Welcome to Stockhead\u2019s Broking Bad \u2013 Where the analysts go bad, the companies get mad and the shareholders feel sad.<\/p>\n
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Now, I don\u2019t want to talk about the Big Banks, let alone my own Big Bank. \u2026I don\u2019t want to debate whether I own ANZ, or if ANZ owns me, but here we are.<\/p>\n
Let\u2019s just get through this. We\u2019ll call it brain medicine for a healthier wallet.<\/p>\n
The sudden significance of ANZ\u2019s 1H earnings report is plain.<\/p>\n
What follows is both the numbers and the reaction to them, but to be fully appreciated in all their madness, they need to be digested under that rarest of ASX cosmic events \u2013 a constellation of broker downgrades for all four of the major Aussie banks, fully eclipsed by synchronous and inexorable rise in stock price.<\/p>\n
Something\u2019s gotta give, you\u2019d reckon.
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Via Google<\/p>\n
All four of the majors have run higher while damning the torpedoes of near universal fiscal evisceration at the hands of banking analysts who all suddenly seem to have trodden in the same poo.<\/p>\n
Via Google<\/em><\/p>\n The defiant surge in the Big Four share prices \u2013 a big part of the benchmark\u2019s latest all-time high, apparently triggered something dark and fearful<\/a> which appears to have been brewing in local brokers for some time.<\/p>\n First Macquarie doubled down on its jettisoning of the Big 4, warning clients to \u2018underweight everything.\u2019<\/p>\n Citi followed two weeks back, Downgrading both Westpac and ANZ, adding them to the Sell ratings already slapped on peers Commonwealth Bank and National Australia Bank.<\/p>\n Stiff competition, uncertainty and slowing credit growth \u2013 all bad news Citi said, but almost incidental when bank shares are simply\u00a0 \u201ctoo expensive.\u201d<\/p>\n In short: there\u2019s little love for the banks and yet little sign of an impending, analyst-urged share price correction.<\/p>\n Which brings us to ANZ\u2019s last 6 months\u2026<\/p>\n \u00a0<\/p>\n\n \u00a01H24 result was largely in-line with expectations, with NPAT of $3.5bn falling -1 half-on-half.<\/p>\n The result saw better non-Net Interest Income (NII), which was further aided by a much better than expected credit loss outcome. To date, ANZ has been the most aggressive of the major banks on their credit loss assumptions.<\/p>\n ANZ\u2019s Collective Provision has fallen from 1.64% of Gross Loans in 1997 to just 0.56% today and ANZ now has the thinnest bad debt coverage of the major banks.<\/p>\n \u00a0 Net Interest Margins fell 9bps to 1.56% and was a weak result vis-\u00e0-vis peers. Core banking NIM fell 2bps to 1.63%.<\/p>\n \u00a0 Across each of ANZ\u2019s divisions, it saw sequential revenue growth rates that were, in the main, negative: Retail -5%; Commercial -2%; New Zealand flat; Institutional Transaction Banking flat; Corporate Finance up 1%.<\/p>\n The Markets division was the standout, up 27%.<\/p>\n \u00a0 Offsetting some of these negatives, the Board elected to return $2bn to shareholders by way of an on-market buyback.<\/p>\n ANZ remains very well capitalised with a Common Equity Tier 1 (CET1) ratio of 11.85%* even after accounting for the buyback and the acquisition of Suncorp Bank.<\/p>\n *Ed: The big banks now have a minimum capital requirement of 10.25%. The Australian Prudential Regulation Authority APRA has said it expects the major banks to operate with CET1 ratios above 11% once their own targets are considered\u2026<\/em><\/p>\n \u00a0<\/p>\n \u201cThis half\u2019s strong performance is a direct <\/em>consequence of peer-leading diversification as well as our disciplined focus on productivity and <\/em>delivery.