Category: Expert Insights

Investment Thesis:

• Loan deferrals are falling, with economic conditions not as dire as earlier predicted
• ANZ is trading on an undemanding valuation, with 1.2x Price to Book (P/B) and dividend yield of 5.2%
• Extensive fiscal and monetary policy support are providing enough liquidity in the market to avoid mass stress points in property market and unemployment numbers
• All else being equal, ANZ is offering an attractive dividend yield on a 2-yr (5.4%) and 3-Yr (5.8%) view
• Net interest margin (NIM) remains under pressure, but some offsetting tailwinds could see NIMs hold up better than market expectations
• The banks have aggressively provisions for loan losses, should this surprise on the upside the share price will see additional support
• Strong capital position could lead to ongoing capital management initiatives
• Continued focus on cost could yield results which come in ahead of market expectations

Key Risks:

• Any unexpected customer remediation provisions
• Loan deferrals turn into structurally impaired loans
• Intense competition for already subdued credit growth
• Increase in bad and doubtful debts or increase in provisioning especially any Australian and institutional single exposure loan losses
• Funding pressure for deposits and wholesale funding
• Credit risk with potential default of mortgages, personal and business loans and credit cards
• Potential changes to Australian Banking legislation
• Significant exposure to the Australian property market
• Operating costs come in below market expectations

Key highlights:

• It reported strong FY21 results which reflected Cash profit (from continuing operations) up +65% to $6,198m due to partial reversal of Covid-19 related credit provisions  
• Mainly driven by Australia Retail & Commercial despite challenges in home loans processing
• In August 2021, ANZ commenced a buy-back of $1.5bn shares on-market
• Statutory profit was up +72% to $6,162m
• Cash profit (from continuing operations) up +65% to $6,198m due to partial reversal of Covid-19 related credit provisions and driven by Australia Retail & Commercial despite challenges in home loans processing
• In terms of credit quality, ANZ’s total provision result was a net release of $567m (collective provision (CP) release of $823m and individually assessed provision (IP) charge of $256m)
• Net Interest Margin were stable at 2.61%.

Company Description: 

Australia and New Zealand Banking Group Ltd (ANZ) is one of the four major banking institutions in Australia with an international presence having activities in general banking, mortgage and instalment lending, life insurance, leasing, hire purchase and general finance. In addition, ANZ operates in international and

investment banking, investment and portfolio management and advisory services, nominee and custodian services, stock broking and executor and trustee services.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.