Stocks’ Details

Westpac Banking Corporation

Movement in CET1 during Q1 2020: Westpac Banking Corporation (ASX: WBC) is one of the well-known banks in Australia, providing banking, financial and related services. The market capitalisation of the bank stood at $93 Bn as on 19^th February 2020. The bank recently notified the market with the capital, funding and credit quality for Q1 FY20 and stated that common equity Tier 1 (CET1) capital ratio stood at 10.8% as at 31 December 2019 against 10.7% as at 30^th September 2019. The movement in CET1 is primarily due to additional capital raising of $2.8 billion from an institutional placement of $2.0 billion and a $770 million Share Purchase Plan. The movement also includes the impact of Q1 FY20 earnings and other capital movements. 

For Q1 FY20, the average liquidity coverage ratio stood at 132% and net stable funding ratio (NSFR) at 112%, both above the minimum regulatory requirements.


CET1 Ratio (Source: Company Reports)

Aspects for FY20:  As per the management, the bank is expecting an economic impact because of recent bushfires, storms and Coronavirus outbreak, which might affect banking activity and growth. Moreover, with respect to AUSTRAC and related matters, the bank expects additional expenses in FY20, which include $80 million (pre-tax) announced from the response plan. Also, litigation and regulatory investigation expenses are expected to increase.
 
Valuation Methodology:P/BV Based Valuation

P/BV Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: With respect to Australian mortgage portfolio performance, the bank witnessed a small decline in mortgage delinquencies, which was a result of improvements in all States. We have valued the stock using P/BV based relative valuation approach and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Hence, considering the sound credit quality and decent funding position, we give a “Buy” recommendation on the stock at the current market price of $25.620 per share, down 0.505% on 19^th February 2020.

Bank of Queensland Limited

A Banking Player with Decent Outlook: Bank of Queensland Limited (ASX: BOQ) provides banking, financial and related services. The market capitalisation of the bank stood at $3.45 Bn as on 19^th February 2020. The bank recently stated that common equity tier 1 capital ratio stood at 9.5% and total capital ratio was reported at 12.8% as at 30^th November 2019. Moreover, the capital management strategy of the bank targets to maintain adequate capital levels to protect deposit holders. Also, the Board of the bank has set the Common Equity Tier 1 Capital target in the ambit of 9.0% and 9.5% and the Total Capital Ratio is expected to be between 11.75% and 13.5%.


Capital Structure (Source: Company Reports)

Expectations for the Upcoming Year: For FY20, the bank expects lower year-on-year cash earnings. Subject to market conditions, the revenue and impairment outcomes are expected to be in line with FY19. 

Valuation Methodology:P/BV Based Valuation

P/BV Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: BOQ possesses a good business with a sound platform for differentiation. The bank is optimistic that it has a strong platform with good opportunities to capitalise on and achieve above system growth in its target segments over the medium term. We have valued the stock using P/BV based relative valuation approach, and for the purpose, we have taken the peer group - Bendigo and Adelaide Bank Ltd (ASX: BEN), Westpac Banking Corp (ASX: WBC) and Virgin Money UK PLC (ASX: VUK). We have arrived at a target price offering an upside of lower double-digit (in percentage terms). Therefore, considering the bank’s sound underlying asset quality, a sound platform for differentiation and decent valuation upside, we give a “Buy” recommendation on the stock at the current market price of $7.560 per share, down by 0.526% on 19^th February 2020.

Janus Henderson Group Plc

Strong Performance in Q4 2020: Janus Henderson Group Plc (ASX: JHG) is a global investment management company, that helps investors to meet long-term financial goals via a broad range of investment solutions. As at 31^st December 2019, the company reported robust investment performance, with 76% and 77% of assets under management, which outperformed the relevant benchmarks on a three and five-year basis, respectively. The operating income for the quarter stood at US$154.3 million and adjusted operating income amounted to US$171.0 million.

The Board of the company declared quarterly dividend amounting to US$0.36 per share and approved additional authorisation of US$200 million of buybacks by April 2021. The record date for the said dividend is 18 February 2020, and it would be paid on 5^th March 2020.


Key Dates for 1H FY20 (Source: Company Reports)

Strategy of JHG: The strategy of the company primarily revolves around (1) producing dependable investment outcomes, (2) to excel in client experience, (3) increase operational efficiency, and (4) to develop new growth initiatives.

Stock Recommendation: The company experienced strong investment performance during Q4 2020, and this remains the best leading indicator of future success. During the quarter, the company witnessed an improvement of 3% in cash and cash equivalents. JHG also witnessed a rise in investment securities because of new seed investments as well as the consolidation of certain seed investments. During the span of three months and six months, the stock of JHG provided returns of 3.23% and 39.28%, respectively. Hence, in light of a strong liquidity position, investment performance and returns in the past months, we maintain a “Hold” rating on the stock at the current market price of $38.350 per share, up by 1.751% on 19^th February 2020.

National Australia Bank Limited

A Quick Look at Q1 FY20 Trading Update: National Australia Bank Limited (ASX: NAB) is a leading bank of Australia, which has a market capitalisation of $80.4 Bn as on 19^th February 2020. For Q1FY20, the bank reported unaudited statutory net profit amounting to $1.70 billion with unaudited cash earnings of $1.65 billion. As per the management, the bank is delivering on its three-year transformation, which started in September 2017. With respect to asset quality, the bank experienced a decline of 21% in credit impairment charges to $185 million, against the 2HFY19 quarterly average. As at 31^st December 2019, the CET1 ratio of the group stood at 10.6%, against 10.4% as at September 2019, including underwriting proceeds of $0.7 billion of 2H FY19, from the Dividend Reinvestment Plan. 


 Credit Impairment Charges (Sources: Company Reports)

Focus of NAB:As per the key personnel of the bank, NAB is continuing its work to refresh its strategy as well as to build a plan for the next five to ten years. 

Valuation Methodology:P/BV Based Valuation


P/BV Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: For Q1 2020, cash earnings of the bank witnessed a rise of 1% as compared to the quarterly average of 2H FY19. Net interest margin for the period has benefitted from home loan repricing, which is helping NAB to counter the impact of a low-interest rate environment. We have valued the stock using P/BV based relative valuation approach and arrived at a target price, which is offering an upside of high single digit (in percentage terms). Therefore, taking the sound performance in Q1 FY20, focus for future and valuation parameters into account, we maintain a “Hold” rating on the stock at the current market price of $27.310 per share, up by 0.11% on 19^th February 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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