6 Banking Sector Stocks – CBA, ANZ, NAB, BOQ, WBC and MYS

Given the challenging banking sector scenario with slow credit growth and Royal Commission Scrutiny, below is a quick digest on key ASX listed banking stocks.

 
Stocks’ Details

Commonwealth Bank of Australia

Structural Changes to Simplify the Business: Commonwealth Bank of Australia (ASX: CBA) has recently informed the market that it will demerge its wealth management and mortgage broking businesses. As a result of this, both group i.e., CFS and CBA will be focussed on their core businesses and market-leading positions, which will support to unlock value in both groups for their respective shareholders. However, this demerger process is subject to few conditions such as it will be requiring the approval of all necessary shareholders, CBA Board, and regulatory bodies. If approved, then the demerger is expected to complete in 2019. Under the demerger process, CBA’s shareholders will receive shares in CFS Group proportional to their existing CBA shareholding, while retaining their existing CBA shares. The group does not aim to retain any shareholding in CFS Group following the demerger. The Chairman of CFS Group will be Mr. John Mulcahy. The search for new Chief Executive Officer (CFO) of CFS Group is in progress.


Long Term Strategy Continued (Source: Company Reports)

In another release on ASX, the group disclosed to the market about six appointments and changes to the Executive Leadership Team (ELT), including simplifying the Bank’s structure. Following this, Mr. Nigel Williams and David Cohen have been appointed as Chief Risk Officer (CRO) and Deputy Chief Executive Officer, respectively, effective from November 05, 2018. In order to top management structural changes, Pascal Boillat has been appointed as a Group Executive Enterprise Services and Chief Information Officer, with responsibility for all technology and operations across the Bank and will take his responsibility on 1 October 2018. Moreover, Sian Lewis and Andrew Hinchliff will join as Group Executive Human Resources and Group Executive Institutional Banking & Markets, respectively to the board, effective from August 01, 2018. The board has also appointed Angus Sullivan as a Group Executive Retail Banking Services, effective from 1 July 2018. We expect that these structural changes will help to rebuild its reputation in the market after few scandals revealed weakness in its leadership culture, exposing it to closer regulatory scrutiny and potential fines. CBA stock moved up by 4.31% in the past one month as on June 27, 2018, and still looks “Expensive” at the current price of $73.230; while we keep an eye for a significant entry opportunity.
 

Australia and New Zealand Banking Group Limited

Deal with Kina Bank: Australia and New Zealand Banking Group Limited (ASX: ANZ) has recently entered into an agreement to sell its Retail, Commercial and Small-Medium Sized Enterprise (SME) banking businesses to Kina Bank with the objective to focus on Institutional and Large Corporate banking services in the Papua New Guinea (PNG). Under the agreement, the group will sell 15 ANZ retail branch premises, 72 ANZ ATMs and over 1,800 ANZ EFTPOS terminals across PNG, that currently serve 85,000 retail and 6,000 commercial and SME customers accounting for approximately AUD$150 Mn in lending assets and around AUD$450 Mn in deposits. The selling price for the Business is the aggregate of goodwill of PGK24.2 Mn (AUD$10 Mn) and Net Tangible Assets (NTA) at completion. The sale transfer agreement is subject to the regulatory approval and expected to be complete by the third quarter of 2019.


Capital Allocation (Source: Company Reports)

On the other hand, the company has appointed Adrian Went as Group Treasurer with effect from the start of July who will be based in Melbourne. Moreover, the group also disclosed its distribution payment of AUD 1.03970 with dividend distribution rate of 4.1249 % per annum for ANZPH - CAP NOTE 3-BBSW+3.80% PERP NC RED T03-25 and it will be paid on September 20, 2018 with the record date of September 20, 2018. Meanwhile, the share price rose by 3.90 per cent in the past three months as at June 27, 2018 and currently trading close to 52-week high. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $ 28.660.
 

National Australia Bank Limited

NIM marginally increased by 5 bps in 1HFY18: During the first half, National Australia Bank Limited (ASX: NAB) recorded decent set of results wherein revenue increased by 2.5% to $9,093 Mn in 1HFY18 as compared to prior corresponding period (pcp). The top-line growth was mainly supported by business lending volume growth across the portfolio. However, cash earnings contracted by 16.2 per cent to $2,759 Mn in 1HFY18 as compared to prior corresponding period. It was majorly impacted by previously flagged increased investment and restructuring costs occurred during the period. Net interest margin moderately increased by 5 bps in 1HFY18 and recorded at 1.87% as compared to previous corresponding period.


