Australian Banks ADRs

Published Tue, 26 Jan 2016 23:00 CET by

Investors often narrow their investment decisions in the domestic stock markets, thereby missing some remarkable opportunities in the foreign markets. Although for novice investors it may seem like a daunting task to put money into an unknown area, savvy investors know that the foreign markets have hidden gems that can be discovered through ADRs. The American Depositary Receipts allow you to access foreign companies that trade on the Nasdaq or the NYSE and purchase their shares in U.S. currency. ADRs trade in the OTC markets like regular stocks and pay dividends.

This article discusses two of the largest Australian Banks that trade in the OTC market. Their average payout ratio is 80% at an average yield of 7.0%. Although the ADRs have underperformed the market, both banks have delivered strong FY 2015, anticipating the volatility in the financial markets, and are consistently delivering shareholder value.

ANZ Banking Group and Commonwealth Bank of Aus YoY Stock Performance Graph
Australia & New Zealand Banking Group (OTC: ANZBY) is a Melbourne-based bank that provides banking and financial products and services to retail, commercial, corporate and institutional clients in Australia, New Zealand, the Asia-Pacific region, the United States, Europe and the Middle East. Through its subsidiaries, Australia & New Zealand Banking Group offers risk management services, corporate advisory services, debt structuring and acquisition finance, investment products and a range of retail and corporate products.

FY 2015 Results (in AUD): In Fiscal Year 2015, the Australia division has delivered strong results based on market share gains in key segments, while the New Zealand Division also grew based on cost efficiency plan. The Group’s International and Institutional Banking (IIB) segment was down reflecting the global volatile conditions. More specifically, the Group reported net interest income $14.6 billion, up 5.8% YoY from $13.8 billion in FY 2014. Operating expenses were up 6.8% YoY to $9.4 billion from $8.8 billion, whereas operating income was up 5.1% YoY to $21.1 billion from $21.1 billion in the same period last year. Net income reached $7.5 billion, up 3.1% from $7.3 billion in FY 2014.

Dividend Strength (in AUD): Australia & New Zealand Banking Group continues to evolve its core strategy to maximize shareholder value. The Group delivers an annualized dividend of $1.36 per share, yielding 8.24% at a payout ratio of 76% and has raised a total of $4.4 billion of new equity in 2015. This includes $3.2 billion in response to APRA’s increased capital requirement for Australian residential mortgages which applies from July 2016. The Group’s DPS growth between 1995-2015 is 524%, from $0.108 per share to $0.674 per share.

Future Outlook: In a constrained and highly volatile environment Australia & New Zealand Banking Group continues to retain significant capital management flexibility. Despite the disappointing quarter in the Global Markets segment, the Group is expected to continue seeking growth opportunities internationally and adjust regulatory capital requirements, where needed. The global banking environment is facing macro headwinds and this is no exception for the Australia & New Zealand Banking Group. Yet, the Group is expected to grow market share in the key segments such as home loans and credit cards.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Australia & New Zealand Banking 16.48 15.81 29.28 4.24% -43.72% 47.46 9.24 0.73 1.18 76%
Commonwealth Bank of Australia 54.40 48.88 75.57 11.29% -28.01% 88.29 14.46 3.68 1.17 83%

Commonwealth Bank of Australia (OTC: CMWAY) is a Sydney-headquartered bank that provides banking and financial products and services both in Australia and internationally to retail, commercial, corporate and institutional clients. Commonwealth Bank of Australia offers financial planning services, business banking products, risk management products, equity products and a range of banking services. The Bank’s current network includes 1,100 branches, 3,700 Australia post agencies, 4,300 ATMs, and 200,000 electronic funds transfer at point of sale (EFTPOS) terminals.

FY 2015 Results (in AUD): The Bank’s full year 2015 results have been overshadowed by $5 billion equity capital raising to anticipate the APRA’s announcement to increase the average risk weights for residential mortgages to 25%. However, the Bank reported strong FY 2015, which compared to FY 2014 are as follows:

  • Net interest income reached $15.8 billion, up 4.6% from $15.8 billion
  • Operating expenses up 5.3% to $10 billion from $9.5 billion
  • Operating income up 5.4% to $23.6 billion from $22.4 billion
  • Net Income reached $9.1 billion, up 5% from $8.6 billion
  • Annualized DPS $3.12, yielding 5.74% at a payout ratio of 83%
  • DPS growth 16.1% for the period 2011 – 2015 (from $1.34 to $1.561)

Future Outlook: The Commonwealth Bank has been a leading financial institution in terms of return on equity over the past decade. However, given the volatile global environment and the headwinds that all banks around the globe are facing, it is expected that it might be difficult for the Bank to achieve the same ROE. On the other hand, the Commonwealth Bank has demonstrated a remarkable technology and efficiency, which both are expected to help the Bank improve its profitability and achieve the target growth.

Stock name Dividend Yield
Anz Banking 5.67
Commonwealth Bank Aus 3.49
Australia & New Zealand Banking Group 0.00
Commonwealth Bank Of Australia 0.00