ANZ reported yesterday, a modest miss relative to consensus (the dividend was above, but equivalent once you adjusted for the lower franking).

Operationally, it was solid, but perhaps not quite as strong as CEO Shane Elliot’s framing, “very strong”; “consistently strong”.

The reported NIM dropped back, after a much stronger first half, and prior year, really.

That weaker NIM was much more pronounced in the retail mortgage book, where NIMs fell more than 30bps, chasing growth, essentially. CBA, NAB, WBC had all pointed to “someone” pushing hard on mortgages, in the end it was Macquarie and ANZ. You can see all the other banks posted much more modest YoY numbers.

Mgmt commentary is “this is what I should be doing, being aggressive to win share, I won’t apologise for it”. The market reaction is “we want more rational competition, and don’t like what you are doing!”.

And that created pressure for a solid enough sell-off yesterday, in the ANZ share price (down some 3%).

Operating efficiencies remain comparable to peers…

…as do bad debts…

…ROE’s are depressed by the capital held back for the Suncorp bank deal (which we think will go through, but the market will probably take it fine either way)…

…and of course, given that extra capital, ANZ are near the top of the table by equity cushioning.

ANZ is on a PE of 11x compared to CBA on 17x. Same growth rate (indeed slightly faster) and just as well capitalised (slightly better).

CBA is higher quality, with a higher ROE, but we think that is more than reflected in the valuation differential.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.