Suncorp Bank Acquisition
Need to know:
- A$4.9bn acquisition of Suncorp Bank. PER 13.8x or 9.3x post synergies
- ANZ will raise A$3.5bn of common equity via a 1:15 entitlement offer
- Transaction adds ~2% points of lending market share to ANZ. ACCC approval is unlikely to be an issue in our view.
Investment implications
Acquisition of Suncorp Bank for A$4.9bn. The transaction will add ~5% to ANZ’s net income immediately, whilst providing a multi-year cost-out story for ANZ. The transaction lifts ANZ’s market share in mortgages from 13.1% to 15.4% and helps close ANZ’s relative underweight position in QLD and NSW. The transaction is expected to close 2H2023.
Implied PER valuation 13.8x or 9.3x post synergies. We see ANZ’s purchase price as being a little full. Regional bank PER multiples are BEN 11.7x and BOQ 9.3x. On a price-to-book basis, ANZ is paying 1.3x for SUN. This compares to BEN 0.7x and BOQ at 0.8x.
Synergies are long-dated and look relatively large. ANZ believes the transaction will EPS neutral in FY23E, and low single-digit accretive including full run-rate synergies on a pro-forma basis. ANZ suggests $260m of cost synergies or 35% of Suncorp Bank’s costs base when fully integrated. This implies SUN’s cost to income falls from 57% to 38%. ANZ cost to income is currently 47% at FY21.
Transaction funded by A$3.5bn equity raising. ANZ is funding the acquisition by a A$3.5bn 1:15 pro rata accelerated renounceable entitlement issue at A$18.90. 12% discount to TERP, 21.7% discount to ANZ last share price of A$21.64.
ANZ 3Q Trading update. Revenue +5%, net-interest margin +3bps or +6bps on an underlying basis to 184bps. Costs flat on 1H22A. The 2H22 dividend is expected to be 72cps vs 73cps expected. Overall, the trading update is a fraction ahead of market expectations.
Regulatory approvals. ANZ will require approval from the Federal Treasurer, ACCC, and relevant QLD government legislation. We believe it will be unlikely that the ACCC will reject the transaction.
Combined, ANZ + SUN Bank will have a market share in home lending at 15.4% vs CBA at 26% and WBC at 22%.
ACCC has recently approved both NAB’s $1.2bn acquisition of Citibank’s cards business (2022) and Bank of Queensland’s (BOQ) $1.3bn acquisition of ME Bank (2021). That said, the Chair of ACCC Gina Cass-Gottlieb is new in the role, as is the Federal Treasurer Jim Chalmers.
Stock overview
Share price
Company overview
ANZ Bank is Australia’s fourth-largest retail bank.
Disclaimers and Disclosures
Issuer
The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").
Reliance
Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.
General Advice
Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs.
General Disclosures
This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au.
Currency of Research
The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.
Access and Use
Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.
Equities Research Methodology
Please click here for information about MST equities research methodology.