Stock Review

ANZ Bank


  • Company: ANZ Bank (ANZ)
  • Recommendation: Avoid
  • Price at Review: $31.75
  • Current Price: $29.41
  • Fundamental risk: 2
  • Share price risk: 3.5

ANZ’s share price reached a record high of $32.09 after announcing its interim result for the six months ending 31 March 2013. Operating income increased 4% to $9.1bn compared to the same period last year. While bad debt provisions increased 5% to $599m, expenses fell 2% to $4.0bn. The underlying cash profit increased 10% to $3.2bn, and underlying earnings per share increased 4% to $1.17.

A fully franked interim dividend of 73 cents was declared (ex date 9 May), up from 66 cents, but the final dividend will be lower than last year as the company evens out its dividend payments. The total annual dividend should still be higher, as the company is aiming for the higher end of its target range of paying out 65%-70% of profits as dividends (the target historically has been 67%). Chief executive Mike Smith also suggested the company would seek a dual listing in Asia should it be unable to fully frank future dividends as the company expands across Asia.

ANZ reiterated its aim of earning 25%-30% of revenue outside of Australia and New Zealand by 2017. With strong revenue growth and margin expansion hard to produce consistently in ANZ’s traditional markets while borrowers take advantage of low interest rates to get ahead on their mortgage repayments, the company is focused on further reducing costs (the total net interest margin fell from 2.35% to 2.25% chiefly due to competition for deposits).

In summary, with most bad debt measures improving it’s business as usual for ANZ. We've slightly increased the prices in the recommendation guide as the Australian and New Zealand businesses are in good shape and cost cuts should help the bottom line, and increased the share price risk rating to reflect the company's higher valuation. But despite increasing the recommended portfolio limit to 8% and increasing the portfolio limit for banks in total to 20% from 10% in line with our fresh approach to recommendations, the share price has increased 14% since 15 Feb 13 (Avoid – $27.89) and we’re sticking with AVOID.

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