Says Macquarie
- Following the two recent downgrades, ANZ’s FY16 pre-provision result was largely in-line with our expectations, while the BDD charge was marginally lower. We expect the market to like (i) solid capital position (proforma CET1 of 9.7-9.8% is now sector leading), (ii) normalising credit charges (the stress in the institutional portfolio is past its peak suggesting ANZ’s negative differentiation to peers should continue to abate), and (iii) ongoing focus on cost management (with underlying expenses down 0.4% HoH). However, guidance for broadly flat impairment charges in FY17 and the outlined cost management opportunities appear conservative.
- Given the relative share-price outperformance in the lead-up to this result we see limited scope for ongoing outperformance on the back of this result unless management is able to provide further clarity on balance sheet optimisation and cost-out opportunities which we continue to see as realistic in the medium term.
Impact
- Cash profit of $3.11bn ahead of MRE and in-line consensus, with dividend in line – 2H16 cash profit came in at $3.11bn compared with MRE of $3.04bn and consensus of $3.08bn. DPS came in at 80cps, in-line with MRE and consensus of 80cps. This represents a 79% payout ratio on 2H16 cash profit. ANZ will operate the DRP with zero discount.
- Operating revenue growth in line – Revenue growth of -0.5% HoH was in line with MRE of -0.3% HoH. On an adjusted pro-forma basis revenue grew 1% HoH.
o NIM was down 1bps HoH to 2.00% (MRE est. flat HoH at 2.01%). The NIM movement was driven by pressure from funding costs and deposits, partially offset by asset mix improvement. The institutional NIM (ex markets) was up 4bps HoH, offsetting a 5bps decline in the NZ NIM and 2bps in Australia.
o GLAA growth was above our expectations for 0.0% growth coming in at 3.0% HoH with solid growth in NZ lending (+3% in NZD) and Australia division (+2%) driven by 9% growth in corporate banking and 2% growth in home loans. Thisd was partially offset by ongoing run-off in the insto division.
o Non-NII declined 0.5% HoH in line with MRE (adjusted pro-forma +2%). The 2H16 decline was driven by a 6% increase in FX income which was offset by a 4% reduction in fees and a 3% reduction in funds and insurance income due to higher claims experience.
- ANZ Life, advice and superannuation business up for sale – ANZ noted it had completed its review of the Australian wealth business and was considering a sale of its life insurance, advice and superannuation business, which we estimated could be worth between $3-5bn and provide ~70-100bps of capital uplift. The wealth business in NZ will be reviewed in 2017.
- Adjusted pro-forma cost growth contained at -0.4% –Cost growth of -9.8% HoH was in-line with MRE for -9.7% HoH, with adjusted pro-forma cost growth was -0.4% HoH as personnel expenses begin to decline from restructuring. ANZ highlighted they’ve delivered ~$100m of annual savings in FY16, they expect a further $200m in FY17 and an additional ~$100m in FY18 (from $278m of restructuring charges). We note that the underlying cost-to-income ratio in 2H16 was 44.6% and the annualised 2H16 adjusted pro-forma costs of $9.37bn.
- Impairment expenses were better than our expectation at 36bps –BDD expense came in at $1,047m or 36bps of GLAAs for 2H16. This was up from 32bps in 1H16, but better than our expectations for 40bps. The increase was driven primarily by the settlement of the Oswal legal dispute ($147m) and increases in Australia Retail and NZ Agri. ANZ have guided to flat BDDs as a % of GLAAs, which we think is a little conservative given the FY16 experience.
- Capital generation strong, assisted by underlying RWA reduction –ANZ’s CET1 ratio came in at 9.61% compared with our forecast for 9.45%, driven by a reduction in credit RWA. ANZ’s organic generation for the half was 52bps net of the dividend and DRP.
Nothing much to get excited about there.
