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Loan book growth lifts MyState profits

Emma Rapaport  |  20 Aug 2018Text size  Decrease  Increase  |  
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Hobart-based financial group MyState Limited (ASX: MYS) has posted a full-year operating profit of $31.5 million, up almost five per cent on fiscal 2017, but 5 per cent below Morningstar's fiscal 2018 forecast.

A key strength in the result was higher loan growth relative to the rest of the sector, improved cost efficiency, strong asset quality, and a strong capital position. Meanwhile pressure on net interest margins – a measure of the difference between interest charged to borrowers and interest paid to depositors – and subdued non-interest income took away some of the sheen.

Morningstar equity analyst David Ellis described the result as broadly in line with expectations, and has retained his $5 fair value estimate.

"Full-year profit was 4.5 per cent below our forecast for fiscal 2018 of $33 million, hampered by lower-than-expected net interest margins and rising funding costs, but our outlook for earnings growth is broadly intact based on moderating loan growth, stable net interest margins, improving cost-efficiency, and very low bad debts.

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High loan growth relative to the sector overall was a significant contributor to the result

"Our fair value estimate implies a fiscal 2019 price to earnings ratio of 13.9 times, an attractive fully franked dividend yield of 5.8 per cent, or 8.3 per cent on a grossed-up basis," Ellis says.

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MyState delivered home loan book growth of 7 per cent, 1.2 times system growth - growth over the entire banking system. Increases of 21.4 per cent, 15.6 per cent and 14.1 per cent across New South Wales, Victoria and Queensland, respectively, was achieved by utilising the services of mortgage brokers. Around 70 per cent of the bank's new settlements are sourced from brokers.

The bank's funding and liquidity levels remain sound, backed by a strong retail deposit base, with total deposits growing 9 per cent on the previous corresponding period. The funding mix has been relatively stable over the past few years. As at June 2018, retail deposits represented 68 per cent of total funding, wholesale 23.8 per cent, and securitisation 8.2 per cent.

The wealth management segment performed well for fiscal 2018, with net profit growing an impressive 20 per cent to $4.6 million. Funds under management and funds under advice increased – 6 per cent on fiscal 2017. However, while the wealth business helps diversify MyState's revenue base, it doesn't account for major contributor for the overall business.

The cost to income ratio continues to decrease, down 1.9 per cent on fiscal 2017.

Increased productivity and cost efficiency were achieved from investment in online platforms which offers customers personal loan, transaction account and term deposit products as the bank continues position itself as a "modern customer-centric bank".

This year, MyState launched a range of online savings and transactions accounts during the year, including an Everyday and eSaver Account, leading to growth in bank accounts opened online. Customer deposits increased to $3.3 billion.

On ongoing regulatory concerns, Morningstar believes MyState is well positioned to meet the Australian Prudential Regulation Authority's “unquestionably strong" benchmark required by January 2020.

"The capital structure and solid balance sheet provide comfort that the bank can manage a potential increase in mortgage loan losses," Ellis says.

Looking ahead, MyState managing direct Melos Sulicich says he expects the banking business to record above-system loan book growth as the group continues to focus on increasing scale and becoming a more sophisticated digital bank. He also expects further growth in the bank's wealth management division.

The MyState Board declared a final dividend (second half) of 14.5 cents per share, fully franked, which brings total dividend for fiscal 2018 to 28.75 cents per share.

 

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Emma Rapaport is a reporter for Morningstar Australia

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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