In the first game of the Motley Fool’s ASX World Cup we have Commonwealth Bank of Australia (ASX: CBA) – the local crowd favourite – going up against the illusive but aggressive Australia and New Zealand Banking Group (ASX: ANZ). Both managers, Ian Narev and Mike Smith, are strong and influential leaders looking to get a lot out of 2014. With a large contingency of faithful shareholders, both will looking to take the cup.
Pre Match – Here’s how they line up
|Name||Commonwealth Bank of Australia||Australia and New Zealand Banking Group|
|Market Capitalisation||$133 billion||$93 billion|
|Forecast Dividend Yield||4.6%||5.0%|
|Trailing price to Earnings Ratio||17.3||15.6|
|Price to Book Ratio||2.94||2.08|
|Price Earnings Growth Ratio||1.74||1.20|
Data sourced from Morningstar
As can be seen in the above table, CBA is a larger and more expensive bank than ANZ. This can be attributed to its sensational total shareholder return (which adds both share price movements and dividends paid) over the past 10 years – returning some 16% per year, on average.
However, despite being the top dog on the Australian banking scene, CBA is up against it. Management has recognised the threat from international technology giants like Google, Apple and PayPal and have invested heavily in technology. However it’s the increased local competition and lack of revenue growth which makes this investor feel the current share price is too high. This is evident by its PE ratio of 17, PB Ratio of nearly 3 and PEG ratio of 1.74!
ANZ Banking Group
Our third-largest bank is by far the most ambitious, with some dangerous strikers heading up its attack in Asia. In fact, it is the only big bank which plans to significantly grow its exposure to Asia’s rising prosperity in coming years.
However, like CBA, ANZ’s share price has grown strongly in the past few years as investors went in search of big dividend yields and the perceived safety of a major Australian bank. In my opinion, whilst there are obvious risks to its growth strategy, ANZ is the best big bank which long-term shareholders can buy. However I’m sitting on the sidelines until its price falls, I suggest you do to.
Despite its ongoing dominance in the mortgage market and household lending, CBA could not find a strategy to defend against ANZ’s aggressive growth strategy, which enabled it get over the line with a 3-1 upset against the crowd favourites.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.