Buffett Point 4a/ FY2016: Net Profit Margin history
What we are looking for here is the ability to raise margins at above the rate of inflation over some time period longer than two years back to back.
Financial Year |
Net Sustainable Profit (A) |
Gross Interest Revenue (B) |
Net Profit margin (A)/(B) |
2012 |
$6.132m |
$30,538m |
20.1% |
2013 |
$6.599m |
$28,627m |
23.1% |
2014 |
$7,111m |
$29,524m |
24.1% |
2015 |
$7,130m |
$30,526m |
23.4% |
2016 |
$6,834m |
$29,951m |
22.8% |
Result: Pass Test
The average 'net profit margin' for five years was 22.7%. The comparative figure for Heartland was 16.7%
SNOOPY
Buffett Point 4b/ FY2016: Gross Interest Margin history
What we are looking for here is the ability to raise margins at above the rate of inflation over some time period longer than two years back to back.
Financial Year |
Interest Income (A) |
Interest Expense (B) |
EOFY Finance Receivables (C) |
Gross Interest margin [(A)-(B)]/(C)] |
2012 |
$30,538m |
$18,428m |
$427,823m + $13,969m |
2.74% |
2013 |
$28,627m |
$15,869m |
$483,264m |
2.64% |
2014 |
$29,524m |
$15,714m |
$521,752m |
2.65% |
2015 |
$30,526m |
$15,910m |
$562,173m |
2.60% |
2016 |
$29,951m |
$14,856m |
$575,852m |
2.62% |
Result: Fail Test
Note: I have made an adjustment to the EOFY receivables for FY2012. This is because there was a change in accounting policy in FY2013 which I have retrospectively applied to FY2012. As far as I can figure out this change relates to bringing assets from the balance sheet of associate companies, in which ANZ has a significant influence as to who is on the board, onto the ANZ balance sheet. Note 39 in AR2013 lists the significant associates of ANZ as
1/ AMMB Holdings Berhad, Malayasia, 24% voting interest
2/ PT Bank Pan Indonesia, Indonesia, 39% voting interest
3/ Shanghai Rural, China, 20% voting interest
4/ Commercial Bank, China, 20% voting interest
5/ Bank of Tianjin, China, 18% voting interest
6/ Saigon Securities, Vietnma, 18% voting interest
7/ Metrobank Card Corporation, Philippines, 40% voting interest
The collective assets of all associated businesses are then listed. But there is no way to know what proportion of those assets are 'financial receivables' and so determine the incremental amount that should be added to the FY2012 balance sheet to reflect the change in accounting policy. So I have simply assumed there is not too much change between FY2012 and FY2013. I have taken the revised figure we do know about (FY2013) and applied the same incremental difference to the FY2012 result.
The interesting thing about this test 4b, compared with 4a, is that for the first three years even though the interest margin remained flat (actually decreased a bit), the net profit margin rose. This is indicative of costs being taken out of other parts of the business to boost profits, while interest margin was near constant. The last two balance dates have had the cash from the recent ANZ 'cash issue and placement' brought onto the books. Holding more cash at the bank for the same sized loan book is a sure way to decrease bank profitability. (it also makes the bank more resilient in case of a market shock, the purpose of the recapitalisation exercise). And as we can see this effect. In FY2015 and FY2016 , the net profit margin of the bank has indeed reduced.
SNOOPY
Buffett Growth Model Screening (FY2016 perspective): Overall Conclusion
This is the summary for those millennials who are 'attention span challenged'. Warren Buffett's scanning of the 'growth potential' of a company can be summarized in four quick questions.
Q1/ Does ANZ Bank have a top three market position in the markets in which it chooses to operate? (Ref: my post 410)
A1/ Yes
Q2/ Does ANZ Bank have a 'normalised profit' increasing 'earnings per share trend'? (Ref: my post 411)
A2/ No
Q3/ Does ANZ Bank have a record of earning a superior ( >15% ) return on shareholder equity? (Ref: my post 415)
A3/ No
Q4/ Does ANZ Bank have the capability of operating at increasing Net Profit margins? (Ref: my post 416)
A4/ Yes
Overall Conclusion
ANZ is not able to satisfy all the requirements to apply Warren Buffett's compounding growth model. This does not mean that ANZ is necessarily a poor investment going forwards. It just means that ANZ must be analyzed in a different way. It might be sensible to regard ANZ as a pure 'dividend play' from here.
SNOOPY
ANZ Five Year Dividend Record (1) : Dollars from FY2012 to FY2016
Quote:
Originally Posted by
snoopy
It might be sensible to regard anz as a pure 'dividend play' from here.
The following table is based on 'earnings scenarios' based on actual earnings over the FY2012 to FY2016 years. I feel that these five years are representative of the earnings climate for ANZ going forwards.