Revenue Performance (Source: Company Reports)

On the other hand, the company became a substantial holder of the Aurizon Holdings Limited since June 25, 2018 with 5.407% of voting power. Moreover, the group disclosed its distribution payment of AUD 0.9791 with dividend distribution rate of 3.9270 % per annum for NABPC - CAP NOTE 3-BBSW+3.50% PERP NON-CUM RED T-07-23 and it will be paid on September 24, 2018 with the record date of September 14, 2018.  Additionally, the group also disclosed its distribution payment of AUD 0.9338 with dividend distribution rate of 3.7049 % per annum for NABPA - CNV PREF 3-BBSW+3.20% PERP NON-CUM RED T-03-21 and it will be paid on September 20, 2018 with the record date of September 05, 2018.  Meanwhile, the stock was down by 7.68 per cent in the past six months but improved by 1.7 per cent in the last one month as at June 27, 2018. The stock again slipped on 26 June 2018 with the overall ASX index movement. Looking at the scenario, we continue to maintain our “Hold” recommendation at the current market price of $27.500 as the Group is trying to undertake continuous initiatives towards its growth strategy.
 

Bank of Queensland Limited

Decent Outlook: Bank of Queensland Limited (ASX: BOQ) has recently presented its business prospects at the Morgan Emerging Leaders of Financial Services Conference and highlighted about FY18 activity and outlook wherein the group will follow its resilient approach which will help to improve its digital experience, enhanced footprint for Virgin Money, increased broker presence and strategy to focus and gain value from niche segments that can benefit the bank amid the challenging environment. The bank announced for a fully franked interim dividend of 38 cents per share (cps) for the period of six months ending 31 December 2017. This had come at the back of the bank’s strong capital position wherein the group’s balance sheet remains healthy with an increase in its Common Equity Tier 1 ratio (CET1) of three basis points to 9.42 per cent during the first half of the year. Its net interest margin improved 1 basis point to 1.97% in 1HFY18 as compared to prior corresponding period.


Key Financial Metric (Source: Company Reports)

On the other hand, BOQ disclosed to ASX that one of its directors, Richard George Andrew Haire had a direct interest in the Company and acquired 5,256 ordinary shares via On-market Purchase at an issue price of $9.9894 per share. Moreover, John Howard Lorimer who had an Indirect interest in the company also acquired 5,000 ordinary shares through the on-market sale at the price of $10.08 per share. Meanwhile, the share price has fallen 18.94 per cent in the past six months and trading near to 52-week low level. We maintain our “Hold “recommendation on the stock at the current price of $10.320, considering aforesaid facts.
 

Westpac Banking Corporation

Long-term Player: Westpac Banking Corporation (ASX: WBC) is gaining a resilient market position and banking franchise exposure with decent dividend yield. The group had reported a profit growth of 7% to $4,198 million for 1HFY18. WBC has recently announced fully franked dividend payment of AUD 0.9104 with distribution base of 3.6120% per annum for WB sub notes (WBCPE - CAP NOTE 3-BBSW+3.05% PERP NON-CUM RED T-09-22). It will be paid on September 24, 2018 with the record date of September 14, 2018. Moreover, the group also disclosed its dividend payment of AUD 1.078 with the distribution rate of 4.2270 % per annum for WB Sub notes (WBCPF - CAP NOTE 3-BBSW+4.00% PERP NON-CUM RED T-03-21) and it will be paid on September 24, 2018 with the record date of September 14, 2018. Recently, the group Westpac announced the distribution of $0.3077 per security for SFI (Self-Funding Instalments) under Westpac Vanilla Instalment Equity Warrants over securities in SPDR S&P/ASX 200 Fund. Before this, the Company announced $0.4206 per security. The franking percentage has been declared at 45.44 per cent with an ex-distribution date and record date of 28 June 2018 and 29 June 2018 respectively. It will be paying the same on or about 11 July 2018. Meanwhile, the stock has fallen 7.4% in past six months but up by 2.83% in last one month as on June 27, 2018. We maintain our “Buy” recommendation on the stock at the current price of $ 29.230 as the stock is currently trading over its 52-week low level with strong fundamentals and well positioned financial score within the peer group.
 

MyState Limited

Extended Tenure of Managing Director and CEO: MyState Limited (ASX: MYS) announced that the Board has extended the tenure of the current Managing Director and Chief Executive Officer, Mr Melos Sulicich. The date of commencement is 1 July 2018. The group has recently presented its business prospects at the Morgan Investor Conference and highlighted about stable outlook on credit rating. According to the presentation, the group has recently received an investment grade rating of ‘Baa1/P2’ (long term/short term) from Moody’s with a stable outlook. Moody’s sees the bank’s Baa1 rating supported by its very strong asset quality and conservative underwriting. They also see the bank’s geographic diversification of the loan portfolio and forecasts that the bank’s capital would remain at healthy levels.According to the management,the lending market remains highly competitive and the group continues to urge the government to grasp regulations that promote competition and benefit consumers, including changes to the structure that will enable smaller banks to compete on a more balanced playing field with major banks. Meanwhile, the stock has risen 3.38% in three months as on June 27, 2018 and we maintain our “Hold” recommendation on the stock at the current price of $4.900, given the growing loan book and growth across key financial metrics.

 
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