ANZ.NZX - Anyone holding?

[GTM 3442]

My broker is raving about the dividends from the Australian banks, as well as their relative cheapness. I picked up some ANZ the other day, though I felt it better to do it on our own NZX rather than buying in Australian dollars. I suppose though that the NZX price will ultimately take into account any swings in currency?

And the dividend yield will improve each time the price goes down too!

Until you buy some, of course.

[JBmurc]

Just remember ANZ have the largest chunk of loans in the ASX Mining sector of the Big Aussie banks some 12-13 billion outstanding ..how much of this will default will be interesting with very few miners making a profit currently ..

[JBmurc]

http://www.bbc.com/news/business-35320678

[JBmurc]

http://www.barrons.com/articles/dont...cks-1452579741

Yes we will find out on 17 Feb what the fwd guidance is for the half yr result due out in early May.......

I actually would like to BUY a position in ANZ ,,,but not yet more round Tax loss selling MAY-JUNE (low 20's NZX) ...good yield ....and a good play on AUD weakness that will rebound on better AUS economy going forward .....

And also very interested to see how ANZ would value themselves when I borrowing funds from them ?

IMHO ANZ the best of the Big four ...using P/E ratio /divi payout ratio/Yield and personal banking experience
but they may have more risky a loan book

[macduffy]

Citi rates ANZ a "Buy".

"Citi rates ANZ as Buy (1) - Citi analysts note how investors have started to price Australian banks differently with CommBank leading the pack in terms of relative valuation. The analysts argue this sector bifurcation doesn't appear justified. In their view, current circumstances are making operational performances more uniform across the sector.
Negative capital generation is driving CET1 ratios lower for all banks with little or no buffer, point out the analysts. They believe share price falls add to valuation support for the sector in general.
Citi's Major Bank order of preference has ANZ Bank (Buy) first, then National Australia Bank (Buy), then Westpac (Neutral) and finally CBA (Neutral); in complete opposite order of current market pricing.
Target price is $33.25 Current Price is $24.41 Difference: $8.84 If ANZ meets the Citi target it will return approximately 36% (excluding dividends, fees and charges). Current consensus price target is $30.90, suggesting upside of 26.6%(ex-dividends)The company's fiscal year ends in September.
Forecast for FY16:
Citi forecasts a full year FY16 dividend of 184.00 cents and EPS of 257.50 cents . At the last closing share price the estimated dividend yield is 7.54%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.48. How do these forecasts compare to market consensus projections?
Current consensus EPS estimate is 254.2, implying annual growth of -6.4%.Current consensus DPS estimate is 182.9, implying a prospective dividend yield of 7.5%.Current consensus EPS estimate suggests the PER is 9.6.Forecast for FY17:
Citi forecasts a full year FY17 dividend of 0.00 cents and EPS of 256.90 cents . At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.50. How do these forecasts compare to market consensus projections?
Current consensus EPS estimate is 261.9, implying annual growth of 3.0%.Current consensus DPS estimate is 185.5, implying a prospective dividend yield of 7.6%.Current consensus EPS estimate suggests the PER is 9.3."

[Tomtom]

There was an odd story on Stuff suggesting ANZ New Zealand might still using Windows XP and Office 2003? More importantly while Citi are ranking ANZ a buy but Morgan Stanley think they will cut second half dividends.

[Snoopy]

The December 16th 2014 UDC Prospectus release, at last gets the details of what happened at UDC during FY2014 out into the public arena.

https://www.udc.co.nz/pdf/udc-prospectus-2014.pdf

The 'profit before tax' is listed as $71.768m (p35). But this includes a provision for credit impairment of $11.733m which I would remove to get the picture of ongoing operational performance. So I get EBT of $83.501m.

Now go to note 4 (p44) on interest expense. There is underlying interest over and above what is due to debenture holders of $16.783m.

So total underlying EBIT = $83.501m + $16.783m = $100.28m

Now turn to page 46 (note 8) and you will see total loans and advances of: $2,272.281m

So the operating margin based on the end of year loan balance book is:

$100.28m/$2272.281m = 4.41%

A significant improvement on FY2013 and it continues the improvement from a 3.87% margin in FY2012

The December 15th 2015 UDC Prospectus release, at last gets the details of what happened at UDC during FY2015 out into the public arena.

https://www.udc.co.nz/pdf/UDC_Prospectus_69.pdf

The 'profit before tax' is listed as $79.323m (p34). But this includes a provision for credit impairment of $10.427m which I would remove to get the picture of ongoing operational performance. So I get EBT of $89.750m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $18.951m.

