Today, Australia and New Zealand Banking Group (ASX: ANZ) released its half-year report, which showed some impressive signs of growth. Here are the highlights, compared to the previous corresponding half in 2013:
- Cash profit of $3.5 billion, up 11%
- Interim dividend of 83 cents per share, up 14%
- Return on equity flat at 15.5%
- Net interest margin of 2.15% (down from 2.24%)
- Customer deposits up 13%, net loans and advances up 12%
- Provision charge (for bad and doubtful debts) of $528 million, down 12%
Commenting on today’s results, CEO Mike Smith said, “This is a good set of results. They demonstrate consistent progress with ANZ’s long-term strategy to grow in our core franchises in Australia and New Zealand, to build a significant and profitable franchise in Asia Pacific, and to establish common infrastructure and processes that improve productivity and reduce risk.”
Shares down in early trade
Despite what appears to be a strong report, ANZ shares have followed its rivals lower in early trade this morning. It seems investors wanted more than 11% profit growth from this $95 billion company.
Today’s result showed a number of very promising signs for both ANZ management and its shareholders. Perhaps most impressive was the progress of the group’s long-term Super Regional Strategy which enabled the bank’s Asia, Pacific, Europe and Americas (APEA) markets to grow profits 43% as a result of increased customer numbers and demand for regional trade and investment products. The stellar result means the APEA markets account for more than 19% of the (FX-adjusted) cash profit for the entire bank.
Mr Smith acknowledged the bank’s international performance saying: “Our international business, particularly Asia, is firing on all cylinders with revenue and profits again growing strongly, and a sustained improvement in returns… Since we launched our strategy six years ago, the compound annual growth rate in earnings from Asia has been 37%, and ANZ is now being consistently rated a top four Corporate Bank in Asia by Greenwich Associates.”
The International and Institutional Banking (IIB) division grew profit 9% with income up 4% and expenses up 3%, along with further credit quality improvements which resulted in provisions down 18%. 52% of its earnings now come from outside Australia and New Zealand. Inside IIB, demand for a number of products including Foreign Exchange, Cash Management deposits and Supply Chain was strong. Total customers grew 12%.
Closer to home, the bank’s Australia division felt the benefits of consistent mortgage portfolio growth and grew profit 5%. Lending grew 6% with customer deposits up 7%. Small business lending was the standout performer, up 16%.
In New Zealand, profit grew 21% as market share, productivity and credit quality improved. Lending grew 5% with deposits up 7%.
The Global Wealth division saw profit rise 11% with operating income up 8% and expenses up 7%. Funds under management and insurance continued their strong performance.
At March 31, the bank’s APRA Common Tier One ratio stood at 8.33% or 10.5% on an internationally harmonised Basel 3 basis. Down from 8.5% in the previous half.
Analysts have, for some time, been calling the banks’ overpriced or fairly valued. I agree. Today’s result and subsequent reaction of the market says it all: some investors were expecting more.
In my opinion ANZ is the best big bank and will grow at a faster pace than each of its main rivals including Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC), simply because of its diversified earnings and growth in Asia.
Foolish (capital ‘F’) long-term investors know the best time to buy a stock is when it’s cheapest and currently ANZ is not the cheapest it’s likely to be if bad debts and interest rates rise. Although today’s result was in line with my expectations I still don’t believe the current price is justified. As such, although I really like ANZ, I’ll be steering clear of it for now.