Jitters to the big 4 banking sector stocks – ANZ, CBA, NAB and WBC

With the first round of hearing of the Royal Commission into the financial services sector kicking off, the four majors came under some pressure on February 12, 2018. The banks also seem to be trimming staff and other costs to manage the revenue related concerns. For instance, National Australia Bank undertook a restructuring affecting a significant portion of its workforce. With the much-discussed developments, the four majors edged lower on February 12, 2018.
 

Australia and New Zealand Banking Group Ltd

ANZ Details

Decent returns to shareholders: Australia and New Zealand Banking Group Ltd.’s (ASX: ANZ) stock slipped by 0.68% on February 12, 2018 with the sector driven headwinds while the group believes in paying good returns to shareholders with 68% of profits delivered as dividends in FY17. ANZ expects FY18 revenue growth environment for banking sector to continue to be constrained due to the intense competition and the effect of regulation including a full year of impact of the Australian bank tax. Meanwhile, ANZ will not be proceeding with the sale of UDC Finance to HNA Group as the agreement with HNA is now terminated in accordance with the contracted timeframe. The bank will continue to assess the strategic options for the future of UDC, however there is no immediate requirement to do anything. Given the challenges in the banking sector, ANZ stock has fallen 8.08% in three months as on February 09, 2018 and is trading at a reasonable P/E. Nonetheless, ANZ’s strategy is to be ahead of the peers by focusing on only those areas where the bank can deliver exceptional customer outcomes, solve real customer needs and in doing so make a decent return for the shareholders. The group has also announced for $1.5 billion share buyback plan for early 2018. We give a “Buy” recommendation on the stock at the current price of $27.70
 

ANZ Daily Chart (Source: Thomson Reuters)
 

Commonwealth Bank of Australia

CBA Details

Net profit after tax on cash basis falls in 1H 2018: Commonwealth Bank of Australia (ASX: CBA) reported 1.9% fall in the Group’s net profit after tax on the cash basis in the first half of FY 18 against the prior comparative period to $4,735 million as it got impacted by a $375 million expense provision for the current estimate of the civil penalty that might be imposed in relation to the AUSTRAC proceedings.
 

1H 18 Financial Performance (Source: Company Reports)
 
The earnings per share on a cash basis have fallen 3.2% to 272.2 cents per share and return on equity on cash basis decreased by 120 basis points to 14.5% due to the lower profits and increased equity (mainly driven by the discounted 2H17 DRP).CBA stock has fallen 5.79% in three months as on February 09, 2018 and looks “Expensive” at the current price of $75.88, given the plethora of challenging issues that the bank faces.
 

CBA Daily Chart (Source: Thomson Reuters)
 

National Australia Bank Ltd

NAB Details

On track to deliver targets by the end of FY 20 with decent 1Q FY 18 Performance:  National Australia Bank Ltd. (ASX: NAB) is on track to deliver the targets, including approximately $1.5 billion increase in investment and cost savings of more than $1 billion by the end of FY 20. Meanwhile, NAB has reported 3% growth in the cash earnings for the first quarter of FY 18. The bank has in the first quarter of FY 18 posted unaudited cash earnings of A$1.65 billion. The revenue grew by 1% due to the strong growth in Business and Private Banking, and Corporate & Institutional Banking revenue.
 

CET1 Ratio (Source: Company Reports)
 
Further, there is a decline of 23% in the bad and doubtful debt charges to A$160 million for the period. There is an improvement in the asset quality as the ratio of 90+ days past due and the gross impaired assets to gross loans and acceptances decreased 5bps to 0.67%. This is due to the continued improvement in the conditions for New Zealand dairy customers. Additionally, at 31 December 2017, the group’s common equity tier 1 (CET1) ratio was noted to be 10.2%. NAB stock has fallen 5.46% in three months as on February 09, 2018 and we give a “Buy” recommendation on the stock at the current price of $28.68, given the long-term targets and sustainable performance with net stable funding ratio of 110% and improving customer net promotor score.
 

NAB Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation

WBC Details

Westpac Capital Notes 5 Offer: Down 0.7% on February 12, 2018, Westpac Banking Corp (ASX: WBC) has completed the Bookbuild earlier than scheduled for its Westpac Capital Notes 5 Offer. After this, the margin is set at 3.20% p.a. and the offer size increased to $1.45 billion. Moreover, the final Offer size will be determined after the close of the Reinvestment Offer and Securityholder Offer. The replacement Prospectus, including the margin and the revised Offer size, is expected to be lodged with ASIC on 13 February 2018. Further, the Reinvestment Offer and Securityholder Offer will open on 13 February 2018 and will close on 6 March 2018. Meanwhile, WBC stock has fallen 8.50% in three months as on February 09, 2018. Though the group’s FY17 performance was decent with NPAT up 7.32% and revenue from ordinary activities up by 4%, the group anticipates the softer banking conditions to impact the future performance. As of now, we give an “Expensive” recommendation on the stock at the current price of $30.14
 

WBC Daily Chart (Source: Thomson Reuters)

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