Stocks’ Details
 

Westpac Banking Corporation

Westpac Self-Funding Securities: Westpac Banking Corporation (ASX: WBC) provides financial services including lending, payment services etc. As on 4 March 2020, the market capitalisation of the bank stood at ~$82.85 billion. The bank has recently notified an interim dividend of $0.3100 per security in respect of Bendigo and Adelaide Bank Limited, which is to be paid on 31 March 2020. The bank also notified the market about an interim and special dividend of $0.0163 and $0.0164, respectively in respect of South32 Limited securities, which is to be paid on 02 April 2020.

During the Q1 ended 31 December, common equity tier 1 capital ratio of the bank stood at 10.8%, up from 10.7% at 30 September 2019 and level 1 common equity Tier 1 ratio was 11.1%. During FY19, net profit of the bank stood at $6,784 million. The bank has also declared a fully franked final dividend of 80 cents per share which was paid on 20 December 2019.


Pillar 3 Report (Source: Company Reports)

What to Expect from WBC: WBC is focused on core markets including Australia and New Zealand and has provided a comprehensive range of financial products which will help the bank in assisting the financial needs of the customers. WBC also expects an increase in GDP growth and anticipates an increase of 3% in total system credit growth for the year ending 30 September 2020.

Valuation Methodology: Price to Earnings Multiple Based 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 very close to its 52-weeks’ low level of $22.195, 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 witnessed an improvement over the previous year and stood at 49.7%, up from 44% in FY18. Considering the trading levels, higher margins and decent outlook, we have valued the stock using 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 $22.230, down by 3.095% on 4 March 2020. 

National Australia Bank Limited

NAB Capital Notes 4 Offer-Bookbuild: National Australia Bank Limited (ASX: NAB) provides banking services, access card services, international banking, fund management etc. As on 4 March 2020, the market capitalisation of the company stood at ~$71.16 billion. The company has recently announced the completion of NAB capital 4 offer and has allocated $1.95 billion of NAB Capital Notes 4 under the Broker Firm and Institutional Offers. The offer is expected to close on 17 March 2020.

1Q20 Financial Highlights: The company has recently released its First Quarter Pillar 3 Report for the period ending 31 December 2019, wherein it reported an increase in Common Equity Tier 1 ratio to 10.6%, up from 10.4% in September 2019 and a leverage ratio of 5.6%. In the same time span, statutory net profit stood at $1.70 billion and cash earnings of $1.65 billion.


1Q20 Financial Highlights (Source: Company Reports)

Future Expectations: The bank is focusing on maintaining strong capital base, to provide liquidity to customers and is aiming to grow safely. It will continue to strengthen its technology environment to deliver better experiences to its customers.

Valuation Methodology: Price to Earnings Multiple Based 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 very close to its 52-weeks’ low level of $23.240, offering a decent opportunity for the investors to enter the market. During FY19, efficiency ratio stood at 57.2%, higher than the industry median of 52.1%. In the same time span, deposit growth witnessed an increase over the previous year and stood at 1.8%. Considering the trading levels, higher efficiency ratio and modest outlook, we have valued the stock using price to earnings based valuation approach and have 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 $23.240, down by 3.688% on 4 March 2020.
 

Australia and New Zealand Banking Group Limited

Lower Total Provision Charge and Increase in RWA: Australia and New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial services to individual and business customers. As on 4 March 2020, the market capitalisation of the company stood at ~$68.07 billion. The bank has recently released its December 2019 Pillar 3 Chart Pack wherein it reported a lower total provision charge of $116 million. In the same time span, Common Equity Tier 1 Capital ratio on an APRA Level 2 basis was 10.9% and total Risk Weighted Assets was $424 billion.


Total Risk Weighted Assets (Source: Company Reports)

Valuation Methodology: Price to Earnings Multiple based 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: The bank has a clear strategy and an experienced management and hence, is well positioned for a tough period ahead. As per ASX, the stock of ANZ is trading very close to its 52-weeks’ low level of $23.070, proffering a decent opportunity for accumulation. During FY19, efficiency ratio was in line with industry median and stood at 52% and net interest margin was 1.76%. Considering the trading levels, lower provision charge and higher RWA, we have valued the stock using price to earnings based relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purpose, 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 $23.21, down by 3.292% on 4 March 2020. 

Comparative Price Chart (Source: Thomson Reuters)

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