Australia and New Zealand Banking Group (ASX: ANZ) has today again proven why it is still the best bank stock on the ASX, with a huge $7.11 billion cash profit for the year ended 30 September 2014.
The cash profit result is up 10% year-on-year and is 135% higher since the same period in 2008 – the year after current CEO Mike Smith launched the bank's controversial 'Super Regional Strategy'.
With today's performance he has once again silenced his critics. Here's what you need to know from today's announcement:
- Cash earnings per share up 9% to $2.603
- Final dividend of 95 cents per share, up 14%, taking the total yearly payout to 178 cents per share, up 9%
- Cost to income ratio, excluding foreign exchange and the disposal of ANZ Trustees and the SSI shareholding, improved 94 basis points to 44.3%
- Customer deposits up 9.5%, with net loans and advances up 8%
- Provision charge down 17% to $989 million, from $1,197 million a year ago
- Return on equity up 10 basis points to 15.4%. For comparison National Australia Bank Ltd (ASX: NAB) yesterday announced it had a cash return on equity of just 11.8%
- Common equity tier 1 (CET1) ratio of 8.79%, up 47 basis points
- Australia division (Retail and Business Banking) cash profit rose 7% and achieved a cost to income ratio of just 37.2%. For comparison, Commonwealth Bank of Australia (ASX: CBA) has a group cost to income ratio of 42.9%
- Named Home Lender of the Year for the thirteenth time in 16 years and likely to record above system Australian home loan growth for nineteenth consecutive quarter
- Lending to small business was 16% higher
- New Zealand divisional cash profit jumped to $1.07 billion, from $877 million
- Revenue from Asia Pacific Europe and America (APEA) now accounts for 24% of group total
- Cash profit from Asia was up 25% and revenue up 10%
- Net interest margin of 2.13%, down from 2.22%. Once again, for comparison, last year, Westpac Banking Corp (ASX: WBC) achieved a net interest margin of 2.11%
Mr Smith commented on the results, saying, "This is another good performance that demonstrates consistent execution of our super regional strategy which is positioning ANZ well in a more constrained operating environment."
"The result also saw continued momentum from our international business in Asia Pacific Europe and America which now accounts for 24% of Group revenues. This provides ANZ with meaningful and differentiated growth options without the need to take on more risk. With the phase of high investment in Asia largely complete, we are seeing a greater share of Asia-led revenue growth translate to profit."
FX-adjusted cash profit from APEA markets accounted for 15.4% of the Group total, before tax.
In regards to the outlook Mr Smith said: "We expect to present similar opportunities for ANZ, with a continuation of a stable and benign credit environment. In Australia and New Zealand the consumer sector remains relatively buoyant however we expect a gradual transition to business led growth as business confidence improves. Asia's economies are set to maintain their position as the world's best performing region."
By 2016 ANZ has a number of strategic goals including a Group cost to income ratio below 43% and a return on equity above 16%. Mr Smith said: "We are well placed to deliver against our 2016 cost to income and returns targets."
Should you buy, hold or sell ANZ?
ANZ is, in my opinion, easily the best retail bank stock for new investors on the ASX. It is the most profitable bank, despite achieving lower margins on its international products. It has been the fastest growing since the GFC, which is a result of its international expansion and efficiency; and its shares aren't nearly as expensive as CommBank's or Westpac's.
However, despite appearing cheap relative to its peers, ANZ is certainly not a bargain at today's prices. If you're investing for the ultra-long term and can accept that ANZ's share price may be cut in half for a prolonged period of time then you may be able to justify a purchase of ANZ at today's levels.
I'm willing to forgo the possibility of short-term gains and annual dividends for the chance to pick up the stock at cheaper levels in the future because I know there will come a time when its stock is out of favour with investors.
