Stocks’ Details

Australia And New Zealand Banking Group Limited

Australian Prudential Regulation Authority Announcement: Australia And New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial products services to business customers and individuals. The market capitalisation of the bank stood at ~A$78.49 Bn as of 10^th July 2019. Australian Prudential Regulation Authority (or APRA) recently made an announcement that it would be requiring domestic systemically important banks (D-SIBs), which includes ANZ, for increasing their total capital by 3% of risk-weighted assets by January 2024. In the release, it was mentioned that the initial proposal contained in APRA’s discussion paper was in the range of 4% -5% of risk-weighted assets.

In the 1H FY 2019, ANZ reported $3,564 million of cash profit from continuing operations, which is reflecting the growth of 2% on pcp basis. Based on the performance in 1HFY19, the Board of Directors declared a fully franked interim dividend of 80 cents per share which is in-line with the prior corresponding period. Adding to that, cash earnings per ordinary share from continuing operations stood at 124.8 cents in 1H FY19, representing growth of 5% in comparison to 1H FY18.

 
Financial Summary (Source: Company Reports)

What to Expect: As per the shareholders report, New Zealand business witnessed a good result. However, there are expectations of the challenges in the future with slow housing demand as well as increased competition. ANZ further stated that it is working hard to earn the trust of the community. However, this will take time and considerable resources.

Stock Recommendation: Coming to the stock’s past performance, it had produced the returns of 7.95% and 9.92% in the time span of three months and six months, respectively. It reported a TTM P/BV multiple of 1.3x as compared to the banking industry average of 3.8x, showing thatthe bank is trading slightly at a discount valuation at this price. Moreover, it reported a higher dividend yield of 5.78% as compared to the banking service industry median of 5.4%,representing more income for its shareholders and can be considered at respectable levels and might help in gaining the traction of the dividend-seeking investors. Hence, in the view of above-stated facts, better financials than industry median, and decent P/BV multiple, we give a “Buy” recommendation on the stock at the current market price of $ A$27.530 per share (down 0.578% on 10th July 2019).
 

National Australia Bank Limited

Revised S&P Credit Rating Outlook: National Australia Bank Limited (ASX: NAB) is involved in the banking and financial services. The market capitalisation of the bank stood at ~A$76.92 Bn as of 10^th July 2019. NAB noted that S&P Global Ratings had revised its outlook for the major Australian banks and a range of their strategically important subsidiaries from ‘Negative’ to ‘Stable’. The Bank further noted that S&P affirmed ‘AA- ‘long-term and 'A-1+' short-term issuer credit ratings for National Australia Bank Limited and Bank of New Zealand.

National Australia Bank Limited had also noted Australian Prudential Regulation Authority response to the submissions on increasing the loss-absorbing capacity of Authorised Deposit-taking Institutions (or ADIs). The announcement made by APRA confirmed the establishment of an Australian loss-absorbing capacity regime under the existing capital framework. Australian Prudential Regulation Authority would be requiring an increase in total capital by domestic systemically important banks of 3 percentage points of risk-weighted assets by 1 January 2024. Based on NAB’s RWA of $403 Bn at March 31, 2019, three percentage point requirement represents an incremental increase of $12.1 Bn of the total capital.


Cash Earnings (Source: Company Reports)

Future Aspects: The bank stated that 1H FY 2019 was a challenging period for the bank and industry as well. It is taking actions for addressing expectations of community and customers. The productivity benefits would be a key driver of the underlying profit growth. Recently, NAB had stated that it expects to meet new requirement mainly with the help of the issuance of Tier 2 Capital, with the corresponding decrease in the senior debt issuance.

Stock Recommendation: NAB had stated that its transformation savings are on track. As per ASX, the annual dividend yield of the bank stood at 6.82% which reflects that it is delivering decent returns to its shareholders. With respect to the stock’s past performance, it yielded returns of 8.50% and 8.59% in the time span of three months and six months, respectively.On the valuation front, the P/BV of 1.4x is currently below the industry median multiples of 3.8x, showing that the stock is undervalued. Hence, considering the aforesaid facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$26.860 per share (up 0.675% on 10th July 2019).
 

Macquarie Group Limited

Completion of the MEREP buying period: Macquarie Group Limited (ASX: MQG) is a large-cap diversified financial group with the market capitalisation of ~A$43.48 Bn as of 10^th July 2019. Macquarie Group Limited and its controlled bodies corporate ceased to be a substantial holder in Patrys Limited on 5^th July 2019. MQG further stated that it had concluded the acquisition of Macquarie ordinary shares which was required for the 2019 profit share and promotion awards under the Macquarie Group Employee Retained Equity Plan (MEREP). It was stated that a total of approximately $A607 million of Macquarie ordinary shares was purchased. The company reported net operating income of A$6.924Mn in 2H FY19 as compared to A$5.830 Mn in 1H FY19, which reflects a growth of 19%.

Financial Summary (Source: Company Reports)

Future Prospects: The group is expecting FY 2020 results to be slightly lower than FY 2019. The company is well placed for delivering superior performance in the medium term. MQG stated that its ongoing program might identify the cost saving initiatives as well as efficiency. It has a strong and conservative balance sheet.

Stock Recommendation: The group has well matched funding profile with minimal reliance on short-term wholesale funding. When it comes to the stock’s past performance, it produced returns of -2.03% and 12.07% in the time span of three months and six months, respectively. As per ASX, the stock is trading closer towards its 52-weeks higher levels of $136.840 with an annual dividend yield of 4.5%. Hence, considering the aforesaid parameters and current trading levels, we give an “Expensive” recommendation on the stock at the current market price of A$128.010 per share (up 0.211% on 10^th July 2019).
 

AMP Limited

Trading at Lower Level: AMP Limited (ASX: AMP) is a provider of life insurance, superannuation, pensions and other financial services. The market capitalisation of the company stood at ~A$6.31 Bn as on 10^th July 2019. As per the release dated 2^nd July 2019, AMP Limited and its related bodies corporate have become an initial substantial holder in Otto Energy Ltd with the voting power of 5.01% on 28^th June 2019. In the release dated 14^th June 2019, AMP noted the announcement by Australian Prudential Regulation Authority regarding the imposing of directions as well as additional conditions on the Registrable Superannuation Entity (or RSE) licences of AMP’s superannuation trustees i.e. AMP Superannuation Limited and NM Superannuation Proprietary Limited.

The Australian wealth management AUM witnessed a rise of 5% to A$129.3 Bn in Q1 FY19, with positive investment markets offsetting weaker cash inflows.


Asset Under Management (Source: Company Reports)

Future Aspects: The 2019 priorities revolve around transforming Australian wealth management and grow New Zealand wealth management. Additionally, the priorities also include maintaining the growth momentum in the AMP Capital.

Stock Recommendation: The annual dividend yield of AMP Limited stood at 6.54%, which is better than the industry median of 5.3%. On the stock performance front, it generated negative returns of 1.83% and 16.41% in the time span of three months and six months, respectively. Currently, the scrip is trading slightly towards a 52-week lower level of $2.000 with higher PE multiple of 214.0x. Hence, considering the mix scenario and looking at the current trading level, we have a wait and watch view on the stock at the current market price of A$2.140 per share.


Comparative Price Chart (Source: Thomson Reuters) 

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