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Australia and New Zealand Banking Group

ASX:ANZ
Snowflake Description

Flawless balance sheet 6 star dividend payer.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
ANZ
ASX
$87B
Market Cap
Diversified Banks
Company description

Australia and New Zealand Banking Group Limited, together with its subsidiaries, provides various banking and financial products and services to retail, high net worth, small business, corporate, commercial, and institutional customers. More info.


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Value

 Is Australia and New Zealand Banking Group undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Australia and New Zealand Banking Group to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

Dividends have been used for this discounted cash flow calculation, why is this?

  • The current share price of Australia and New Zealand Banking Group is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Australia and New Zealand Banking Group's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Australia and New Zealand Banking Group's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Overvalued based on earnings compared to the Banks industry average.
  • Good value based on earnings compared to the overall market.
Price based on expected Growth
Does Australia and New Zealand Banking Group's expected growth come at a high price?
  • Poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Australia and New Zealand Banking Group's assets?
  • Good value based on assets compared to the Banks industry average.
X
Value checks
We assess Australia and New Zealand Banking Group's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Banks industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Banks industry average (and greater than 0)? (1 check)
  5. Australia and New Zealand Banking Group has a total score of 2/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (13.71%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Dividend Discount Model)

The calculations below outline how an intrinsic value for Australia and New Zealand Banking Group is arrived at by discounting future dividends to their present value. This approach is used for finance firms where free cash flow is difficult to estimate (e.g. Banks/ Insurance firms).

If the firm does not pay the majority of its earnings out as a dividend this method will often arrive at a value significantly lower than the share price.

See our documentation to learn about this calculation.



Value of the stock

Value = Expected dividends per share / (Discount Rate - Perpetual growth rate)
$21.48 = ($1.61 / (10.08% - 2.6%)

Value per share:
$21.48

Current discount (share price of $30.01): -40%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.08% = 2.6% + (1.011 * 7.4%)



Estimate of Bottom Up Beta

The Levered is used in the case of financial firms, but it is not adjusted for financial leverage like with non-finance firms. Therefore the average levered beta from comparable firms is used as the bottom-up beta. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Average Levered Beta from peers = 1.011

Levered Beta used in calculation = 1.011



Assumptions
  1. The risk free rate of 2.6% is from the 10 year government bond rate in AU.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Australia and New Zealand Banking Group expected to perform in the next 1 to 3 years based on estimates from 11 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    14%
    Expected earnings growth over 1 year.
    Future Earnings growth analysis
    Is Australia and New Zealand Banking Group expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Australia and New Zealand Banking Group's annual earnings growth expected to exceed 3.9% over the next 3 years?

    • After 1 year
    • + 3 year earnings data not available.
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow data unavailable.
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Australia and New Zealand Banking Group is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.

    Improvement & Relative to industry
    • Expected to be less than the Banks industry average.
    • An improvement in Australia and New Zealand Banking Group's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Australia and New Zealand Banking Group's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Australia and New Zealand Banking Group has a total score of 1/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Australia and New Zealand Banking Group performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Australia and New Zealand Banking Group's growth in the last year to its industry (Banks).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Australia and New Zealand Banking Group's earnings growth has not matched the industry average in the past year.
    • Australia and New Zealand Banking Group's 1 year earnings growth is negative.
    • Australia and New Zealand Banking Group earnings have fallen over the past 5 years.
    Profit History
    Australia and New Zealand Banking Group's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Poor return on shareholders funds (ROE) last year.
    • Australia and New Zealand Banking Group performed worse than the Banks industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) has been diminishing over 3 years.
    X
    Past performance checks
    We assess Australia and New Zealand Banking Group's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Banks industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Australia and New Zealand Banking Group has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Australia and New Zealand Banking Group's financial position? (This company is analysed differently as a bank or financial institution)

    This company is a bank or financial institution.

    Fundamentally a bank's business is based upon borrowing and lending money, for this reason they typically have high levels of debt and we analyse them differently.
    Net Worth
        Balance sheet
        This treemap shows a more detailed breakdown of Australia and New Zealand Banking Group's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
        Assets
        Liabilities and shares
        The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
            Historical Debt
            Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

            The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

            If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
                    BANK ANALYSIS

                    This company is a bank or financial institution, which is analysed accordingly below.

