ANZ: Q3 Result 2014

ANZ’s share price fell slightly after recently announcing its unaudited results for the nine months to 30 June (ANZ has a 30 September year end). Growth slowed to 8% for a cash profit of $5.2bn, compared to growth of 11% at the half-year. Excluding currency movements growth was only 6%.

The result was consistent with those of rival Commonwealth Bank (see Commonwealth Bank: Result 2014 from 13 Aug 14 (Hold – $81.05)) and several retailers, reflecting a lethargic economy that might slow further over the next couple of years as Australia’s massive resources and energy developments are completed. Bank chiefs, including ANZ’s Mike Smith, are cautiously optimistic that the Australian economy will improve after the soft period around the federal budget announcement.

Smith still expects ANZ to meet its full year forecasts but it will be skewed toward lower quality measures, such as lower expenses and bad debts rather than higher revenue. ‘ANZ has continued to perform well with strong results in Asia and consistent performances in both New Zealand and Australia despite parts of the Australian economy being a little slower than expected.’ We’d guess Queensland and Western Australia were the main offenders due to their reliance on the slowing resources sector.

It remains business as usual for ANZ but we still prefer Commonwealth Bank and Westpac due to their competitive advantages at home and minimal exposure to markets abroad that don’t offer Australian shareholders much diversification and are more competitive and less profitable. ANZ’s share price has fallen slightly since Big banks results round-up from 19 May 14 (SELL – $32.94) and we’re sticking with SELL.

Our maximum recommended portfolio limit for the banking sector is 20%, although conservative investors might consider a limit of less than 10% at current valuations, particularly if you have other large exposures to residential property.