Is ANZ fairly priced?
Broker reports editor |
31 October 2013
The ANZ result seems to have been what analysts expected and they are making recommendations that suggest the stock is fairly priced. Credit Suisse has a neutral recommendation and a target price of $34.50. It says the business is travelling well:
"Good result with strong DPS, strong lending growth, good improvements to asset quality and capital metrics, numerous guidance benchmarks being issued (including a sharper ROE focus overall), and with margins no worse than expected. What we liked about the result: Strong lending growth (broadly based); Lower impaireds; Stronger capital ratios; Institutional margins not as bad as guidance. What we didn’t like: Soft non- interest income; Strong cost growth (which also exceeded revenue growth). Industry read-throughs: Positively, deposit spread pressures in Australia and NZ are easing and institutional provision charges / flows of new impaireds continue to decline; less positively, financial markets income is under pressure."
The banking oligopoly is assuming greater importance in the Australian market as the mining boom weakens. That means for SMSF investors it is becoming crucial to examine their prospects closely.
UBS also has a neutral recommendation on ANZ and a price target of $32. It has the stock on a forward earnings multiple of 13.8 times, which is about mid range and a forward net dividend yield of 5.1%, which is strong given the relatively low risk.
The future of bank dividends has been put under a cloud by APRA, however. The AFR reports that the banks have been told to limit dividend payouts to investors in order to meet new rules that will require them to hold billions of dollars more capital than expected:
"The request, by the Australian Prudential Regulation Authority, effectively scuttles special or extra dividends in the current bank reporting season. High dividend yields and expectations of bonus capital returns have been the major factor in the stellar run in bank shares this year.
"APRA, which regulates deposit- taking institutions, sent a letter to banks last week warning them they “should maintain adequate capital buffers”. Follow-up telephone conversations between APRA officials and bank executives made clear that the regulator was referring to dividends. The phone calls revealed the regulator was preparing to announce its capital requirement for banks known as DSIBs – domestically systemically important banks."
This suggests that in an investment sense the major banks are likely to go sideways. UBS argues that ANZ's earnings estimates will stay about the same but the dividend payout ratio will be high, ensuring a strong dividend yield:
"Given today’s full year result was in line with UBSe at a pre-tax profit number, our earnings changes are <1% across forecast periods. Our small EPS upgrades in excess of the NPAT changes reflect our factoring the neutralisation of bonus share plan dilution in addition to the DRP neutralisation that we had previously forecast. Our higher dividend forecasts reflect our expectation that ANZ will remain close to the upper end of its 65 to 70% payout ratio while capital levels are robust, and asset quality is benign. We forecast a full year payout ratio of 69% for FY14 to FY16E."
ANZ has performed pretty much in line with the ASX 200 and the financial sector: