio to 129% and Common Equity Tier 1 ratio of 10.6%. In the same time span, total RWA (Risk-Weighted Assets) were in line with the previous quarter and stood at $415 billion.

The bank has recently declared a dividend of $0.6742 on NABPB - CNV PREF 3-BBSW+3.25% PERP NON-CUM RED T-12-20 and a dividend of $0.8065 on NABPF - CAP NOTE 3-BBSW+4.00% PERP NON-CUM RED T-06-26 which is to be paid on 17 June 2020.


Capital Ratios (Source: Company Reports)

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation

Price to Earnings Multiple Based Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of NAB is trading close to its 52-weeks’ low level of $15.55, proffering a decent opportunity for the investors to enter the market. During FY19, efficiency ratio witnessed an increase over the previous year and stood at 57.2%, up from 51.9%. Considering the trading levels, improvement in efficiency ratio and increase in LCR, we have valued the stock using the price to earnings based relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ), etc. as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $17.21, up by 6.762% on 17 March 2020. 

 
Comparative Price Chart (Source: Thomson Reuters)

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