Investment view
What is ANZ’s strategic purpose? We remain cautious towards ANZ until evidence emerges of; 1) execution improvement; 2) market share improvement, or 3) ANZ can redefine its strategic growth agenda.
Following the withdrawal from Asia and sale of Australian non-core assets, we are left with a much simpler bank, but a bank where investors are struggling to understand what ANZ strategically stands for. Poor operational execution and earnings performance over the last 18 months only compounds the issue in the eyes of investors.
APRA’s April 22 credit statistics point to further market share losses: the latest credit growth statistics continue to show ANZ losing market share, with lending growth the slowest of the majors. In the three months to April 22, ANZ was the only bank not to show any growth in lending activity. We believe this is a function of continued difficulties in the mortgage business, particularly via broker channels.
How much bad news is in the price? ANZ is the cheapest of major banks across both earnings multiples and price to book. Investors looking to play mean reversion in share price underperformance,
ANZ is starting to look attractive at a 30% PER discount to the sector (vs average discount of 10% 2012-22). A dividend yield of >5.5% (highest in the sector) implies a lot of bad news is in the price.
What we need to see to become more positive on ANZ:
- Strategic repositioning – ANZ needs to redefine what it stands for and its growth agenda. In the absence of a strategy reset over the next 6-12 months, we think calls for management change will grow. CEO Shayne Elliott is the longest-serving major bank CEO at 6 years.
- Evidence of market share improvement – whilst ANZ is suggesting it is chasing profitable market share growth, ANZ’s operational difficulties of the last 18 months are yet to show signs of stabilisation in market share. With a cost-out program that now lacks teeth, post ANZ stepping away from its $8bn cost target (FY24E), the net result is ANZ has the slowest EPS growth of the majors into FY24E. Any signs of market share improvement would be a re-rate signal for us.
Risks to investment view
Upside risks relate to better-than-expected cost control, mortgage repricing, and stabilisation of market share losses. Additional capital management initiatives would also be well received. Key downside risks include further deterioration in interest margins, intensifying lending competition, material slowing in credit growth, delayed resumption of dividend growth. A significant and rapid fall in house prices would present a risk to the share price.
