Australia And New Zealand Banking Group Limited (ANZ)
HOLD

Margin pressure

 5 May 2023
Sector: Financials

1H23 RESULT

Need To Know

  • Result beat driven by strong Markets, and lower bad debts offsetting weak margin performance
  • Net interest margin 1.75% vs 1.80% expected. 
  • Expect EPS downgrades of 3-5%, given NIM pressure into FY24

Record 1H earnings result, net interest margins will be the focus for investors. 

Rev $10.5bn vs $10.6bn market

Underlying Profit $5.5bn vs $5.4bn market

BDD: $0.1bn vs $0.3bn market

Cash Earnings: $3.8bn vs $3.8bn market 

EPS $1.28 vs $1.20 market

DPS $0.81 vs $0.78 market.  

Net Interest Margin (NIM) 1.75% vs market 1.80%. 2Q23 exit margin not disclosed, we estimate 1.73-1.74%

CET1 12.3% vs 11.5% pcp proforma for SUN Bank acquisition. ANZ target range 11-11.50%.

Outlook comments point to a tougher period ahead. With elevated levels of competition (i.e. margin pressure), the next six months will be “more difficult”. Capital position remains strong, and provision levels look very prudent (highest levels ever).

Investment View

A result of contrasts, with earnings and dividend ahead of the market, propped up strong Markets performance and (another) materially lower bad debts experience, offset by a weak margin performance.

We anticipate the market will need to lower forward estimates by 3-5% to account for lower NIM, where the market currently has 1.80% margin estimates across FY23E and FY24E.  

Despite some evidence of valuation appeal at current prices, the toughening outlook for the banks on margins and bad debts suggests that a reversal of the negative earnings momentum seen through CY23 is unlikely to change in the short term. It is too early to get more constructive on ANZ in our view, despite the forward dividend yield of ~6.5%.

Figure 1: ANZ Group NIM – 2Q23 exit margin not disclosed.

Figure 2: ANZ NTM per ratio – 1SD below long term 

Figure 3: ANZ NTM PER REL vs market – a modest discount vs broader market

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Stock Overview

Share Price

Company Overview

ANZ offers banking and finance products and services globally, with divisions serving customers in Australia, New Zealand, and the Pacific region. It caters to consumers, businesses, and governments.

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