<\/em><\/p>\n \u201cComing off a record 2023, each division delivered for the Group and we\u2019ve made good progress<\/em> on the things we said we would: preparing for the integration of Suncorp Bank, growing ANZ<\/em> Plus, leveraging our Institutional processing platforms, and further driving productivity.<\/em><\/p>\n \u201cOur preparations to integrate Suncorp Bank are well advanced. While the time taken to progress<\/em> the necessary approvals has taken longer than anticipated, we have used that time productively<\/em> and we are more confident than ever about the benefits that will follow.<\/em><\/p>\n \u201cOur flagship digital offering, ANZ Plus, has grown to almost 690,000 customers and approaching<\/em> $14 billion in deposits at the end of April \u2013 and we have just introduced the ability to create joint<\/em> accounts. Net promoter scores are consistently higher than our peers, while attracting on<\/em> average 35,000 customers every month, around half of which are new to the bank\u2026\u201d<\/em><\/p>\n \u2014 ANZ Chief Executive Officer Shayne Elliott.<\/strong><\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n UBS rates ANZ as Hold (from Hold) with a Price Target (PT) of $28.66<\/strong><\/em><\/p>\n UBS reckons the investment case for ANZ is all about what they can do that\u2019s exciting and fruitful following the headline Suncorp Bank acquisition. If management successfully integrates Suncorp through the exisiting business, while sequencing the rollout of ANZ Plus (mobile banking App) then there\u2019s life in the old legs, so to speak.<\/p>\n Net Interest Margins (NIM) are low and so too are expected credit losses (2bps).<\/p>\n With this said, UBS says all the biggy-banks have highlighted easing NIM pressures, \u201cas competition resets post the large, fixed interest rate roll-off.\u201d<\/p>\n The banks have also returned capital (possibly an indication of growth perceptions) and opened buyback programmes.<\/p>\n \u201cAlthough year-on-year revenue growth is weak, the positive trend in earnings is clear,\u201d UBS adds.<\/p>\n \u00a0<\/p>\n Citi rates ANZ as Sell (from Sell) with a PT of $24.50 <\/strong><\/em><\/p>\n Cranky Citi again lowers its target for ANZ to $24.50 from $26, in lieu of the 1H results, ANZ cash earnings beat market consensus by +0.5% but missed Citi\u2019s by -0.5%.<\/p>\n Those core numbers are still slipping Citi says, with no-one they\u2019re aware of certain of \u201cthe strategic merit\u201d of ANZ\u2019s current splurge strategy. This muddies where ANZ\u2019s earnings trough hits rock, concludes a souring Citi.<\/p>\n Citi\u2019s Sell rating is maintained while ANZ slips back to No. 3 in the brokers\u2019 list of Banks I Have Loved.<\/p>\n The net interest margin looks at face value a big miss, but the broker assures ex-markets the NIM is 1.63%, in line. Core earnings missed by -2% but there\u2019s a big beat in BDDs.<\/p>\n There\u2019s a dividend of 83c, with some 65% franked \u2013 Citi isn\u2019t pleased, grimacing that there\u2019s nothing compensatory for the not-fully-franked payout, no bonus divvy, nuthin\u2019.<\/p>\n And Citi has but this to say about the cracking stock repurchase plan: there\u2019s also a $2bn share buyback.<\/p>\n \u00a0<\/p>\n Jarden rates ANZ Neutral (from Neutral) PT $29.00<\/strong><\/em><\/p>\n \u201cA decent result, albeit below elevated estimates \u2013 we upgrade FY24E\/FY25E EPS by 2% and 1%, respectively.\u201d<\/p>\n Overall, Jarden says ANZ delivered a decent result, albeit arguably a little softer than elevated expectations following the better-than expected-results of the other three this half.<\/p>\n Whilst ANZ\u2019s cash profit was in line with estimates, this was driven largely by lower BDDs. Revenue was broadly in line, albeit a slightly different mix, and underlying margins were a touch ahead of estimates.