On ANZ dips...
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Aji Widhiwijaya
Nov 27, 2007, 6:03:39 AM11/27/07
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FYI.... probably the most discussed big 5 recently... (was $31 in Oct and now $27 as of 27/11)
Hhhmmm beli nggak beli nggak beli nggak.. ... .....
To our resident financial expert (read Mr Gautama) what's your view?
Unconvincing ANZ dips by John Kavanagh
ANZ banking Group shares closed on Friday at $27.70, down 44¢. It was one of several steep one-day falls the bank's stock has suffered since hitting a 12-month high of $31.74 in October. The market is not sure about the bank's new chief executive, Michael Smith, or about the stronger push into Asia that his appointment represents.
ANZ's progress from its October high to its current price is a fall of 12.7% in just over a month. Its biggest one-day fall came when it announced its financial results for the year to September – a set of numbers the market did not warm to.
At its current price ANZ is trading on a price/earnings multiple (based on historical earnings) of a little over 12 times. Its big banks peers are trading on historical P/E multiples of between 15.5 and 17 times.
This raises the question of whether ANZ's recent performance and its prospects warrant a hefty pricing discount of 20–25% to the other big banks.
ANZ's 2007 result was disappointing, with its biggest area of weakness appearing to be in the management of expenses. For the year to September operating expenses were up 9%, while operating income was up 12%.
Things deteriorated in the second half, when expenses were up 8% and operating income was up only 3%. Poor expense management combined with a 39% increase in the provision for credit impairment resulted in a 1% fall in net profit in the second half.
ANZ chief financial officer Peter Marriott conceded it was a disappointing result. The 8.1% increase in cash earnings per share was at the bottom of the bank's target range.
One suggestion has been that ANZ is pouring too much money into its branch expansion strategy. The bank opened 39 new branches in the financial year and increased staff numbers by 9%.
This criticism does not look valid. The bank's personal banking division, which contributed 34% of group earnings, increased its profit by 16%. That makes it one of the best performing units in the bank.
Looking at some standard ratios, ANZ's results do not compare well with its peers. The average return on equity for the five big banks rose from 20.6% to 21.2%. The leader was Westpac. Its ROE increased from 23.1% to 23.8%. St George's ROE increased from 22.9% to 23.2%. Commonwealth Bank was up from 21.3% to 22.1% (all figures are to September 30, except Commonwealth Bank, which is to June 30).
ANZ's ROE was the only one of the five to fall, from 20.1% to 19.6%. NAB was the laggard, as it has been for the past three years, with an ROE of 17.1%. But the bank reported the biggest increase, up 120 basis points from 15.9% in 2006
In terms of growth in cash earnings, Commonwealth was up 18% to $4.6 billion, Westpac up 14% to $3.5 billion, St George up 13.1% to $1.2 billion and NAB up 12.6% to $4.4 billion. ANZ was well off the pace, up 9.4% to $3.9 billion.
Looking at those profit numbers on an earnings per share basis, Commonwealth Bank's EPS increased 16%. Close behind was NAB, with an increase of 15.9%. Westpac's EPS growth was 13% and St George's was 11.8%. ANZ produced a disappointing result, with EPS up only 8.1%.
Another area where ANZ performed poorly was loan impairment. A combination of higher delinquencies, strong growth in assets and provisioning for uncertainty led to big increases in loan impairment expenses. ANZ's impairment expenses were up 39%, resulting in a $567 hit to the bottom line, up from $407 million in 2006.
NAB's impairment expenses were up 36% to $790 million, Westpac's were up 29% to $482 million, and St George's were up 23.6% to $178 million. The only bank that avoided a sharp increase in impairment expenses was Commonwealth Bank, which was up 9% to $434 million.
On the other hand, there were several areas where ANZ performed quite well. In the home loan market, for example, NAB managed growth of only 8.6% in its Australian retail business. St George was up by 10.4% and Commonwealth, with a home loan book of $196.3 billion, was up by 11%. Westpac and ANZ managed 12% growth in their home loan books.
ANZ also did a good job attracting deposits. With the cost of wholesale funds rising, banks that can fund more of their lending with bank deposits will have an advantage. Commonwealth increased savings deposits by 17% to $49.9 billion and transaction account deposits by 17% to $41.9 billion.