So total underlying EBIT = $89.750m + $18.951m = $108.701m

Now turn to page 45 (note 6) and you will see total net loans and advances of: $2,347.163m

So the operating margin based on the end of year loan balance book is:

$108.701m/$2,347.163m = 4.63%

A significant improvement on FY2014 and it continues the improvement from a 3.87% margin in FY2012

SNOOPY

[Snoopy]

Time to normalise the UDC figures for 2014 so they can be compared more directly with the likes of Heartland Bank.

Heartland in FY2014 had selling and administration expenses of $64.739m (Heartland FY2014 report 'Selling & Administration Expenses', note 11). UDC had total operating expenses of $31.306m (UDC prospectus note 4). That is a difference of $33.433m. The two are comparable in that they have a similarly sized loan book (UDC:$2,272.081m, Heartland $2,607.393m). If we add the operating cost difference figure onto the UDC cost structure, what would that do to the UDC operating margin (see previous post) on assets?

FY2014: ($100.28-$33.433+ $9.79)/$2272.08 = 3.37%

Note: The $9.79m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $33.433m 'extra operating expenses and would have been double charged if not added back

This calculation shows the underlying margin at UDC to be significantly improved from FY2013's 2.58%.

Time to normalise the UDC figures for 2015 so they can be compared more directly with the likes of Heartland Bank.

Heartland in FY2015 had selling and administration expenses of $68.403m (Heartland FY2015 report 'Selling & Administration Expenses', note 5). UDC had total operating expenses of $32.278m (UDC prospectus note 4). That is a difference of $36.125m. The two are comparable in that they have a similarly sized loan book (UDC:$2,347.183m, Heartland $2,862.070m). If we add the operating cost difference figure onto the UDC cost structure, what would that do to the UDC operating margin on assets?

FY2015: ($108.701-$36.125+ $10.464)/$2,347.183 = 3.53%

Note: UDC do not have a branch network of their own, but operate through ANZ bank branches in New Zealand. The $10.464m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $36.125m 'extra operating expenses (p43 note 4). The $10.464m could be thought of as a contribution to the ANZ branch network that allows UDC to carry on business as normal. But what I am interested in is the difference in operating cost of a finance company with and without a branch network. So this $10.464m which largely reflects a branch network allowance must be removed from my comparison.

This calculation shows the underlying margin at UDC to be slightly improved from FY2014's 3.37%.

SNOOPY

[Snoopy]

An update on the post financial crisis profitability trends. The Heartland comparative figures only start from FY2012, because that is when Heartland started to exist in its current form.

	UDC			Heartland
	EBT	Loan Book	EBT/Loan Book	EBT	Loan Book	EBT/Loan Book
FY2009	$34.024m	$1,829.156m	1.86%
FY2010	$45.012m	$1,968.771m	2.29%
FY2011	$46.382m	$1,948.552m	2.38%
FY2012	$58.476m	$2,014.473m	2.90%	$29.377m	$2,078.276m	1.41%
FY2013	$66.787m	$2,065.117m	3.23%	$36.540m	$2,010.376m	1.82%
FY2014	$83.501m	$2,272.081m	3.68%	$57.416m	$2,607.393m	2.20%

Reference for data (UDC): p33 of 2014 prospectus (profit, loans and advances)
Reference for data (Heartland): AR2014 Statement of Comprehensive Income Operating profit, Statements of Financial Position)

An update on the post financial crisis profitability trends. The Heartland comparative figures only start from FY2012, because that is when Heartland started to exist in its current form.

