Australia and New Zealand Banking Group (ASX: ANZ) expects difficult trading conditions for the foreseeable future

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ASX:ANZ

The Australia and New Zealand Banking Group (ASX:ANZ) share price has gained 4 cents to $26.88 after the big four bank reported first half cash profit increased 4.1 per cent to $3.493 billion, a result that was slightly above expectations.

ANZ Chief Executive Officer Shayne Elliott said: “This result demonstrates our strategy to build a better balanced, better capitalised and simpler bank is delivering results for customers and shareholders despite continued headwinds for the sector.”

ANZ is aiming to create a simpler and more agile bank, focusing on owner-occupied home lending and small businesses.

The bank maintained its fully franked interim dividend at 80 cents per share, reflecting a payout ratio of 66 per cent of cash profit. This is at the top end of its target fully franked full year payout ratio of 60 to 65 per cent.

ANZ shares trade on a fully franked dividend yield of almost 6 per cent.

It is expected that ANZ’s external legal costs for the banking royal commission will be around $50 million for the 2018 financial year. This is a drop in the ocean compared to the company’s annual cash profits of around $7 billion.

Commenting on the banking royal commission, Mr Elliott said it will continue to have an impact on the sector. ANZ says it will learn from this inquiry and continue to take real action to restore trust within the community.

Difficult trading conditions to continue

Looking ahead, Mr Elliott said “We expect revenue growth for the second half of 2018 to continue to be constrained by intense competition as well as the impact of increased regulation.”

Mr Elliott says he expects historically high levels of household debt and low wage growth will offset some of the positive impact of recent strong employment data, meaning  consumers are likely to remain cautious.

“The difficult trading conditions we originally forecast in 2016 are expected to continue for the foreseeable future.”

The ANZ share price has fallen more than 18 per cent over the past 12 months. According to the AFR, a recent Macquarie Wealth Management report said the bank sector continues to trade at a discount to the market, and that they see relative value at current levels. 

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Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au