ANZ chucks out cash

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From Credit Suisse:

Event: ANZ reported (company defined) cash earnings of $3,515mn (up 11% on $3,179mn pcp) which was 1% better than our $3,495mn estimate and 2% better than the $3,437mn Bloomberg consensus average. Interim DPS of $0.83 (up 14% on the $0.73 pcp) was $0.03 better than our consensus estimate. Refer detailed financials attached. Compositionally a solid result, with 4% sequential revenue growth (broadly based, but driven particularly by Global Markets, 5% loan growth) and 6% underlying profit growth; bad debts declined (0.21% vs. 0.25% sequentially) but did not drive the earnings surprise. Divisionally, sequential cash earnings growth was driven by International & Institutional (10%) and New Zealand (13%).

  • Investment Case: Good result for a stock with an undemanding PE compared to peers – headline earnings and DPS beat (although DPS in part reflects a re-balancing between interim and final dividends). What we liked about the result: 1) Strong lending balance growth (5%) with equity Tier 1 well in tact at 8.33% (8.48% sequentially); 2) Improving cost to income ratio (44.3% vs. 45.3% sequentially) reinforced by flat 1H14 headcount; 3) Improving impaireds ratio (0.70% vs. 0.87% sequentially) with declining flows of new impaireds. What we didn’t like: 1) Softer collective provision coverage (0.79% vs. 0.85% sequentially).
  • Valuation: ANZ currently trades on 13.0x 12-month prospective earnings (6% discount to the major bank peer group vs. a 6% four-year average discount) and a corresponding book multiple of 2.0x.