ANZ

ANZ Banking Group has a price target of $32.50 per share and a Buy stock recommendation from Australian stockmarket analyst UBS. ANZ Personal Division update Wednesday 10am in Melbourne: ANZ is due to hold a Personal Division briefing this Wednesday the 19th of Sept at 10am. Personal is ANZ's 2nd largest div (37% of Group NPAT) & was the fastest growing of ANZ's key divisions in 1H07 (22% pcp). The analysts expect commentary to focus on lead indicators -customer acquisition, cross-sell, customer attrition, main bank share - & key drivers of sustainable growth (some focus on efficiency). In 1H07 ANZ's Personal division delivered strong revenue growth 14% pcp, but only 4% seq, they believe this was partly seasonal (annual fees usually charged in 2H). Cost control was a highlight falling 1% sequentially. Stats from the last Personal division update in June showed: (1) a slowing in accounts opened (although impacted by intro of Visa debit), (2) ANZ with #2 traditional banking market share & (3) #4 in share of wallet, but growing. They believe ANZ still has room to grow. August trading update - Personal "performing particularly strongly": Personal was the highlight of ANZ's August update. ANZ stated that Personal is continuing to perform "particularly strongly" with high asset, liability & rev growth & limited margin attrition. A key question for ANZ is: can Personal maintain its growth profile to offset the underperforming Institutional division? Perceived Key Drivers observed by the analyst for ANZ: (1) valuation considered cheap (2) New CEO Mike Smith is well regarded (3) Best performing retail bank (4) Record of consistent delivery (5) De-risked portfolio. Potential Risks for ANZ Banking Group: (1) Need to turn around Insto, & (2) Demonstrate value in Asian investments. Our price target is based on DCF, Int'l Peers comparison and SOTP.

Australian banking shares have underperformed the market for a second week running from last week. Despite rising 0.4%, they still underperformed the market by 70bp. The two value plays, WBC and ANZ, rebounded strongly finishing the week up 2.9% and 1.4% respectively. However, partly offsetting this was NAB's underperformance. The bank’s recent UK analyst tour failed to turn sentiment around on the stock, which fell by 2.2% last week. Australian sharemarket analysts Macquarie Research Equities have the following major bank preferences: 1) CBA, 2) WBC, 3) ANZ, 4) NAB, 5) SGB. CBA remains their top pick in the sector with final results and final dividend being announced on 15th August 2007. CBA and WBC continued to dominate local debt market league tables: WBC and CBA continued to dominate the debt market issuance rankings in the June quarter, consistent with recent volume trends reported in their institutional division results. WBC maintained its number 1 position in the Australian syndicated loan market, with 15 issuances and 17.2% market share for the six months ending June. CBA improved its Australian debt market ranking significantly over the last six months, from fourth position a year ago to being number 1, though this partly reflects the large mortgage securitisation issue conducted during the period. This is consistent, though, with the message management put out recently that momentum continues to build within the bank’s institutional division. As a result, rejuvenation of CBA’s institutional banking is also likely to remain a key driver of CBA’s earnings growth in the short term. Personal bankruptcies deteriorate further: Personal bankruptcies in Australia deteriorated slightly further in the June quarter, with year to June bankruptcies increasing by 13% on pcp. Not surprisingly, NSW continued to be the key driver, rising 24% on a year-on-year basis. This is likely to continue to impact arrears levels for the banks in the near term, so far this has not translated into a significant increase in write-offs. The analysts believe that rising bankruptcy rates raise the risk that loss rates will increase more significantly, especially on unsecured personal lending, where these types of lending tend to account for a greater percentage of write-offs. NAB UK downgrades. Post NAB’s UK trip, the analysts have revised their UK forecasts leading to downgrades at the group level of 0.3% in FY07, and 1% in FY08. Their new price target for the Australian bank is $42.80.

Australian sharemarket analyst Macquarie Research Equities (MRE) has some short term value ideas in the banking sector: ANZ & WBC. Rotation amid the rising bond yield environment saw the banks underperform last week. The sector ended the week up 0.2% (adjusting for SGB's dividend), while the cyclicals drove the market up 1%. Among the majors, NAB performed the best, rising 0.9% last week. The worst performer was WBC, closing down 0.8%. Though all three regionals finished in positive territory, they still underperformed the broader market.

