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ANZ posts $3.4bn half-year cash profit, flat dividend

Nicholas Grove  |  02 May 2017Text size  Decrease  Increase  |  

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Australian and New Zealand Banking Group (ASX: ANZ) on Tuesday announced a 23 per cent rise in underlying cash profit to $3.4 billion for the first half of fiscal 2017, just shy of both consensus and Morningstar estimates for earnings of around $3.5 billion.

Statutory profit after tax for the half stood at $2.9 billion, up 6 per cent on the prior comparable period, the bank said in a statement to the ASX.

However, ANZ's net interest margin--or the difference between interest income generated by the bank and the amount of interest paid to lenders, relative to the amount of interest-earning assets--slipped 7 basis points from 2.07 per cent previously to 2.00 per cent in the half.

ANZ declared a half-year dividend of 80 cents a share fully franked, unchanged on the previous two half years, and reflecting a payout ratio of 69 per cent.

The half-year dividend will be paid on 3 July 2017 to shareholders on record as of 9 May 2017.

The bank attributed the result to further benefits from its strategic focus on creating a "simpler, better capitalised, and more balanced bank producing better outcomes for customers and shareholders".

"Particular highlights were our strong organic capital generation performance that saw APRA Common Equity Tier 1 capital ratio above 10 per cent for the first time and, importantly for shareholders, return on equity increased materially for the first time since 2010," ANZ chief executive Officer Shayne Elliott said.

"We are in a very strong position ahead of anticipated changes to capital requirements by APRA and this allows us to neutralise the first-half dividend reinvestment plan.

"Our strategy involves a significant reshaping of ANZ's business and I am very pleased to have made significant progress while also producing good results across the group."

Morningstar head of Australian banking research, David Ellis, described ANZ's result as "messy," with the figures including asset sales and "specified charges".

"Despite the slight miss, underlying momentum in core Australian and New Zealand banking continues to build, with evidence restructuring is delivering a solid base for future earnings growth," he said.

"We reduce our fiscal 2017 cash profit forecast to $7.1 billion from $7.2 billion previously on weaker-than-expected net revenue growth. But recent mortgage and deposit repricing will benefit second-half margins.

"Medium term, our cash profit forecasts are broadly unchanged and we retain our $29 per share fair value estimate."

ANZ's Elliott said the bank recorded solid performances in its Retail and Commercial Banking operations in Australia and New Zealand during the half, as well as a "particularly pleasing" performance from Institutional Banking.

However, looking forward, Elliott said the environment for banking remains constrained, with "intense competition and pressure on margins, subdued lending growth, rapidly changing customer expectations and increasing regulation".

"We are responding decisively to these continuing pressures through a financial, digital, and cultural transformation of ANZ," he said.

Morningstar's Ellis has said previously that ANZ is his "least preferred" Australian major bank on valuation grounds, and given the uncertainty caused by the bank's major asset divestment program.

"The asset sales will detract from future earnings growth, but will release significant amounts of capital," he said.

Regardless, Ellis expects ANZ's core Australian and New Zealand banking businesses to deliver steady earnings growth, with earnings per share expected to increase by an average of 2.2 per cent a year until the end of fiscal 2021.

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Nicholas Grove is a Morningstar journalist.

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