Analysts give ANZ poor report card
ANZ has been hit with a succession of earnings downgrades, as analysts chided the bank for its weak profit and outlook.
ANZ has been hit with a succession of earnings downgrades, as analysts chided the bank for its weak 2019 profit and poor outlook.
Blaming more regulation, intense competition, ultra-low interest rates and slow growth, chief executive Shayne Elliott announced a flat cash profit of $6.47bn on Thursday, with second-half earnings about 3.5 per cent lower than expected.
The market’s sour response was fuelled by a final dividend that was only 70 per cent-franked and Mr Elliott’s acknowledgment that growing revenue would be difficult. While he stuck to his medium-term “aspirational” target of $8bn in annual costs, investors were dismayed by the disclosure that expenses would increase by $150m-$200m in the first half of 2020.
“ANZ faces another difficult year with revenue growth not a given since low rates and competition are likely to further impact margins,” Credit Suisse analyst Jarrod Martin said.
“Together with further investment to sustainably reduce the cost base, we forecast another drop in cash earnings in the 2020 financial year.”
UBS was similarly pessimistic, predicting that ANZ’s 10.9 per cent return on equity, down 10 basis points, would fall below 10 per cent and probably settle around 9 per cent.
Analyst Jon Mott said it was unusual for Australian banks to offer specific earnings guidance.
ANZ, however, went part of the way by commenting on five key items, including the forecast for higher first-half costs.
Credit growth was expected to remain very low despite the bank’s bid to rejuvenate its mortgage business, lower interest rates would erode its net interest margin by three basis points, and trading income was expected to be about $1.8bn compared with a previous target of $2bn.
On top of that, further remediation charges were possible.
Mr Mott lowered his earnings per share forecasts over the next three years by 7 per cent in 2020, 1 per cent the following year, and a further 1 per cent in 2022.
The stock, he said, was still not cheap at 1.2 times book value, despite an 11 per cent discount in its price earnings ratio compared to the rest of the sector.
Macquarie said in its assessment that ANZ had missed expectations on revenue, expenses and capital, with the “disappointing” revenue trends mainly driven by weaker than expected margins. Analyst Victor German slashed his interim dividend forecast by 12 per cent from 80c to 70c, citing new cost pressures, the bank’s elevated dividend payout ratio, and capital pressures from the proposed Reserve Bank of New Zealand reforms to be announced in the first week of next month.
Citi said that ANZ had outperformed its peers in recent years through better cost management and by concentrating on businesses with superior returns.
“While ANZ remains committed to these goals, the meaningful benefits have been extracted,” analyst Brendan Sproules said.
He noted the bank’s share buyback had been suspended and cost growth would resume in the current financial year.
Shaw and Partners analyst Brett Le Mesurier said ANZ had the worst franchise of the major banks and was “making the least of its opportunities”.
He downgraded his earnings forecast by 5 per cent and cut his share price target to $26.
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