                    Below we check the amount of loans the bank has, how many of those are bad, and its ability to cover any bad loans.
                    • Acceptable proportion of non-loan assets held.
                    • Liabilities are made up of primarily low risk sources of funding.
                    • Loans are broadly funded by customer deposits.
                    • The banks level of assets compared to its equity is moderate (i.e. an appropriate level of borrowing to fund lending).
                    • High level of bad loan coverage.
                    • Acceptable level of bad loan write offs (less than 2%).
                    X
                    Financial health checks (Bank)
                    We assess Australia and New Zealand Banking Group's financial health as a bank by checking for:
                    1. Leverage (Assets to Equity > 20x)? (1 check)
                    2. Coverage of bad loans (Bad Loan Coverage > 100%)? (1 check)
                    3. Proportion of lower risk deposits compared to total funding (Deposits to Liabilities < 50%)? (1 check)
                    4. Proportion of higher risk assets compared to total assets (Loans to Assets > 110%)? (1 check)
                    5. Total loans compared to deposit funding (Loans to Deposits > 125%)? (1 check)
                    6. Level of bad loans (Net Charge Off Ratio > 3%)? (1 check)
                    7. Australia and New Zealand Banking Group has a total score of 6/6, see the detailed checks below.


                    Full details on the Health part of the Simply Wall St company analysis model.

                    Dividends

                     What is Australia and New Zealand Banking Group's current dividend yield, its reliability and sustainability?

                    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
                    Annual Dividend Income
                    Dividend payments
                    5.45%
                    Current annual income from Australia and New Zealand Banking Group dividends. Estimated to be 5.41% next year.
                    If you bought $2,000 of Australia and New Zealand Banking Group shares you are expected to receive $109 in your first year as a dividend.
                    Dividend Amount
                    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
                    • Paying above low risk savings rate. (3%)
                    • Paying above the markets top dividend payers. (4.92%)
                    Historical dividend yield
                    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

                    We also check to see if the dividend has increased in the past 10 years.
                    • Dividends per share have been stable in the past 10 years.
                    • Dividends per share have increased over the past 10 years.
                    Current Payout to shareholders
                    What portion of Australia and New Zealand Banking Group's earnings are paid to the shareholders as a dividend.
                    • Dividends paid are covered by net profit (1.4x coverage).
                    Future Payout to shareholders
                    • Dividends after 3 years are expected to be covered by net profit (1.4x coverage).
                    X
                    Income/ dividend checks
                    We assess Australia and New Zealand Banking Group's dividend by checking for:
                    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
                    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
                    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
                    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
                    5. How sustainable is the dividend, can Australia and New Zealand Banking Group afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
                    6. Australia and New Zealand Banking Group has a total score of 6/6, see the detailed checks below.


                    Full details on the Dividends part of the Simply Wall St company analysis model.

                    Management

                     What is the CEO of Australia and New Zealand Banking Group's salary, the management and board of directors tenure and is there insider trading?

                    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
                    CEO
                    Shayne Elliott, image provided by Google.
                    Shayne Elliott
                    COMPENSATION$5,069,657
                    AGE53
                    CEO Bio

                    Mr. Shayne Cary Elliott, B.Com Elliott has been the Chief Executive Officer and Executive Director at Australia & New Zealand Banking Group Limited since January 1, 2016 and serves as its Member of Management Board. He has experience integrating acquisitions, having been a member of Corporate Planning team in Citibank's New York headquarters at the time of the merger between Citibank and Traveler's that created Citigroup. Mr. Elliott served as the Chief Financial Officer at Australia & New Zealand Banking Group Limited from June 1, 2012 to December 31, 2015. He was responsible for all aspects of Finance as well as Legal, Treasury and Investor Relations. He served as the Chief Executive Officer of Institutional at Australia & New Zealand Banking Group Limited from June 1, 2009 to 2012. He served as Chief Operating Officer of EFG-hermes Holding SAE since March 15, 2006. Mr. Elliott served as Regional Chief Executive Officer of Citigroup Global Transaction Services (GTS) Asia Pacific. He served as Chief Operating Officer of EFG Hermes Holding Company S.A.E. since March 15, 2006. He served as Citigroup Senior Credit Officer (SCO). He joined EFG-Hermes with some experience in the Middle East, having previously served as the Country Corporate Officer, Head of Business Development and Head at Citibank Corporate Bank in Egypt from 1998 to 2000. He transferred to Australia as Chief Executive Officer of the Citibank Corporate Bank. Mr. Elliott has been a Non Executive Director of ANZ Bank New Zealand Limited (known as ANZ Banking Group (New Zealand) Limited) since August 11, 2009. He served as a Non Independent & Non Executive Director of AMMB Holdings Berhad from June 18, 2013 to October 15, 2015. He served as a Director at Australia & New Zealand Banking Group Limited. Mr. Elliott holds a Bachelor of Commerce Management Studies and Finance from University of Auckland.

