ANZ breaking records but market cautious

ANZ’s FY14 numbers were, as expected, a new record for the bank as cash profits hit a record A$7.12 billion – a small beat on the consensus estimates of $7.05 billion.

Source: Bloomberg

The year-on-year results were comparably stronger, as one would expect. Cash profit was up 9.8%, dividend growth was up 8.5% to 95 cents and earnings per share increased 7.2% on a diluted basis - all results that ANZ will no doubt champion. Capital ratios also continued to strengthen, with common equity now at 8.8%, while return on equity remained solid at 15.4%.

However, the results are all broadly in keeping with consensus estimates. The final year dividend of 95 cents was bang in line, as was the heavily watched net interest margin. This fell to 2.13% in the second half, down a further nine basis points compared to the corresponding period due to further margin squeeze from competition. Earnings per share of $2.47 were also broadly in line with most analysts’ expectations.

Compositionally, Australia and New Zealand remained the bright spots for ANZ as its retail and business banking continue to grow solidly across both regions. APAC was also solid on the revenue line, but its capital intensity saw the bottom line affected. The APAC results have meant the board is now publicly stating that the capital input into the region will decrease. It will look to local profits to support its businesses over the coming year rather than taking further investment from the group. This is the first time ANZ has said that enough is enough with regards to its Asian expansion strategy – a sign the bank is hunkering down for expected tough times ahead.

The details also show the record results are down to the fact bad and doubtful debts (BDDs) fell to A$461 million, which is down from the previous $523 million, and provisions were a little lighter. This is one area critics have always pointed to as a risk for ANZ’s Asian strategy.  Emerging markets are risky, something that could quickly hit BDDs and provisioning figures. This would severely impair group results. This further explains why the bank remains optimistic about parts of its operations but cautious about the outlook for its overall results.

The record numbers are very positive and should be celebrated. However, the market is unlikely to really get behind it as the results were expected and therefore already factored in. I see ex-dividend trading in ANZ (in fact, all the banks) as soft. It may mean the banks trade below result levels for a longer period than they have in the past.

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