National Australia Bank Limited
NAB Details
Initial Substantial Shareholding: National Australia Bank Limited (ASX: NAB) works in financial services industry working through two segments: Business and Private Banking. It provides services like business franchise, specialized agriculture, health, Government, education, and community services, together with private banking, the micro and small business segments. On 17th January 2022, The Vanguard Group and its entities became its initial shareholder by gaining voting power of ~5.0001%.
FY21 Group’s Financials:
- Income Front: The Bank recorded a marginal decrease of ~0.9% Y-o-Y in its net interest income as ~$13,797 million in FY21 leading to a ~2.2% Y-o-Y decrease in its net operating income to ~$16,806 million versus ~ $17,190 million in FY20. The decrease is owed to the lower interest rate environment and customers’ change in preferences towards lower margin fixed rate housing loans.
- Profitability/Loss: the bank was pleased to increase its net profitability from continuing operations by ~85% Y-o-Y to ~$6,471 million in FY21 versus 3,498 million in FY20.
- Net Interest Margin: Due to the competitive pressures affecting housing lending margins the net interest margin fell by 6bps from ~1.77% in FY20 to ~1.71% in FY21.
- Capital Adequacy Ratio: Its capital adequacy ratio came out to be ~18.91% as of 30th September 2021, as compared to ~17.90% as of 30th September 2020.
- Balance Sheet: The bank closed its balance sheet with an increase in loans and advances ~$621,156 million at the end of 30th September 2021 versus ~$583,962 million at the end of 30th September 2020. Its deposits also increased from ~$546,176 million at the end of 30th September 2020 to ~$605,043 million at the end of 30th September 2021.
Balance Sheet Items Highlight (Source: Analysis by Kalkine Group)
Key Risks:
- COVID-19: The company is vulnerable to the risks associated with the impacts of COVID-19 and the new variant Omicron and affects the employees, operational functions, and thereby profitability.
- Interest Rate Fluctuations: With the changing preferences of customers housing lending market and competitive low interest rate environment, the bank is susceptible to the Interest Rate risks.
Outlook: Considering the uncertainty the world holds due to COVID-19, and interest rate volatility it is difficult to quantify the outlook of FY22. But the group focuses on:
- Execution of group strategy, investing in growth while maintaining the cost and capital disciple.
- Resolution of AUSTRAC investigation.
- Finalisation of the Citigroup’s Australian consumer business acquisition, and UBank & 86 400 integration.
The group’s First Quarter FY22 results are awaited to be released on 10th February 2022 and its Half-Yearly results for 1HFY22 is expected to be released on 5th May 2022.
Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of the company has given positive return of ~9.06% in the past six months. Currently, the stock is trading above the average of its 52-week low and high levels of $22.86 and $30.30, respectively. The stock has been valued using a P/B multiple-based illustrative relative valuation and arrived at a target price with a correction of mid-single-digit (in % terms). The company can trade at a premium its peers’ average P/B multiple, considering its decline in NPA and increasing Capital Adequacy ratio. For the purpose of valuation, peers such as Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), and others have been considered. Considering the expected downside in valuation, decline in net interest margin, expected headwinds related to COVID-19 Omicron, competitive and volatile interest market environment, current trading level, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $28.620, 10:50 AM (GMT+10), Sydney, Eastern Australia, as on 21 January 2022.
NAB Daily Technical Chart, Data Source: REFINITIV
Australia and New Zealand Banking Group Limited
ANZ Details
FY21 Group’s Financials: Australia and New Zealand Banking Group Limited (ASX: AZN) provides a variety of banking and financial products and services.
- Income Front: The bank recorded a marginal increase of ~1.0% Y-o-Y in its net interest income, which is recorded as ~$14,161 million in FY21 versus ~$14,049 million in FY20.
- Cash Profitability: The bank increased its cash profit from by ~55% Y-o-Y to ~$3,617 million in FY21 versus 2,337 million in FY20.
- Net Interest Margin: Owing to deposit margin management across all divisions, lower reverse repurchase-agreements and favourable wholesale funding costs, the net interest margin increased by ~1bps and remained almost same as ~1.63% in FY20 versus~1.64% in FY21.
- Common Equity Tier 1 Capital: Its common equity tier 1 capital ratio stood as ~12.3% as of 30th September 2021, as compared to ~11.3% as of 30th September 2020.
- Balance Sheet: The bank closed its balance sheet with an increase of ~1% Y-o-Y in net loans and advances ~$341,233 billion at the end of 30th September 2021 versus ~$339,381 billion at the end of 30th September 2020. Its customers deposits increased by ~8% Y-o-Y from ~$235,594 billion at the end of 30th September 2020 to ~$252,504 billion at the end of 30th September 2021.
Balance Sheet Items (Source: Analysis by Kalkine Group)
Key Risks:
- COVID-19: The company is vulnerable to the risks associated with the impacts of COVID-19 and the new variant Omicron and affects the employees, operational functions, and thereby profitability.
- Interest Rate Fluctuations: With the changing preferences of customers housing lending market and competitive low interest rate environment, the bank is susceptible to the Interest Rate risks.
Outlook: The bank expects its economic outlook to improve and enhancement in the portfolio mix. Looking forward, the bank anticipates the uncertainty due to COVID-19, low growth and interest rate volatility and margin pressures. The group’s Half-Yearly results for 1HFY22 is expected to be released on 4th May 2022.
Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of the company has been corrected by ~2.16% in the past six months. Currently, the stock is trading above the average of its 52-week low and high levels of $23.11 and $29.64, respectively. The stock has been valued using P/B multiple-based illustrative relative valuation and arrived at a target price with a correction of mid-single-digit (in % terms). The company can trade at a premium its peers’ average P/E multiple, considering its decline in NPA and increase in Net Interest Income. For the purpose of valuation, peers such as Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), and others have been considered. Considering the expected downside in valuation, expected headwinds related to COVID-19 Omicron, competitive and volatile interest market environment, current trading level, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $28.46, 10:30 AM (GMT+10), Sydney, Eastern Australia, as on 21 January 2022.
ANZ Daily Technical Chart, Data Source: REFINITIV
iShares S&P/ASX Dividend Opportunities ETF
Under Performed the Benchmark in Financial Year 2021: iShares S&P/ASX Dividend Opportunities ETF (ASX: IHD) is tracked by BlackRock Investment Management Limited (BIMAL) Australia which is domiciled in Australia. The Fund aims to provide investors with the performance of an index - S&P/ASX Dividend Opportunities Total Return Index, before fees and expenses. It is designed to gauge the performance of 50 ASX listed stocks which offer high dividend yields and at the same time meets diversification, stable and tradability requirements.
Data Source: REFINITIV
Technical Analysis: On the daily chart, IHD prices have fallen from the downward sloping trendline with volumes support at ~$13.91 and also trading below its 50-period and 21-period SMA, indicating a possible downside in the short term. The RSI (14-period) is also moving downwards from mid-zone and placed at ~45.275 level that further indicates weak price momentum. Immediate support level and resistance levels are ~$13.32 and ~$13.91, respectively.
Recommendation: The ETF fund underperformed with a return of ~10.92% in last one year with respect to ~11.26% of the benchmark. Considering its lower performance than benchmark and current trading levels, we suggest investors a ‘Sell’ rating on the fund at the current market price of $13.77, 10:30 AM (GMT+10), Sydney, Eastern Australia, as on 21 January 2022.
IHD Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.
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