Investment view
Cash earnings came in fractionally ahead of the market, with the dividend 1 cps ahead at 72cps. No additional capital management was flagged. Net Interest Margins (NIM) remained under pressure falling a further 6bps to 1.58%, retarding earnings momentum. Flat cost control continued to impress against the inflationary backdrop. The result is free of any major new issues, in our eyes.
We expect minimal earnings revisions to market consensus estimates post for FY22E, which currently implies flat EPS growth for FY22E (slowest of major banks). Dividend estimates are also likely to be unchanged at $1.44 for FY22E, implying a 5.3% dividend yield. Overall, we mark this as an inline result for ANZ.
The ANZ share price has performed largely in line with the market since mid-2021, and this is unlikely to change in the near term. Whilst ANZ valuation (PE, P/B, dividend yield) holds appeal relative to peer banks, the jury remains out on just how quickly ANZ can return to system growth – a prerequisite for the share price to improve from here. We retain our Hold recommendation on ANZ.
Investors remain fixated on the ability of ANZ to show operational momentum after the loss of market share in housing 2021. There were signs in the first half that home lending volumes at ANZ have stabilised. FUM was flat at $278bn in the half, despite having 25k lower account numbers. Whilst this is a stronger performance than 2021, it is likely to take much of 2022 for this to improve, particularly as home lending volumes are likely to slow in 2022/23.
Low bad debts continued to remain a feature coming in at just 20bps (vs 22bps 2H21). A further $284m provision release has now resulted in ~70% of ‘Covid-19’ provisions taken in 2020 now being released.
From a capital standpoint, ANZ remains well placed with a Tier 1 ratio at 11.5%, although down on 12.3% reported in November primarily due to lending growth. The reduction in Tier 1 capital ratio at the margin has held ANZ back from topping up the capital management program. We expect ANZ to move on further with ~$1.5bn onmarket share buyback later this year.
Risks to investment view
Key risks for ANZ; 1) inability to restore profitable market share in home lending; 2) further NIM decline into 2023; 3) higher interest rates impacting bad debts and lowering earnings; 4) acceleration in investment spend holding back earnings; 5) sustained period of house price falls across both Australia/NZ.
Recommendation
We have retained our Hold recommendation.
