Stocks’ Details

Westpac Banking Corporation

Sound Credit Quality as at 31^st December 2019:Westpac Banking Corporation (ASX: WBC) provides financial services, including lending, deposit taking, payments services, superannuation and funds management, etc. Recently, the bank as an issuer of Westpac Self-Funding Instalments and Westpac Vanilla Instalment Equity Warrants, announced an amendment to the dividend in respect of underlying securities of BHP Group Limited. Dividend in both the cases was revised to $0.9940 per security, with payment date on or about 24^th March 2020.

1QFY20 Update: For the quarter ended 31^st December 2019, the bank reported average liquidity coverage ratio and net stable funding ratio at 132% and 112%, respectively, which were higher than the regulatory minimums. Common equity Tier 1 capital ratio at the end of the period stood at 10.8%, as compared to 10.7% reported at the end of the previous quarter.

A Glimpse of Full Year Results: During the year ended 30^th September 2019, the bank reported statutory net profit amounting to $6,784 million, representing a decline of 16% on the previous year.Cash earnings stood at $6,849 million, down 15% on pcp. Result for the period was impacted by customer remediation costs and the revamp of the Wealth business.


FY19 Results (Source: Company Reports)

Valuation Methodology: P/BV Multiple Based Relative Valuation

P/BV Based Valuation (Source: Company Reports)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected by 32.34% over a period of 6 months and is currently trading close to its 52-week low level of $18.640. The bank reported a sound credit position at the end of 1QFY20 and is anticipating $500 million of productivity savings in FY20 with an additional $200 million from the exit of the financial planning business. The above savings will be partially offset by increased spending on risk management. Moreover, the bank has invested in fintech partnerships and is looking forward to opportunities in the digital space. We have valued the stock using Price to Book Value based relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $19.460, down 5.258% on 11^th March 2020.

National Australia Bank Limited

Cash Earnings up 1% in 1QFY20:National Australia Bank Limited (ASX: NAB) is engaged in providing banking services, credit and access card facilities, international banking, investment banking, etc. Recently, the bank updated that it is now a substantial shareholder in Healius Limited with a voting power of 5.325%. In the recently released Pillar 3 report, the company notified that its CET 1 capital ratio as at 31^st December 2019 stood at 10.6%, as compared to 10.4% at the end of the previous quarter.


Ratios as at 31^st December 2019 (Source: Company Reports)
 
1QFY20 Highlights: During the quarter ended 31^st December 2019, the bank reported unaudited statutory net profit amounting to $1.70 billion. Unaudited cash earnings for the quarter came in at $1.65 billion, representing an increase of 1% on the prior corresponding quarter. The bank reported sound asset quality with credit impairment charges falling by 21% to $185 million as compared to the quarterly average of 2HFY19.

Valuation Methodology: P/BV Multiple Based Relative Valuation

P/BV Based Valuation (Source: Company Reports)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected by 25.91% over a period of 6 months and is currently trading close to its 52-week low of $18.990. The bank reported a decent performance in 1QFY20 amid challenging operating conditions and is focused on building a plan for the next 5-10 years to offer a safe and secure environment to customers. We have valued the stock using Price to Book Value based relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $19.780, down 6.256% on 11^th March 2020.

Bank of Queensland Limited

Update on Five-Year Strategy:Bank of Queensland Limited (ASX: BOQ) is a provider of financial services, primarily in Australia. The company recently provided an update on its refreshed five-year strategy aimed at profitable growth through enhanced customer experiences and creating long-term shareholders’ value. The strategy revolves around 5 key areas, including an increased focus on customers, distinctive brands serving niche customer segments, digital transformation, streamlining of operations, and maintaining a strong financial and risk position.

In Pillar 3 disclosures, the company reported a CET 1 capital ratio of 9.5% as at 30^th November 2019, which stood at the upper end of the target range of 9% - 9.5%.

FY19 Key Financial Highlights: During the year ended, the bank reported cash earnings after tax amounting to $320 million, down 14% on the previous year, reflecting a challenging operating environment due to slowdown in credit demand, lower interest rates, increase in regulatory costs, etc. Basic earnings per share stood at 79.6 cents, down 16% on pcp.


FY19 Results (Source: Company Reports)

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Company Reports)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected by 29.67% over a period of 6 months and is currently trading close to its 52-week low level of $5.840. Despite a decline in earnings during FY19, the bank reported decent progress in foundational investments and is on track to bring enhanced capabilities on the platform in FY20. It is also looking forward to creating a new digital banking platform through the implementation of a Virgin Money digital bank that will offer long term value to the business. We have valued the stock using Price to Earnings based relative valuation method and arrived at a target price with an upside of high single-digit (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $6.290, down 5.556% on 11^th March 2020.

Australia and New Zealand Banking Group Limited

ANZ to keep a check on Impact from Bushfire and COVID-19:Australia and New Zealand Banking Group Limited (ASX: ANZ) is an entity providing banking and financial services. In a recent announcement, the bank declared a distribution amounting to $1.53820 on the security ANZPD - CAP NOTE 6-BBSW+3.40% PERP NON-CUM RED T-09-21, to be paid on 1^st September 2020.

In another announcement regarding Pillar 3 disclosures for 1QFY20, the bank updated that the CET 1 capital ratio as at December 2019 stood at 10.9%. The bank reported a reduction of $40 million in total provision charge in comparison to pcp, driven by a reduction in collective provision charge due to an improved delinquency profile in the Australian mortgage portfolio. Although the bank reported no material credit impacts in 1QFY20, it is keeping a check on the potential impact from recent bushfire activity and COVID-19.

FY19 Highlights: During the year ended 30^th September 2019, the bank reported cash profit amounting to $6.47 billion, in-line with the previous year. As customer confidence increased, ANZ New Zealand reported an increase in both customer deposits and gross lending on FY18.


FY19 Financial Performance (Source: Company Reports)
 
Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Company Reports)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected by 22.40% over a period of 6 months and is currently trading close to its 52-week low level of $19.380. The bank recently completed the sale of OnePath Pensions & Investments business, which marks the completion of its multi-year strategy to simplify the Wealth business. The transaction will also drive the CET 1 capital ratio further by around 20 bps. We have valued the stock using Price to Earnings based relative valuation method and arrived at a target price with an upside of high single-digit (in % terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $19.960, down 5.537% on 11^th March 2020.


Comparative Price Chart (Source: Thomson Reuters)

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