                    CEO Compensation
                    • CEO's compensation has been consistent with company performance over the past year.
                    • CEO's compensation appears reasonable.
                    Management Team Tenure

                    Average tenure of the Australia and New Zealand Banking Group management team:

                    Management tenure
                    5.4 years
                    • The average tenure for the Australia and New Zealand Banking Group management team is over 5 years, this suggests they are a seasoned and experienced team.
                    Management Team

                    Shayne Elliott

                    TITLE
                    Chief Executive Officer
                    COMPENSATION
                    $5,069,657
                    AGE
                    53

                    Michelle Jablko

                    TITLE
                    Chief Financial Officer
                    COMPENSATION
                    $536,922
                    AGE
                    44

                    Graham Hodges

                    TITLE
                    Deputy Chief Executive Officer & Member of Management Board
                    COMPENSATION
                    $2,871,546
                    AGE
                    62

                    David Hisco

                    TITLE
                    Group Executive of Asia Wealth
                    COMPENSATION
                    $4,066,521
                    AGE
                    53

                    Nigel Williams

                    TITLE
                    Chief Risk Officer and Member of Management Board
                    COMPENSATION
                    $3,780,695
                    AGE
                    55

                    Mark Whelan

                    TITLE
                    Group Executive of Institutional
                    COMPENSATION
                    $3,372,661
                    AGE
                    57
                    Board of Directors Tenure

                    Average tenure of the Australia and New Zealand Banking Group board of directors:

                    Board tenure
                    5 years
                    • The tenure for the Australia and New Zealand Banking Group board of directors is about average.
                    Board of Directors

                    David Gonski

                    TITLE
                    Chairman
                    COMPENSATION
                    $825,000
                    AGE
                    63

                    Shayne Elliott

                    TITLE
                    Chief Executive Officer
                    COMPENSATION
                    $5,069,657
                    AGE
                    53

                    Hsien Yang Lee

                    TITLE
                    Independent Non-Executive Director
                    COMPENSATION
                    $335,000
                    AGE
                    59

                    Paula Dwyer

                    TITLE
                    Independent Non-Executive Director
                    COMPENSATION
                    $365,000
                    AGE
                    56

                    Graeme Liebelt

                    TITLE
                    Independent Non-Executive Director
                    COMPENSATION
                    $358,000
                    AGE
                    63

                    Ilana Atlas

                    TITLE
                    Independent Non-Executive Director
                    COMPENSATION
                    $316,500
                    AGE
                    62
                    Recent Insider Trading
                    • More shares have been bought than sold by Australia and New Zealand Banking Group insiders in the past 3 months.
                    Who owns this company?
                    X
                    Management checks
                    We assess Australia and New Zealand Banking Group's management by checking for:
                    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
                    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
                    3. Is the average tenure of the management team less than 2 years? (1 check)
                    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
                    5. Australia and New Zealand Banking Group has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


                    Note: We use the top 6 management executives and board members in our calculations.

                    Note 2: Insider trading include any internal stakeholders and these transactions.

                    Full details on the Management part of the Simply Wall St company analysis model.

                    Company News

                    Company Info

                    Description

                    Australia and New Zealand Banking Group Limited, together with its subsidiaries, provides various banking and financial products and services to retail, high net worth, small business, corporate, commercial, and institutional customers. The company’s Australia division provides retail products and services to consumer and private banking customers in Australia through the branch network, mortgage specialists, the contact center, and various self-service channels, such as Internet banking, phone banking, ATMs, Website, and digital banking; and corporate and commercial banking services comprising asset financing through dedicated managers focusing on privately owned small, medium, and large enterprises, as well as the agricultural business segment. Its Institutional division provides working capital and liquidity solutions, including documentary trade, supply chain financing, cash management solutions, deposits, payments, and clearing; specialized loan structuring and execution, loan syndication, project and export finance, debt structuring and acquisition finance, structured asset finance, structured trade finance, and corporate advisory services; and risk management services on foreign exchange, interest rates, credit, commodities, debt capital markets, and wealth solutions. The company's New Zealand division offers retail and commercial banking and wealth management services to consumer, private banking, and small business customers. Its Wealth Australia division offers life, general, and mortgage insurance; and fund management services. The company's Asia Retail & Pacific division offers general banking and wealth management services; and products and services to retail customers, small to medium-sized enterprises, institutional customers, and governments. It operates in Australia, New Zealand, the Asia Pacific region, France, Germany, and the United States. The company was founded in 1835 and is headquartered in Melbourne, Australia.

                    Details
                    Name:Australia and New Zealand Banking Group Limited
                    Ticker:ANZ
                    Exchange:ASX
                    Founded:1835
                    Market Cap:$87,296 million
                    Website:http://www.anz.com
                    Listings
                    Map

                    ANZ Centre Melbourne, Melbourne, 3008, Australia

                    Number of employees
                    Street

                    Current staff
                    Staff numbers
                    46,554
                    Australia and New Zealand Banking Group employees.
                    Industry
                    Industry:Diversified Banks
                    Sector:Banks