Financial Performance: Australia and New Zealand Banking Group(ASX:ANZ) cash profit rose 4.3% yoy to $5.4 billion in the nine months ended on June 30 of fiscal year of 2015, while the Profit before Provisions improved 5.1% as compared to the corresponding period of earlier year. The statutory profit improved 11% yoy to $5.6 billion in 9M15, as compared to $5 billion in the corresponding period of fiscal year of 2014, driven by the improved customer franchises across Australia, New Zealand and Asia Pacific. Customer deposits surged to 9.5% on a year over year basis, driven by net loans and advances increase by 7.7% yoy during 9M15. The gross impaired assets reduced 3% yoy during the period, while the total provision charge increased to $877 million. The group estimates its impairment charge to increase further to around $1.2 billion, or 21 bps for the total fiscal year of 2015, against 19 bps in FY14.The Individual Provision Charge fell 12.5% yoy to $750 million while the collective provision charge stood at $127 million. The collective provision charge was impacted by a series of credit downgrades during the fiscal year due to tough economic market conditions, as compared to credit upgrades in the earlier fiscal year. Meanwhile, ANZ’s liquidity coverage ratio rose to 121% in nine months ended on 2015 as compared to 119% in the corresponding period of last year.
Segment highlights: The bank’s retail and commercial segments surged 4% and 1% respectively, as compared to the corresponding period on 2014. Australia’s division delivered better lending and deposit flows, stable margins as well as grew its customer base by over 5%. The home lending and credit cards drove the retail business. Better lending growth, specifically for small business led the Commercial businesses growth in 9M15. More than expected performance in mortgages, business lending and deposits grew the bank’s New Zealand division’s balance sheet. The global markets business income rose 6% yoy to $1.8 billion during the nine months ended on June 30 of fiscal year of 2015, while the customers for International and Institutional Banking improved 9% yoy, on the back of enhanced Asian business. Cross border payments represented over 25% of the institutional total customer revenues as of first half of 2015. Meanwhile, the customer facing revenue represented around 75% of the total Global Markets income.
Leverage International and Institutional Banking network to drive further Asian expansion (Source: Company Reports)
Synergies from regional strategy and recent Capital raisings to drive further growth
Boosted Capital position:ANZ has been raising capital to boost its capital position, placing the bank among the top quartile of international peers. Moreover ANZ would also be using its new capital to address the recent minimum capital regulatory specifications proposed by Australian Prudential Regulation Authority (APRA). The bank’s APRA Common Equity Tier-1 (CET1) ratio stood at 8.6% during the nine months ended on June 30 of fiscal year of 2015. Moreover, the $2.5 billion Institutional placement had boosted the 2015 pro-forma APRA CET 1 ratio to 9.2%. In addition, ANZ raised $500 million under the share purchase plan, subsequently improving the CET1 Ratio by 13 bps to 9.3%. This ratio is better than its international peers which has a comparable CET1 ratio of over 13%. In addition the bank has one tranche of around $400 million of ANZ Wealth Australia with outstanding debt maturing during March 2016.
ANZ Dividends (Source - ASX)
Solid Asian Business: The bank would continue to focus on its Asian business growth through its “super-regional strategy” program and has already built a solid presence as compared to its Australian peers. Moreover, management has also addressed the investors’ concerns over China growth, by reaffirming the China’s growth outlook over 7% to 7.5% per year. The decreasing net interest margin also added to the investors’ concerns. But, ANZ maintained a stable Net Interest Margin during the third quarter of FY15 and even stabilized its trade and supply chain business margins. The company is also selling its Esanda dealer finance business, with $8.3 billion in loans to motor vehicle dealers, to focus on its core business (a trend seen among its peers who are offloading their non-core businesses as well). ANZ would be receiving around $1.5 billion from this deal, further driving its capital reserves.
Stock Performance: Australia and New Zealand Banking Group’s shares surged over 16% since the starting of the year till March 25th of 2015, but have been under pressure from April, and fell around 14.7% in the last six months till date (August 19th) as compared to the S&P/ ASX 200 broader index fall of 8.9%. This correction placed the bank at attractive valuations with a cheaper P/E of 11.43x as compared to its peers. ANZ has been a strong dividend player with 6.25% of dividend yield. Based on the foregoing, we recommend a “BUY” on ANZ bank at the current levels of $29.13
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