What these numbers suggest is that ANZ has a business franchise that is competitive. Its management disciplines appear to have slipped and if those problems are fixed the bank will close the earnings gap on its rivals in the coming year. And reduce that big P/E discount.
The other part of the ANZ story that worries the market is its plan for growth in Asia. Since 1999 the bank has invested $1.8 billion in partnerships with Asian financial institutions. Earnings from the region are growing strongly but Asia is still a very small part of ANZ's overall business.
The bank made a profit of $171 million from Asian operations in 2007, 37% up on the previous year. That is the fastest rate of earnings growth of any of the bank's operations but it is only 1.6% of total earnings.
ANZ has had the most active investment program in Asia among the big Australian banks. Its Asian banking partners include Tianjin City Commercial Bank and Shanghai Rural Commercial Bank in China, ANZRoyal in Cambodia, Panin Bank in Indonesia, Vientiane Commercial Bank in Laos, AmBank Group in Malaysia and Sacombank in Vietnam.
The earliest of the partnerships, with Panin Bank, dates back to 1999. The pace of expansion has picked up in the past year with partnerships formed this year in China, Malaysia and Laos, and a credit card venture in Vietnam.
Michael Smith, former president and chief executive of The Hongkong and Shanghai Banking Corporation Ltd, the HSBC Group's Hong Kong subsidiary and centre of its Asia-Pacific operation, makes no secret of his ambition to make ANZ a bigger presence in Asia.
So far ANZ has made a relatively modest investment over a long period to achieve good results but not add much to the bottom line. Will the new chief executive be content to continue with the approach or will he bet the bank on something big? Big offshore acquisitions have often spelled disaster for our banks. This is the risk factor in ANZ's share price that no other big bank shares.
John Kavanagh writes for the banking newsletter The Sheet .
| PORTFOLIO POINT: Investors have marked the bank down, wary about performance and intentions. But it is unlikely to stay down long. |
ANZ banking Group shares closed on Friday at $27.70, down 44¢. It was one of several steep one-day falls the bank's stock has suffered since hitting a 12-month high of $31.74 in October. The market is not sure about the bank's new chief executive, Michael Smith, or about the stronger push into Asia that his appointment represents.
ANZ's progress from its October high to its current price is a fall of 12.7% in just over a month. Its biggest one-day fall came when it announced its financial results for the year to September – a set of numbers the market did not warm to.
At its current price ANZ is trading on a price/earnings multiple (based on historical earnings) of a little over 12 times. Its big banks peers are trading on historical P/E multiples of between 15.5 and 17 times.
This raises the question of whether ANZ's recent performance and its prospects warrant a hefty pricing discount of 20–25% to the other big banks.
ANZ's 2007 result was disappointing, with its biggest area of weakness appearing to be in the management of expenses. For the year to September operating expenses were up 9%, while operating income was up 12%.
Things deteriorated in the second half, when expenses were up 8% and operating income was up only 3%. Poor expense management combined with a 39% increase in the provision for credit impairment resulted in a 1% fall in net profit in the second half.
ANZ chief financial officer Peter Marriott conceded it was a disappointing result. The 8.1% increase in cash earnings per share was at the bottom of the bank's target range.
One suggestion has been that ANZ is pouring too much money into its branch expansion strategy. The bank opened 39 new branches in the financial year and increased staff numbers by 9%.
This criticism does not look valid. The bank's personal banking division, which contributed 34% of group earnings, increased its profit by 16%. That makes it one of the best performing units in the bank.
Looking at some standard ratios, ANZ's results do not compare well with its peers. The average return on equity for the five big banks rose from 20.6% to 21.2%. The leader was Westpac. Its ROE increased from 23.1% to 23.8%. St George's ROE increased from 22.9% to 23.2%. Commonwealth Bank was up from 21.3% to 22.1% (all figures are to September 30, except Commonwealth Bank, which is to June 30).
ANZ's ROE was the only one of the five to fall, from 20.1% to 19.6%. NAB was the laggard, as it has been for the past three years, with an ROE of 17.1%. But the bank reported the biggest increase, up 120 basis points from 15.9% in 2006
In terms of growth in cash earnings, Commonwealth was up 18% to $4.6 billion, Westpac up 14% to $3.5 billion, St George up 13.1% to $1.2 billion and NAB up 12.6% to $4.4 billion. ANZ was well off the pace, up 9.4% to $3.9 billion.
