Last week we saw a flurry of activity and media analysis as three of Australia's big four banks report half year results to 31st March. Westpac Banking Corp (ASX: WBC) reported on Monday, National Australia Bank Ltd (ASX: NAB) reported on Thursday, while Australia and New Zealand Banking Group (ASX: ANZ) reported on Thursday the previous week.
Analysts have spent this week busily comparing the three results with the half year results of Commonwealth Bank of Australia (ASX: CBA) for the 6 months to 31st December 2013.
Rather inconveniently for investors, the first three finish their financial years at the end of September, while CBA follows the more conventional route of ending at the end of June.
Overview
The major takeaways from analysts are that:
- Revenue growth has been impressive, however when foreign exchange and trading benefits are removed, underlying revenue growth was similar to that in the previous half.
- Efficiency improvements continued to boost overall margins.
- Overall profit and earnings per share growth has been pleasantly strong.
- Bad debt provisions have continued to fall to cycle lows, delivering strong earnings per share growth.
The analysis indicates that the overall loan market is still showing moderate improvement, however there are still few signs of strong growth in business or home loans.
Bank-by-Bank
On a bank-by-bank basis, analysts are of the belief that NAB's results were the weakest, even though bad debt expenses fell sharply to increase earnings per share by 7.1% for the period.
The best performers were Westpac and Commonwealth Bank, where all divisions contributed to impressive revenue, profit and earnings per share growth. Analysts also appear to be impressed by the gains delivered through efficiency improvements.
Overall, it appears as though Commonwealth Bank's results were more highly regarded due to its superior revenue growth (4.7% vs 3.9%).
Valuation is Key
While Commonwealth Bank's results were arguably the most impressive, it is also the most expensive bank on a price to earnings and dividend yield basis, however this argument is usually countered by the long-term outperformance of Commonwealth bank against its three major rivals.
Where to from here?
NAB still appears the cheapest bank, Commonwealth Bank still appears the most expensive, and big share price gains of the last two years will likely be difficult to achieve over the near term. In the mean time, all four banks will provide investors with solid, sustainable dividends well over term deposit rates and are expected to continue growing at or above inflation for the foreseeable future.
