ANZ defers dividend, is the share price a buy?

Companies and indices mentioned:

ANZ (ASX: ANZ) has reported its FY20 half year result and deferred the dividend, is the share price a buy?

What is ANZ?

ANZ is a leading Australian and New Zealand banking institution, with a presence throughout the oceanic region. ANZ is one of the Big Four Aussie banks and derives much of its revenue from mortgages, personal loans and credit.

Here’s what ANZ reported

ANZ reported that its statutory profit after tax fell by 51% to $1.5 billion. Continuing cash profit dropped by 60% to $1.4 billion. Cash earnings per share fell by 60% to 50 cents per share.

The decline of profit was largely driven by credit impairment charges of $1.67 billion that included increased credit provisions for the impact of COVID-19 of $1.03 billion. The valuation of its investments in its Asian associates was impaired by $815 million, mostly due to the COVID-19 impacts.

However, even without credit impairments, tax and other large notable items, profit still fell by 3%.

ANZ’s number of full time equivalent staff decreased by another 1% to 38,939 people.

In terms of working staff, apart from branch workers, 95% of people are working from home.

ANZ balance sheet and dividend

ANZ revealed that its total credit impairment charge as a percentage of average gross loans and advances (GLA) increased by 0.40% (40 basis points) to 0.53%. Total GLA rose 8% to $661.3 billion. Customer deposits also increased by 15% to $566.5 billion.

Its common equity tier 1 (CET1) ratio decreased from 11.5% to 10.8%.

ANZ’s Board is deferring a decision on the 2020 interim dividend until there is greater clarity about the economic impact of COVID-19. The bank took the APRA recommendation that financial institutions should defer the decision until the outlook is clearer.

ANZ Chairman David Gonski said: “This decision is not about our current financial position and ANZ has not received any concerns from APRA regarding our level of capital. The Board agrees with the regulator’s guidance that deferring a decision on the 2020 interim dividend is prudent given the present economic uncertainty and that making a decision at this time would not have been appropriate.

This was a very difficult decision and the Board considered all options available as we understand the impact this will have on those shareholders who rely on dividends.”

Is the ANZ share price a buy?

ANZ CEO Shayne Elliot acknowledged that the next few months will be difficult due to the COVID-19 impacts. It’s too early to tell how deep the pain will be, or how long it will go for.

Mr Elliot also said:”This was a reasonable result given the tough trading conditions being experienced before the crisis hit.”

There was no capital raising announcing, which is good. Diluting shareholders with a capital raising and paying a dividend seemed like a strange decision on paper by NAB (ASX: NAB).

The ANZ share price is certainly a lot lower. But it’s too early to tell if it’s a lot cheaper. A lot of loans could go up in smoke. Or maybe they won’t. I don’t like to make those types of investment guesses. I’d rather invest in one of these leading technology shares:

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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

Jaz Harrison

Jaz Harrison

Jaz is a keen investor who loves to thoroughly poke holes in an investment idea before it has a chance of making it into her portfolio. Jaz invests for the long-term and doesn't sweat the small stuff. She strongly believes that empowering people with knowledge is the best way for them to take charge of their finances, which is exactly the approach she takes with her own money and investments.