In their second match of the Motley Fool’s ASX World Cup, we have Australia and New Zealand Banking Group (ASX: ANZ) facing off with rival National Australia Bank Ltd (ASX: NAB). ANZ is heading into the bout as favourites having already upset local giant Commonwealth Bank of Australia (ASX: CBA) 3-1.
How they line up
|Name||Australia and New Zealand Banking Group||National Australia Bank Ltd|
|Market Capitalisation||$93 billion||$78 billion|
|Forecast Dividend Yield||5.0%||6%|
|Trailing price to Earnings ratio||15.7||13.3|
|Price to Book ratio||2.09||1.81|
|Price Earnings Growth Ratio||1.21||2.00|
Data sourced from Morningstar.
National Australia Bank
As can be seen in the above table, NAB trades on a lower price-earnings ratio and price-book ratio. However it trades on a higher PEG ratio, meaning the market currently ascribes a lesser value to its assets because of its relative growth prospects. After years of disappointment in the UK market, investors have come to expect lesser earnings growth from the bank, compared to its Australian focused peers.
Despite boasting an APRA Basel III common equity tier-1 ratio of 8.64%, NAB’s defensive structure isn’t sound and its former management’s decision to introduce UK banking has left gaping holes throughout the centre back position, allowing ANZ strikers to an easy two goal lead at half time. As a result NAB’s managers have been too focused on rebuilding their back line, and their own attacking strategy has been lost amongst the chaos.
ANZ Banking Group
Despite a focus on Asia, ANZ’s manager, Mike Smith, has developed a well-rounded bunch of functioning business units. Although FX-adjusted cash profit from APEA markets (Asia, the Pacific, Europe and Americas) accounted for over 19% of the group’s total in 1H14, it has also been growing its Australian mortgage book at a faster rate than its peers.
Although NAB shares trade cheaper, 20 minutes into the second half, it’s easy to see why. NAB continues to fall down in defence and ANZ capitalises with higher returns on equity and wider net interest margins (a key measure of banking profitability). However in the 89th minute NAB sneaks a goal through, indicating that if they can sort out their messy defence (UK assets), they’ll have the ability to surprise the market.
Unfortunately the late goal from NAB was a case of too little, too late, and those shareholders who stuck around to see out the 90 minute game came away disappointed. Final score: ANZ 5, NAB 1.
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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.