	UDC			Heartland
	EBT	Loan Book	EBT/Loan Book	EBT	Loan Book	EBT/Loan Book
FY2009	$34.024m	$1,829.156m	1.86%
FY2010	$45.012m	$1,968.771m	2.29%
FY2011	$46.382m	$1,948.552m	2.38%
FY2012	$58.476m	$2,014.473m	2.90%	$29.377m	$2,078.276m	1.41%
FY2013	$66.787m	$2,065.117m	3.23%	$36.540m	$2,010.376m	1.82%
FY2014	$83.501m	$2,272.081m	3.68%	$57.416m	$2,607.393m	2.20%
FY2015	$89.750m	$2,347.163m	3.82%	$76.304m	$2,862.070m	2.67%

Reference for data (UDC): (p32 of 2015 prospectus (No.69) , p33 of 2014 prospectus) (Profit before Income tax & Credit Impairment, Net loans and advances)
Reference for data (Heartland): AR2015, AR2014 Statement of Comprehensive Income Operating profit, Statements of Financial Position)

SNOOPY

[Snoopy]

Updating the actual bad debt write offs in relation to the size of the loan book at the end of the year. Section 10 in the UDC 2014 prospectus is named "Provision for Credit Impairment on Loans and Advances". Bad debts actually written off are compared against the 'provision for loan impairment' stated on page 33, the 'Summary Financial Statement', which were $7.123m (FY2013) and $6.031m (FY2012).

UDC	Bad Debt Write Off	New Bad Debt Provision
FY2010		$17.343m
FY2011		$4.891m
FY2012	$10.164m	$6.031m
FY2013	$12.399m	$7.123m
FY2014	$18.633m	$11.733m

"I am reading between the lines when I say the actual write offs probably reflect the worse times immediately following the GFC. With a more benign business environment going forwards we might expect future write offs to be smaller, trending towards the current year write off figure."

I wrote the above in relation to the FY2013 results. Looks like I was wrong though. Write offs are getting larger, back up towards GFC levels!

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2012: $10.164m/$2,014.473m = 0.505%
FY2013: $12.399m/$2,065.117m = 0.600%
FY2014: $18.633m/$2,272.081m = 0.820%

But it doesn't change the interpretation. Annual write offs at UDC are getting bigger in relation to the size of the loan book as well!

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 12 (AR2014) details impaired asset expense as follows:

FY2012: $5.642m
FY2013: $22.527m
FY2014: $5.895m

Normalize these against the total finance receivables

FY2012: $5.642m/ $2078.3m = 0.271%
FY2013: $22.527m/ $2010.4m = 1.12%
FY2014: $5.895m/ $2607.4m = 0.226%

We know that 2014 year was a particularly bad one for Heartland, regarding bad debts. But look how Heartland have bounced back, relative to UDC in FY2014.

	UDC Debt Write Off	Heartland Debt Write Off
FY2012	0.505%	0.271%
FY2013	0.600%	1.12%
FY2014	0.820%	0.226%

Updating the actual bad debt write offs in relation to the size of the loan book at the end of FY2015. Section 7 in the UDC 2015 prospectus is named "Provision for Credit Impairment". Bad debts actually written off are compared against the 'provision for loan impairment' stated on page 32, the 'Summary Financial Statement', which were $10.427m (FY2015) and $11.733m (FY2014).

UDC	Bad Debt Write Off	New Bad Debt Provision
FY2010		$17.343m
FY2011		$4.891m
FY2012	$10.164m	$6.031m
FY2013	$12.399m	$7.123m
FY2014	$18.633m	$11.733m
FY2015	$12.162m	$10.427m

Actual write offs are down, coming off a spike from FY2014

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2012: $10.164m/$2,014.473m = 0.505%
FY2013: $12.399m/$2,065.117m = 0.600%
FY2014: $18.633m/$2,272.081m = 0.820%
FY2015: $12.162m/$2,347.163m = 0.518%

This is an improvement back towards FY2012 values.

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 6 (AR2015) details impaired asset expense as follows:

FY2012: $5.642m
FY2013: $22.527m
FY2014: $5.895m
FY2015: $12.105m

Normalize these against the total finance receivables

FY2012: $5.642m/ $2078.3m = 0.271%
FY2013: $22.527m/ $2010.4m = 1.12%
FY2014: $5.895m/ $2607.4m = 0.226%
FY2015: $12.105m/ $2862.1m = 0.423%

It is interesting to see that Heartland's write offs are increasing whereas UDC write offs are decreasing. The overall write offs for Heartland are nevertheless still less in percentage terms than UDC.

	UDC Debt Write Off	Heartland Debt Write Off
FY2012	0.505%	0.271%
FY2013	0.600%	1.12%
FY2014	0.820%	0.226%
FY2015	0.518%	0.423%

SNOOPY