ANZ (ASX: ANZ) may soon be Australia's premier bank thanks to a more diversified business model and the ability to tap into huge amounts of revenue throughout Asia.
By 2017, ANZ says it will generate between 25%-30% of revenue from its Asian market. This 'super regional strategy', along with its continuing efficiency in the local market, means investors are likely to be rewarded with increased share prices in the long term. Here are three reasons why ANZ is the best of the big four banks.
Steady growth
ANZ has retained its position as the most efficient local lender for a number of years and although it has a 13.7% share of Australia's home loan market (a figure that has grown only 1.9% since June 2007), it remains highly profitable. Using the Australian market as a foundation for international investment will prove to be more lucrative in the long run and help diversify earnings. In addition, the move will enable the bank to mitigate the risks of a slowdown in the economy caused by sector specific risks such as those that resource companies are currently experiencing.
Between 2009 and 2012 ANZ's earnings per share rose from 147.8 cents to 218.3 cents, an increase of 48.3%. Over the same period Commonwealth Bank (ASX: CBA) achieved an increase of 26.16% from 344 cents per share to 434 cents per share.
Reliable dividends
In the past 10 years, ANZ has decreased its dividend payout only once, in the wake of the GFC. However in the same time its payout, per share, has risen from 90.8 cents to 145 cents – a 59% increase. This dwarf's the National Australia Banks (ASX: NAB) 10.5% increase from 163 cents per share to 180 cents per share. At current prices, ANZ's pays a 4.9% fully franked dividend.
Valuation
As investors go in search of high yield, many of the big banks' share prices have been pushed higher and higher but don't have the strong growth to back up the price increases. Westpac (ASX: WBC) currently trades on a price to earnings ratio of almost 14 compared to ANZ's 13. However, Westpac's growth hinges largely on a slowing domestic economy with over 98% of revenues coming from Australia and New Zealand.
Although there is little difference, investors (and the market) usually drive up the prices of stocks with higher growth potential but investors' search for higher yield has meant ANZ has got left behind. Morningstar predicts Westpac's EPS to grow 9% by 2014 whereas ANZ is forecasted to grow its EPS by 13%.
Foolish takeaway
At current prices, ANZ represents the best value of the big four banks. This Fool believes the best of the big four are Commonwealth and ANZ. A recent surge in CBA's share price has put an earnings ratio of 15.5 on the stock which is too high given the amount of growth and risk that underlies its price. Under the management of CEO Mike Smith, the ANZ is carefully making decisions to set itself apart from its rivals and return to shareholders in the long term.
ANZ reports its full-year results on October 29, CBA reports on August 14, Westpac reports on November 4 and NAB reports October 31.
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Motley Fool contributor Owen Raszkiewicz owns shares in ANZ.
