ANZ's first quarter trading update was an overall good result with a continued focus on reducing costs and also aided by a marginally better credit environment, Regal senior analyst Omkar Joshi says.
Here are the main points Joshi identifies:
- Cash earnings for the quarter were $2bn which was c20% above consensus expectations. This large beat was driven by stronger trading income, significantly lower provision charges and the sale of 100 Queen Street. Excluding these benefits, the result was only slightly ahead of expectations.
- ANZ continued to exhibit good cost control, with costs declining 1% on an adjusted proforma basis. A decline in the absolute level of costs is quite a significant change on previous years and is positive to see.
- Bad debts were 40% better than consensus expectations, however the bad debt charge in the first quarter is usually a bit lower than other quarters (c19% of the full year charge). ANZ has mentioned that the credit environment is "marginally better" than expected at the time of its 2016 full year result.
- Pleasingly, the run-down of risk weighted assets in the institutional business has continued with risk weighted assets in institutional declining by $0.9bn for the quarter.
- The net interest margin declined by several basis points in the quarter which was slightly weaker than consensus expectations.
ANZ shares are up 1.8 per cent at $30.76, providing the biggest boost to the benchmark index. Despite the rally, the stock is still down about $1 from recent highs early this year.
Shares have opened flat despite a strong rise in ANZ, as investors digest a busy week of earnings reports and strong gains over the past days.
The ASX is down less than 0.1 per cent at 5811.6, following a lacklustre session on Wall Street overnight.
A soft lead from US markets and slightly weaker base metals prices suggest that the local market will take a wait and see attitude in early trade this morning, said CMCchief market analyst Ric Spooner. "While bank results have been solid, Telstra's declining margins have concerned investors and selling may have further to run, weighing on the ASX 200 today."
Investors are giving ANZ's result the thumbs up, adding 1.5 per cent to the stock, which is buoying other banks too. CBA has added 0.5 per cent, Westpac is up 0.15 per cent, while NAB is bucking the trend, down 0.2 per cent.
Leading the loss-making among the market's heavyweights is BHP, down 1.15 per cent, followed by a 1.1 per cent drop in CSL.
Telstra is down another 0.5 per cent, following yesterday's 6 per cent slide in the wake of its earnings shocker.
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Traders are asking whether the recent push higher in global sharemarkets is close to exhaustion, but few want to stand in front of this bull, writes IG analyst Gary Burton:
The S&P 500 is already hitting most analysts full year predictions, but the index finished flat overnight. There would be a build up of those willing to stand in front of this freight train bull market, with short positions trying to pick the top, without any evidence of real market weakness. They are brave souls in this new world order of reinflation.
With legendary investors Warren Buffett and Charlie Monger increasing their positions in American Airlines and Apple, a position that has reportedly already made a billion dollar profit, this bullish stage of the markets may be just be getting underway.
Our market is now higher 7 out of 8 trading days and testing resistance at 5830 this may the point of inflection for traders as the resistance of 6000 points is tantalisingly close. Continued upbeat reporting may just allow the market to retest level in the near future.
And here's how major markets performed overnight:
- SPI futures down 1 point to 5763
- AUD -0.2% to 76.95 US cents (overnight range 0.7685 - 0.7732)
- On Wall St, Dow flat, S&P 500 -0.1%, Nasdaq -0.1%
- In New York, BHP +0.6%; Rio +0.4%
- In Europe, Stoxx 50 -0.4%, FTSE -0.3%, CAC -0.5%, DAX -0.3%
- Spot gold +0.4% to $US1238.60 an ounce
- Brent crude -0.6% to $US55.44 a barrel
- Iron ore down -1.1% to $US90.06 a tonne
- Steam coal +0.0% to $US80.00, Met coal -1.2% to $US160.00
- LME aluminium -0.8% to $US1897 a tonne
- LME copper -1.1% to $US6000 a tonne
- 10-year bond yield: US 2.44%; Germany 0.34%, Australia 2.79%
Whitehaven Coal has kept its dividend powder dry on the day it revealed half year profits were 20 times higher at $157.5 million.
A dramatic rebound in coal prices and the ramp-up of the new Maules Creek ensured the result was always going to be a big improvement on the $7.8 million net profit for the same period of last year.
The result was slightly below some analyst projections, but roughly in line with others.
Analysts expect Whitehaven to make more money in its second half thanks to the lagged effect of coal prices. Very few expected Whitehaven to pay an interim dividend, and those cautious expectations proved accurate.
The company reduced its debt from $835 million to $655 million since the comparable period of last year, and many believe the company will resume dividend payments in August.
A few more earnings reports: Santos has reported a 29 per cent rise in annual underlying profit, beating analysts' forecasts, and says it is in a good position to be able to resume paying a dividend this year as it has cut costs and reduced debt.
Underlying profit for 2016 rose to $US63 million from $US49 million a year earlier. Analysts had expected underlying profit of $US46 million.