Looking at those profit numbers on an earnings per share basis, Commonwealth Bank's EPS increased 16%. Close behind was NAB, with an increase of 15.9%. Westpac's EPS growth was 13% and St George's was 11.8%. ANZ produced a disappointing result, with EPS up only 8.1%.
Another area where ANZ performed poorly was loan impairment. A combination of higher delinquencies, strong growth in assets and provisioning for uncertainty led to big increases in loan impairment expenses. ANZ's impairment expenses were up 39%, resulting in a $567 hit to the bottom line, up from $407 million in 2006.
NAB's impairment expenses were up 36% to $790 million, Westpac's were up 29% to $482 million, and St George's were up 23.6% to $178 million. The only bank that avoided a sharp increase in impairment expenses was Commonwealth Bank, which was up 9% to $434 million.
On the other hand, there were several areas where ANZ performed quite well. In the home loan market, for example, NAB managed growth of only 8.6% in its Australian retail business. St George was up by 10.4% and Commonwealth, with a home loan book of $196.3 billion, was up by 11%. Westpac and ANZ managed 12% growth in their home loan books.
ANZ also did a good job attracting deposits. With the cost of wholesale funds rising, banks that can fund more of their lending with bank deposits will have an advantage. Commonwealth increased savings deposits by 17% to $49.9 billion and transaction account deposits by 17% to $41.9 billion.
What these numbers suggest is that ANZ has a business franchise that is competitive. Its management disciplines appear to have slipped and if those problems are fixed the bank will close the earnings gap on its rivals in the coming year. And reduce that big P/E discount.
The other part of the ANZ story that worries the market is its plan for growth in Asia. Since 1999 the bank has invested $1.8 billion in partnerships with Asian financial institutions. Earnings from the region are growing strongly but Asia is still a very small part of ANZ's overall business.
The bank made a profit of $171 million from Asian operations in 2007, 37% up on the previous year. That is the fastest rate of earnings growth of any of the bank's operations but it is only 1.6% of total earnings.
ANZ has had the most active investment program in Asia among the big Australian banks. Its Asian banking partners include Tianjin City Commercial Bank and Shanghai Rural Commercial Bank in China, ANZRoyal in Cambodia, Panin Bank in Indonesia, Vientiane Commercial Bank in Laos, AmBank Group in Malaysia and Sacombank in Vietnam.
The earliest of the partnerships, with Panin Bank, dates back to 1999. The pace of expansion has picked up in the past year with partnerships formed this year in China, Malaysia and Laos, and a credit card venture in Vietnam.
Michael Smith, former president and chief executive of The Hongkong and Shanghai Banking Corporation Ltd, the HSBC Group's Hong Kong subsidiary and centre of its Asia-Pacific operation, makes no secret of his ambition to make ANZ a bigger presence in Asia.
So far ANZ has made a relatively modest investment over a long period to achieve good results but not add much to the bottom line. Will the new chief executive be content to continue with the approach or will he bet the bank on something big? Big offshore acquisitions have often spelled disaster for our banks. This is the risk factor in ANZ's share price that no other big bank shares.
John Kavanagh writes for the banking newsletter The Sheet .
Adhitya Gautama
Nov 27, 2007, 6:30:01 AM11/27/07
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Hi Wid,
Liat posting gw bulan lalu tentang banks.
In the bear market, banks PE of 10 is likely. The price target could be 22.5 if you are really bearish …
Take IAG, It was 6.7.. then it went down to 5.9… Analyst screams buy!... It then went down again to 4.5… Analysts then lower their target price (again), but who is losing money?
ANZ looked cheap since they are now 27 compared to 31 in Oct. But do you really think its going to go back up 31? It could be .. but I don’t have any insight, so I’m not buying.
Adhit
SPAWN
Nov 27, 2007, 10:36:17 PM11/27/07
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Sikat aja cuuuuuuuyyy......
kan masi ada 900k di bank...ilang seceng mah gak sakit...paling gatel doang!!!!
Gatel...garuuukkk....
Darwin
kan masi ada 900k di bank...ilang seceng mah gak sakit...paling gatel doang!!!!
Gatel...garuuukkk....
Darwin
Aji Widhiwijaya
Nov 28, 2007, 3:33:53 AM11/28/07
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hahaha..
OH ya nih, 900K perak masih ada di Tabanas gue !! Yes yes..
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