ANZ has reported their new dividend policy is to pay 60-65% of 'Cash Profit' out as a dividend each year. I have taken the mid point of the expected payout range (62.5%) when calculating the dividend that might have been paid, had the current dividend policy been in force from FY2012.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Row Total |
Normalised Profit (Snoopy) |
$6,132m |
$6,599m |
$7,111m |
$7,130m |
$6,834m |
$33,806m |
Statuatory Profit (ANZ) |
$5,661m |
$6,310m |
$7,271m |
$7,493m |
$5,709m |
$32,444m |
Cash Profit (ANZ) |
$5,830m |
$6,492m |
$7,117m |
$7,216m |
$5,889m |
$32,554m |
FY2017 Policy Dividend: 62.5% Cash Profit |
$3,644m |
$4,219m |
$4,448m |
$4,510m |
$3,680m |
Actual Dividend (Below) %ge of 'Cash Profit' |
69.3% |
71.4% |
67.4% |
68.6% |
81.9% |
Actual Dividend Paid Out |
$3,702m |
$4,088m |
$4,700m |
$4,907m |
$5,001m |
less DRP Reinvestment |
($1,461m) |
($843m) |
($851m) |
($1,122m) |
($413m) |
Net Dividend Paid Out |
$2,241m |
$3,245m |
$3,849m |
$3,785m |
$4,588m |
There are a couple of points of note from this table.
1/ The historical payout percentage rate has been well above the new targeted payout percentage rate (60-65%) for the last five years. It follows that if we take the same earnings profile projected out into the future, future dividends will be less.
2/ If you include the dividends paid out and reinvested back into company shares, then the net dividend paid is well within the 60-65% payout target for future years (except FY2016). Despite this, the chairman's address in (AR2016, p6) speaks of the agony of making the decision to cut dividends going forwards and returninng the payout ratio to historical norms. I take it from this that the dividend cut from FY2016 onwards refers to the actual dividend entitlement, with no account taken of any net reduction that might come from the DRP. IOW ANZ shareholders really can expect lower dividends going forwards.
SNOOPY
ANZ Five Year Dividend Record (2) : dps from FY2012 to FY2016
Quote:
Originally Posted by
Snoopy
The following table is based on 'earnings scenarios' based on actual earnings over the FY2012 to FY2016 years.
Note: Figures in the table below are all in Australian currency. NZ imputation credits have been converted to $A using the present day representative exchange rate of $NZ1 = $A0.95.
|
FY2012 |
|
FY2013 |
|
FY2014 |
|
FY2015 |
|
FY2016 |
|
Dividend Declared (final/interim) 'cps' |
76c(f) |
66c(i) |
79c(f) |
73c(i) |
91c(f) |
83c(i) |
95c(f) |
86c(i) |
95c(f) |
80c(i) |
add Imputation Credit (NZ) 'cps' |
0c |
0c |
0c |
9c x 0.95 |
10c x 0.95 |
10c x 0.95 |
12c x 0.95 |
10 x 0.95c |
11c x 0.95 |
10c x 0.95 |
Gross Dividend (NZ Perspective) 'cps' |
76c(f) |
66c(i) |
79c(f) |
81.6c(i) |
100.5c(f) |
92.5c(i) |
106.4c(f) |
95.5c(i) |
105.5c(f) |
89.5c(i) |
Gross Annual Dividend (NZ Perspective) 'cps' (final) + (interim) |
$1.42 |
|
$1.60.6 |
|
$1.93 |
|
$2.01.9 |
|
$1.95 |
|
Gross Annual Dividend (Aus Perspective) 'cps' (final) + (interim), (assumes 30% franking credit) |
$2.02.9 |
|
$2.17.9 |
|
$2.48.6 |
|
$2.58.6 |
|
$2.50 |
|
ANZ dividends have, since FY2013, been paid with NZ imputation credits attached. These NZ imputation credits have since been maintained on all subsequent dividends. You can see from the above table though, that the NZ dividends paid to NZ shareholders are not fully imputed. This is evident when comparing gross dividends from both a New Zealand and an Australian perspective. Australian dividends are 'fully franked' (the equivalent of 'fully imputed, in NZ) for Australian tax purposes. And the much higher gross return for Australian shareholders verses their New Zealand counterparts is plain to see.
I am not clear why New Zealand shareholders have only received NZ Imputation credits since FY2013. ANZ.NZ was clearly a very profitable bank before then! Yet although all dividends declared since FY2013 have contained impuation credits, the amount of that credit is subject to the profitability of the New Zealand arm of the business. This means that if a large restructuring took place in New Zeland over a year, for example, those imputation credits we NZ shareholders do get could disappear for a year.
SNOOPY