Santos, whose top shareholder is private Chinese firm ENN Group, paid no dividend, as expected. It suspended its dividend last August to focus on paying down a massive debt load taken on for the $US18.5 billion GLNG project.
Net debt stood at $US3.49 billion at the end of the year, down from $US4.5 billion six months earlier, helped by a surprise share sale in December which raised $1.5 billion
Stronger investment returns helped Medibank Private overcome continued pressure on health premiums and eke out a small rise in profits, even though it suffered from push back from some policyholders as it bedded down a new information technology (IT) system.
In the December half, the company reported a 1.9 per cent rise in net profit to $231.9 million.
Medibank had warned of challenging trading conditions at its annual general meeting of shareholders last year.
While health insurance premium revenue rose 1.2 per cent to $3.1 billion, industry-wide volumes continued to slow, it said, "which is indicative of the challenging conditions currently being experienced".
"However, underperformance relative to the market in both customer acquisition and lapse impacted growth," it said. "Medibank brand volumes were down with customer experience negatively impacted by issues associated with the embedding of the new IT system."
Net investment income rose to $76.8 million from $18.6 million, thanks to higher sharemarket returns and stronger credit markets, which helped to offset the lower cash rate, it said.
The interim dividend was raised to 5.25c from 5c as earnings a share rose to 8.4c from 8.3c.
As the new IT system was bedded down, the number of policyholder complaints has declined, it said, but it remains the subject of internal focus.
For the full-year to June, the operating profit forecast has been held at $490 million, as forecast earlier, which was based on a flat performance of its health insurance operations.
In the half, claims expense rose 1.5 per cent, outpacing the 1.2 per cent rise in premium income which, with higher management expenses squeezed the operating profit for the half, which fell 8.2 per cent ot $249.4 million.
This left the gross margin for the half at 16.9 per cent, down from 17.2 per cent a year earlier, with the operating margin falling to 8 per cent from 8.8 per cent.
Quickly turning to the overnight action, and most US stocks fell after the longest rally in three years, Treasuries rose for the first time in six days and the dollar weakened as the torrid advance in riskier assets eased with investors awaiting details on the Trump administration's pro-growth policy promises.
The Dow Jones Industrial Average scored its sixth straight record high on Thursday, but just barely, while the S&P 500 edged lower due to declining energy stocks.
It was a mixed day on wall Street as investors digested recent gains and sold banks that have been big winners in the "Trump rally" that has seen the S&P 500 rise about 5 per cent so far in 2017, with the Dow Jones up 4 per cent.
Stock market hits new high with longest winning streak in decades. Great level of confidence and optimism - even before tax plan rollout!
— Donald J. Trump (@realDonaldTrump) February 16, 2017
Signs of an improving economy and promises by President Donald Trump to cut corporate taxes and reduce financial regulations have been behind much of the recent gains. Now, with a strong fourth-quarter earnings season mostly complete, many investors say they need concrete signs of progress from Trump to justify more gains.
"Some of the excitement and enthusiasm over earnings and those Trump growth initiatives is starting to shift to more practical, day-to-day events," said Jeff Kravetz, a Phoenix-based regional investment director of the Private Client Reserve at US Bank.
The energy sector declined 1.4 per cent, following oil prices lower as traders weighed swelling US inventories against possible renewed efforts by major oil producers to reduce a price-sapping glut.
"Following the sharp rally we've seen in cyclical shares since early November, investors are now getting reluctant to just buy whole sectors, and are starting to pick the best stocks within the sectors," Stephane Ekolo, chief European strategist at Market Securities in London.
Signs the gains have come too far too fast have emerged, with the relative strength index of the MSCI's broadest global equity gauge signalling to some traders a correction is now due, while odds for a US rate hike in March are on the rise.
And we are off and running already: ANZ Banking Group has signalled its charges for bad debts are on track to be lower than previously thought, after a stronger first quarter in which cash profits rose to $2 billion.
In a trading update, ANZ said its cash profit rose 31 per cent to $2 billion, after the same quarter last year experienced heavy write-downs. Excluding one-off items, it said earnings were still up 20 per cent year-on-year.
The result showed revenue was up 7 per cent, while its expenses fell 4 per cent, after its management focused on shedding costs and less profitable businesses.
After the quarter and the first six weeks of this year, chief executive Shayne Elliott said the bank was now "a little more positive" on its its outlook for bad debt costs.
"It is still too early to be definitive about the year as a whole, however, the first quarter, together with our experience during the first six weeks of the second quarter, suggests the credit environment is marginally better than we expected at the time of our 2016 full-year result, which was for the provision charge in 2017 to remain broadly the same as a percentage of gross lending assets," he said in a statement.
Good morning and welcome to the Markets Live blog for Friday.
Your editors today are Jens Meyer and Patrick Commins.
This blog is not intended as investment advice.
Fairfax Media with wires.
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