Australia and New Zealand Banking Group Limited

ANZ Details

Quarterly Highlights: Australia and New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial products and services to individual and business customers. As on 21 August 2020, the market capitalization of the bank stood at ~$52.36 billion. During the third quarter ended 30 June 2020, revenue of the bank witnessed an increase of ~60% on the prior period, mainly due to stronger market performance. In the same time span, operating expenses went down by 1% reflecting disciplined cost management. Net interest margin of the company was 1.59%, during the quarter. This was mainly driven by low-interest rates, higher liquids and competition and mix. During the quarter, the bank witnessed strong deposit inflows which continued to support liquidity metrics and reported a CET1 ratio of 11.1%.

Quarterly Financial Metrics (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including additional downside risk and overlays reflecting ongoing COVID-19 uncertainties, including considerations around deferral packages and higher risk segments in the Commercial portfolios in Australia and New Zealand. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Following strong growth in March, Institutional Credit RWA witnessed a decline in the third quarter. However, ANZ saw growth in at-call deposits and increase in liquid assets. During the quarter, the bank reported a healthy balance sheet with growth in deposits, further resulting in a decline in reliance on senior term debt. As per ASX, the stock of ANZ gave a return of 19.02% in the past three months and a return of 1.15% in the past one month. The stock is inclined towards its 52-week low level of $14.10, proffering a decent opportunity for accumulation. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). On the technical front, the stock of ANZ has a support level of ~$16.95 and a resistance level at ~$21.285 and ~$23.707. Considering the current trading levels, decent returns in the past three months, healthy balance sheet and decent financial performance, we recommend a ‘Buy’ rating on the stock at the current market price of $18.38, down by 0.433% on 21 August 2020.

ANZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Suncorp Group Limited

SUN Details 

Excess Capital Position and Healthy Balance Sheet: Suncorp Group Limited (ASX: SUN) provides banking, insurance, wealth and other financial solutions to the retail, corporate and commercial sectors. As on 21 August 2020, the market capitalization of the company stood at ~$11.12 billion. The company has recently released results for the FY20 and reported a decent financial performance despite prolonged drought and subdued economies due to the global pandemic. During FY20, the company maintained a strong capital position with excess Common Equity Tier 1 capital $823 million and paid $8.7 billion to its customers as total claims. In the same time span, the company invested $10.3 million in local communities and reported net profit after tax of $913 million. Based on the strength of the balance sheet and excess capital position, the Board declared a final dividend of 10 cents per share, resulting in a full-year payout of below 50% of statutory NPAT.

FY20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including the physical impacts of climate change, significant weather events and natural hazards, systemic shifts in the macro-economic environment, risks relating to extreme cyber or critical infrastructure events, failure to meet government or regulatory expectations, and shifts in customer expectations, technology, mobility, data and competitors.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company’s capital management strategy is to optimize the shareholder value by managing the level, mix and use of capital resources. It is aiming to maintain sufficient capital resources to grow the business, in accordance with risk appetite. The company is focused on improving its operational and financial performance and is aiming to further strengthen its business with disciplined cost management. On the technical front, the stock of SUN has a support level of ~$8.392 and a resistance level at ~$9.984 and ~$11.602. As per ASX, the stock of SUN is trading close to its 52-week low of $7.30, proffering a decent opportunity for accumulation. We have valued the stock using the price to book value multiple and arrived at a target price, offering an upside of lower double-digit (in percentage terms). Considering the current trading levels, decent financial performance, excess capital position and modest long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $9.650, up by 11.047% on 21 August 2020, owing to its recent release of FY20 results.

SUN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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