ANZ Banking Update

Submitted by Craig Strzelecki on 27 May, 2007 - 19:16

ANZ Banking has a Buy 1 broker call and a share price target of $33 from sharemarket analyst UBS. ANZ 1H07 Result was released: ANZ result saw forecasts re-affirmed: The analyst expects ANZ EPSg of 12.9% (07E) and 11.1% (08E), unchanged post result. Key result drivers were credit growth 10%, margins -6bp, non int income 13%. Revenues were 9% and costs up 4%. Divisionally, Personal was strong once again. NZ improved and exceeded our expectations, but Institutional disappointed on both revenue and cost lines. ANZ remain the cheapest bank at a 6% sector discount: Although ANZ has worked hard to reduce its long standing sector discount rating, it appears to have had only limited success. They have tried (1) selling Grindlays (2) buying NBNZ (3) growing retail faster than business (4) lifted RoA to be second only to CBA. All of these things have brought them back to a single digit discount. So why the discount? Two reasons in the analyst's view: (1) ANZ's Asian acquisitions are immature and at best priced at their entry book value. This de-rates ANZ relative to its peers in price to book terms (worth -3% to PE rel) (2) ANZ's traditional strength has been Institutional and Business banking. However, Insto has suffered issues of low fee income generation, low yield balance sheet growth and now the cost line (staff numbers +11%). The analyst maintain their Buy 1 broker call for ANZ Banking given (1) ANZ is cheap at 6% sector discount (2) retail bank momentum is solid, although duration of excess return is unclear. PT is based on DCF, Int'l Peers and SOTP.

ANZ Banking Group Limited is listed on the Australian Stock Exchange (ASX) under stock code ANZ. You can view their investor website here. ANZ was listed on the ASX on 30 September, 1969. John McFarlane is the CEO of ANZ and Charles B Goode the Chairman. ANZ is involved in general banking, mortgage and instalment lending, life insurance, property development, leasing, hire purchase and general finance, international and investment banking, investment and portfolio management and advisory services, nominee and custodian services. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. Check your charts and good luck with your share trading!

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