ASX codeNAB
Price $29.83
52wk▲$34.09
52wk▼$23.90
Mkt cap $80bn
Dividend $1.98
Dividend yield 6.6%
PE ratio 17.26■SELL
ASX codeWBC
Price $30.53
52wk▲$35.39
52wk▼$25.57
Mkt cap $102bn
Dividend $1.88
Dividend yield 6.2%
PE ratio 13.33◆REDUCE
❸ANZ
ANZ reported weak revenue in its half-year results.
The bank continues to rationalise its Asian loan
book. In the recent reporting period, however, this
didn’t provide any benefit to the net interest mar-
gin, which was lower than in the previous six
months, excluding the impact of markets and
rates. A repricing of loans benefit was offset by
higher funding costs and changes to the mix of
deposits. This highlights that there are still a lot
of offsets to the repricing of mortgages.
Notably, the higher-value “fees and commissions”, as well as wealth
management revenues, were weak, while cost control was good and
the result was boosted by a lower bad debts expense. Impairments and
delinquencies increased slightly but at this stage in line with the loan
book. Overall the result highlights how the banks are increasingly
dependentoncostreductionstodeliveranyearningsgrowth.
ASX codeANZ
Price $28.12
52wk▲$32.95
52wk▼$22.66
Mkt cap $85bn
Dividend $1.60
Dividend yield 5.7%
PE ratio 13.87◆REDUCE
❶NAB
Earnings peaked in 2015 but analysts currently
don’t expect any growth for NAB profits until
- At the time of writing, its share price is
lower than it was in April 1999. Investors have
achieved a rising yield, which is better than money
in the bank but much worse than many other
investment options. NAB’s poor performance is
largely due to large losses made on acquisitions
made under CEO Don Argus, such as $4.1 billion
on Clydesdale in the UK.
The stability of the banking oligopoly, and the relative competitive
positions of each member in it, suggests that NAB’s market share and
profitability won’t change dramatically enough to recoup the
company’s losses relative to its peers. We retain the view that unless a
demonstrated improvement in performance becomes visible, NAB is
worth the least among its peers.
❷ WESTPAC
Overall, Westpac’s result was slightly higher
than our forecasts but for low-quality reasons.
High-value recurring revenue lines (net interest,
wealth management, insurance, fees and com-
missions) showed negligible growth. The offset
was a better performance from lower-value trad-
ing revenue and lower bad debt provision. If we
adjust these to more normal levels, revenue would
be around $100 million lower – only 0.2% higher
than in the previous corresponding period.
Operating costs were marginally lower than expected and, despite
comments about the strength of Westpac’s capital position, it is
re-introducing a 1.5% discount on dividend reinvestment plan pricing
to boost participation, highlighting management’s expectations for the
outlook for regulatory capital requirements. The bigger issue, however,
remains exposure to a property correction.❹ CBA
Over the long run, CBA is the best-performing bank
in Australia. In its third quarter 2017 trading update,
cash earnings of about $2.4 billion were slightly
disappointing compared with market expectations.
Mortgage growth in the 12 months to March 2017
was 7.8%, which was ahead of system growth of
7% and business lending growth of 3.7% was
ahead of market growth of 3.4%. Notably,
mortgage growth was 8% in the year to
December 31, 2016, so the third-quarter 2017
numbers represent a slowdown.
Bad debt provisions were extremely low at $202 million for the quar-
ter. This was well below our own forecasts and well down on the previ-
ous corresponding period, despite a continued ticking up in delinquency
rates. This will be something to watch very closely, especially with
share prices now representing only fair, rather than good, value.ASX code CBA
Price $81.86
52wk ▲ $87.74
52wk ▼ $69.22
Mkt cap $142bn
Dividend $4.21
Dividend yield 5.1%
PE ratio 14.77◆ REDUCE
NAB share price
$34
$32
$30
$28
$26
$24
Westpac share price
$36$35$34$33$32$31$30$29$28
JSNJMM JSNJMM JSNJMM JSNJMMANZ share price
$34$32$30$28$26$24$22Commonwealth Bank share price
$90$85$80$75$70$65