<\/p>\n Looking forward, Jarden notes ANZ\u2019s margins were \u201clooking stable\u201d going into 2H24E.<\/p>\n \u201cSimilar to NAB and WBC\u2019s results, ANZ\u2019s result largely confirms an expected moderation in NIM pressure and continued benign credit environment. We upgrade our FY24E and FY25E and Earnings Per Share (EPS) by +2% and +1%, respectively, and maintain our Neutral rating.\u201d<\/p>\n On the upside, ANZ noted that the AU retail bank margin actually ended the quarter 1bps above Sep-23\u2019s exit rate, pointing to moderation in deposit and mortgage competition.<\/p>\n \u201cANZ\u2019s markets income was a key source of income growth in 1H24, rising 27% half-on-half to $1.2bn, the 3rd highest half in nine years. The improvement was broad based across products and driven mainly by offshore regions.<\/p>\n \u201cWhilst we expect the backdrop for markets income to remain conducive, we assume some normalisation towards ~$1bn per half ahead.\u201d<\/p>\n \u00a0<\/p>\n Macquarie rates ANZ as Underperform (from Underperform) with a PT of $26.50<\/strong><\/p>\n ANZ Bank\u2019s 1H pre-provision result was slightly ahead of Macquarie\u2019s expectations thanks to a foundation of strong markets income.<\/p>\n The broker however, says ANZ\u2019s underlying pre-provision operating profit (PPOP) \u2013 ex markets \u2013 was a miss compared to Macquarie forecasts, driven by softer-than-expected average interest-earning assets (AIEA) and higher costs.<\/p>\n Assuming an around -$2bn yearly investment spend, Macquarie now believes the new cost base for the bank is around $10.6bn.<\/p>\n The broker\u2019s target falls to $26.50 from $27 after allowing for lower BDD and higher markets income, offset by cost-led downgrades in future years.<\/p>\n On the divvy front, Macquarie says it is doubtful ANZ\u2019s has the capacity to sustain its current payout levels.<\/p>\n The Underperform rating is maintained.<\/p>\n \u00a0<\/p>\n Morgan Stanley rates ANZ as Downgrade to Equal-weight from Overweight TP is $27.70<\/strong><\/p>\n ANZ Bank served up a mixed 1H24 earnings report with higher expenses offsetting a slightly better than forecast cash profit according to Morgan Stanley, although this met consenus expectations as a result of lower loan loss provisions.<\/p>\n Morgan Stanley is a fan of the 83 cent payout \u2013 a while 2 cents better than forecast and also approves of the $2bn on-market buyback, which was a whole half-a-bill more than the broker\u2019s estimate.<\/p>\n Headline margin declined by -9 basis points with a -7 basis point impact from markets.<\/p>\n Expenses were greater by 0.5%, 2% above consensus, due to what appears to be higher restructuring costs and \u2018strategic investments\u2019 ANZ Plus and the cloud.<\/p>\n Management didn\u2019t offer guidance. The broker\u2019s FY24 EPS are up by 2%, due to lower loan losses but FY25 EPS are culled some -3%.<\/p>\n Due to ANZ\u2019s \u201cstrategic challenges\u201d MS Downgrades to Equal Weight from Overweight.<\/p>\n Target price is lowered to $27.70 from $27.90.<\/p>\n ANZ Consensus Price Target: $28.66.<\/strong><\/em><\/p>\n \u00a0<\/p>\n Just as I hit the button and this goes off to the cloud, the ASX:XBK index is down more than 1%.<\/p>\n Westpac\u2019s the main drag, crashing about 4.5% after going\u00a0 ex-dividend.<\/p>\n But the problem child coming home to roost is CBA stock, which is deteriorating after reporting a drop in its third-quarter profit.<\/p>\n <\/span><\/p>\n The post Broking Bad: ANZ bank is waiting for you in Autopsy Room 4<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"What Shayne said:<\/h2>\n
What everyone else said:<\/h2>\n
Final notes:<\/h2>\n