Australia and New Zealand Banking Group Limited

Company Overview: Australia and New Zealand Banking Group Limited (NZX: ANZ) provides a range of banking and financial products and services. Its segments include Australia Retail and Commercial, Institutional, New Zealand, Pacific as well as TSO and Group Centre. The company’s strategy revolves around improving the financial wellbeing as well as sustainability of the customers.

ANZ Details

Australia and New Zealand Banking Group Limited (NZX: ANZ) provides banking and financial products and services to individual and business customers. The market capitalisation of the company stood at ~$83.01 billion on 8^th November 2021.

Net Interest Income of the bank improved from $14,049 million in FY20 to $14,161 million in FY21. Net Income of the bank improved from $3,577 million in FY20 to $6,162 million in FY21.

Exhibit 1: Operating Performance

Source: Company Reports, Analysis by Kalkine Group

Results Performance (FY21 ended 30 September 2021)

• NPAT up 72%: The company’s audited statutory profit after tax for the year stood at $6,162 million, an increase of 72% on the previous year, with a key driver being the partial reversal of COVID-19 related credit provisions.
• Cash Profit In-line to FY20: Cash Profit from continuing operations, before credit impairment and tax, stood at $8,396 million, in-line to the previous year.
• Cash ROE at 9.9%: ANZ’s Common Equity Tier 1 Ratio was stronger at 12.3% while Cash Return on Equity increased to 9.9%. The Board of Directors proposed a final dividend of 72 cents per share (fully franked).

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 16.71% of the total shareholding. The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A. are holding maximum stake in the company at 6.04% and 3.09%, respectively, as provided in the table below:

Exhibit 2: Top 10 Shareholders

Source: Company Reports, Analysis by Kalkine Group

A Quick Look at Key Metrics: The company’s net interest margin for FY21 stood at 1.65% better than the FY20 result of 1.63%. Its Efficiency Ratio improved from 58.3% in FY20 to 56.2% in FY21, where the industry median stood at 60.0%. Its loan growth for the year stood at 2.0%, as compared to 0.6% in the previous year.

Exhibit 3: Key Metrics

Source: Company Reports, Analysis by Kalkine Group

Recent Update:

• On 3 November 2021, the bank informed the market that its record date for FY21 final dividend is 9^th November 2021. However, the payment date of 2021 final dividend is 16^th December 2021.

Outlook:

The bank is making good progress in the multi-year transformation of ANZ. It continues to invest in group-wide automation, cloud migration and digitisation to enable low cost, sustainable customer growth. In Australia, the bank is building growth-oriented retail and small business propositions centred around delivering compelling digital offerings that will improve the financial wellbeing of its customers and drive long-term customer and revenue growth. Its focus is on the long term opportunity and made significant progress and these investments, known internally as ANZx, would be becoming more visible to customers into 2022.

NZ segment is expected to continue to deliver robust returns as well as maintain the robust market position. Notably, Institutional is a better-balanced, more predictable as well as higher returning business. It is in the robust position to reap benefits of the structural tailwinds it believes would be impacting the institutional banking, mainly in the rising interest rate environment as well as the build out of the banking platforms business.

Key Risks: 

• Forex Headwinds: Any unfavorable movement in foreign exchange rates could impact the Group’s earnings.
• Other risks include strategic risk, technology risk, conduct risk, etc.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The stock has been valued using Price/BVPS multiple-based illustrative relative valuation and the target price reflects a rise of low double-digit (in % terms). A slight premium to Price/BV Multiple (NTM) (Peer Average) has been applied considering higher net interest income in FY 2021 on the YoY basis as well as decent outlook.

Hence, we give a “Buy” recommendation on the stock at the current market price of $29.200 per share (New Zealand Time: 12:30 PM (GMT +12)) on 8^th November 2021.

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 on 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 subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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