ANZ Bank has seen their shares outperform the other banks in the sector last week as observed by sharemarket analyst Macquarie Research Equities. The banks fell 1.7% last week: This was in line with the broader market following a sell off on inflationary fears on the back of rising bond yields. Among the majors, ANZ Bank was the only one to outperform, gaining 0.6%. ANZ Bank is still trading at a 7% PE discount to its peers, which the analyst believes represents a short term value opportunity. In addition to this, yesterday the bank announced that Michael Smith will become the new CEO, effective 1 October 2007, which they believe is a low risk, and very solid appointment. Michael Smith fits ANZ Bank's requirements well: Mr Smith was previously head of HSBC's Asian business and global head of Commercial Banking for the HSBC Group. He has strong Asian banking experience and is not a change agent. On paper Mr Smith's experience fits well with the requirements set by ANZ Bank's Chairman – his strong experience in Asian banking fits well with ANZ Bank desires to continue to expand in the region, while his experience in institutional banking also fits well with ANZ Banking needs to focus on its underperforming institutional division. Relative lack of hands on retail banking experience could assist in retention of key staff. Given ANZ Bank's announcement last week of a new head for its underperforming institutional division and Mr Smith's relative lack of hands on retail banking experience, they would be surprised to see further change in key divisional heads in the short term. Indeed, while only personal head Brian Hartzer will have known his true intentions, Mr Smith’s relative lack of hands on retail banking experience could well assist in ensuring retention of current retail banking strategies and thus in maintaining ANZ Bank's key retail banking team in place. Initial reaction likely to be moderately positive. Mr Smith's background would appear to place him as a lower risk option for ANZ, both in terms of ability to execute in Asia and Institutional and potential to retain key staff. Potential 'negatives', if you were to call them that, really relate to ANZ's aim to look for someone who is not a change agent. Mr Smith is regarded as an experienced banker, but also as a low profile quiet achiever. That in itself is not necessarily a bad thing, but it is a potentially significant change from CEO McFarlane to which investors will have to become accustomed. ANZ Bank provides a short-term value opportunity relative to peers at a 7% discount. The analysts see this as a relatively low risk appointment for ANZ, both in terms of providing experience in the areas ANZ required and retaining key staff. Accordingly, we would see this appointment as adding mildly to the case for a partial, valuation driven re-rating of ANZ relative to peers.

ANZ Banking has a Buy 1 broker call and a share price target of $33 from sharemarket analyst UBS. ANZ 1H07 Result was released: ANZ result saw forecasts re-affirmed: The analyst expects ANZ EPSg of 12.9% (07E) and 11.1% (08E), unchanged post result. Key result drivers were credit growth 10%, margins -6bp, non int income 13%. Revenues were 9% and costs up 4%. Divisionally, Personal was strong once again. NZ improved and exceeded our expectations, but Institutional disappointed on both revenue and cost lines. ANZ remain the cheapest bank at a 6% sector discount: Although ANZ has worked hard to reduce its long standing sector discount rating, it appears to have had only limited success. They have tried (1) selling Grindlays (2) buying NBNZ (3) growing retail faster than business (4) lifted RoA to be second only to CBA. All of these things have brought them back to a single digit discount. So why the discount? Two reasons in the analyst's view: (1) ANZ's Asian acquisitions are immature and at best priced at their entry book value. This de-rates ANZ relative to its peers in price to book terms (worth -3% to PE rel) (2) ANZ's traditional strength has been Institutional and Business banking. However, Insto has suffered issues of low fee income generation, low yield balance sheet growth and now the cost line (staff numbers +11%). The analyst maintain their Buy 1 broker call for ANZ Banking given (1) ANZ is cheap at 6% sector discount (2) retail bank momentum is solid, although duration of excess return is unclear. PT is based on DCF, Int'l Peers and SOTP.

Sharemarket analyst Macquarie Research Equities have provided a 2007/2008 Australian Budget Impact statement. Investors who had been eagerly awaiting the release of the 2007-2008 Budget were last night greeted with a host of initiatives that included a significant boost to household disposable income.

Sharemarket analyst UBS has provided an Australian Banks Update. Sector Update post WBC result: 1H07: CBA-ANZ-SGB-WBC have reported. NAB-MBL to go: FY2007 f'casts are intact (+14% EPSg seen minor upgrades). Results drivers have been strong credit growth, better than expected margins and solid wealth management growth. BDD has been low, although 90 day overdues are drifting up. Share prices have predicted outcomes. Sector Overweight Maintained. Valuations reasonable: The analyst needed more upgrades especially given strong share price performance of banks in April.

Market analyst UBS has provided an Australian banking sector update. System Credit strength continues in March +14.8%: 12 month credit growth at March-07 was 14.8%; comprising a steady increase in housing credit 14%, sound personal credit growth 12.1% & business credit maintaining high levels of growth at 16.6%. March growth was flat on February (revised down by APRA from 15%).

Sharemarket analyst UBS has provided an Australian Banking Sector Update. They have observed a strong reporting season expectations driving outperformance: The banks' reporting season starts this Thursday 26th with ANZ. The analyst expects this to be one of the strongest reporting seasons in several years, with 1H07E EPSg of 8.7% (seq) driving FY07E EPSg of 13.8%. Earnings risk remains on the upside. They expect the banks' outperformance to continue through this reporting season.

Why put your money in a bank if you can own the bank? Australian banks are big performers especially in recent times. So, comparing term deposits versus investing in bank stocks, which is the better performer?