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ANZ earnings preview: why the interim dividend may be at risk

We examine some of the key things investors should know before ANZ reports its half-yearly results this week.

When is ANZ set to report its half-yearly results?

The Australia and New Zealand Banking Group (ANZ) is expected to hand down its first-half 2020 results to the market this Thursday, 30 April.

Interestingly, heading into the H1, the analyst consensus for the commercially inclined bank is a bullish one.

According to the Wallstreet Journal, ANZ's average analyst consensus rating is Overweight: with eight analysts rating the bank a Buy, four a Hold, one analyst is Underweight, and two have Sell ratings on the bank.

Will ANZ cut its interim dividend?

Though analysts on average may be optimistic about ANZ’s prospects, many analysts nonetheless believe that ANZ will follow the likes of NAB and slash its interim dividend as part of its H1 results.

For example, Bell Potter analysts are currently expecting that ANZ will reveal an interim dividend of 48 cents per share (70% franked), implying a payout ratio of 50%.

ANZ’s 2019 interim dividend came out at 80 cents per share, and was fully franked. Though its 2019 final dividend was franked at 70%.

J.P. Morgan analysts have more aggressively cut their interim dividend forecasts, arguing that ANZ will cut its dividend by 50%, to come in at 40 cents per share and as to imply a 52% payout ratio.

Overall, the investment bank’s analysts said 'While we think most banks will want to pay something, there is a chance that dividend declaration may need to wait until post results once stress tests can be agreed upon.'

Earnings expected to come in lower

Unsurprisingly, both Bell Potter and J.P. Morgan believe that ANZ is set to deliver substantially lower statutory profits when the bank reports its interim results this Thursday.

Bell Potter is currently estimating that ANZ will deliver H1 statutory profits of $2.40 billion. The broker elaborated upon this estimate, noting that when factoring in ANZ’s implied Q1 statutory profit, ‘We estimate 2Q20 statutory profit will be $0.9-1.0bn with the sharp step down largely due to higher credit impairment expenses.

By comparison, J.P. Morgan is estimating a more dour half-year profit of cash profit (NPAT) of $2.208 billion.

Such forecasts hardly seem radical in the coronavirus earnings-era: For example, when the National Australia Bank (NAB) reported its half-year results on Monday, the bank revealed that its H1 cash earnings had declined a staggering 51.4%.

Is there upside potential for ANZ’s share price?

Mind you, although J.P. Morgan and Bell Potter analysts are both expecting lower dividends and interim profits – both firm’s 12-month price targets imply varying degree of upside.

Bell Potter currently has a Buy rating and a 12-month price target of $19.00 per share on ANZ – implying upside potential of around 21% (from ANZ’s Tuesday closing price).

On the other hand, J.P.’s price target of $17.90 per share – though less optimistic – still suggests upside potential for investors from current price levels.

The ANZ share price finished Tuesday's session at $15.70 per share.

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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