Big Moves on Earnings | ANZ to a BUY

20 February 2021

Global markets pulled back overnight (S&P 500 index -0.4%) after their recent record run, as global equities have taken on a more cautious tone, given the rise in global rates in the background.

Concern grows across markets that rising borrowing costs could sap a rally that’s driven equity values to historic highs. As we have mentioned previously, this is a risk we are watching, however until bond yields are closer to the 2% mark we do not think there is much to worry about.

Closer to home it’s been a busy time with local earnings season. While we touch on company announcements below, as always, we will release full updates in our weekly report.


It seems to be the case of another day, another cracking bank result with ANZ the latest to report strong numbers which saw its share price jump.

ANZ reported first-quarter cash profit from continuing operations of $1.8 billion. Adding to the momentum from the well-received results from Westpac earlier in the week. The massive beat vs expectations came from the write-back of the collective provision as well as strong revenue growth which was up 4% (ex markets). 1st quarter revenue growth surprised due to combination of 1) lower funding and deposit costs; and 2) higher institutional lending spreads due to COVID.
The major banks continue to outperform very low consensus expectations and investors remain under-invested in the banks. We upgrade ANZ to a BUY as we see further upside and the potential for either special dividends or share buybacks.


Australia & New Zealand Market Movers

The Australian market was flat yesterday (ASX 200 index +0.01%) as s positive jobs market report boosted market sentiment. The unemployment rate for January came in at 6.4%, which beat economists expectations for a 6.5% figure.

The reverberations of earnings season continued apace on Thursday. Treasury Wine Estates shares jumped 17.5% after brokers and investors digested the results and commentary delivered before the start of trade on the prior day.

Market heavyweights CSL and Fortescue produced good earnings reports which supported the market index.
CSL closed 2.8% after reporting a first half profit of $US1.8 billion – up 44% on the prior year. The company cited reasons including the performance of its vaccinations arm Seqirus for the strong result and announced an interim dividend of 88¢ a share, its highest on record.

The iron ore earnings bonanza rolled on. Fortescue Metals Group announced a record dividend of $1.47 per share off the back of a $US4.08 billion half year profit. Its shares closed up 1.9%.

Finally, Wesfarmers shares closed 0.6% higher as the group reported a half-year net profit of $1.39 billion, up from $1.2 billion a year ago, and declared an interim dividend of 88¢ a share, up from 75¢ a share. Kmart group was the standout while Bunnings had a great result but showed little operating leverage.

The New Zealand market dipped on Thursday (NZX 50 index -0.3%) as local earnings season continued.
Auckland airport reported its first ever loss and threw cold water on any expectations of an imminent recovery in travel. Chief executive Adrian Littlewood said the timing of any recovery remains uncertain given material quarantine-free, two-way Tasman travel during the remainder of the 2021 financial year remains to be seen. The airport reported a net underlying loss after tax of $10.5 million for the six months to Dec 31 compared to a $139.9m profit in the same period a year earlier. Its shares fell 1% to $6.90 as the result was more or less expected by the market, while Air New Zealand shares were also under pressure.

Casino operator SkyCity Entertainment is another firm that took the covid lockdowns on the chin. Its net profit for the six months to December 2020 was down 76.1% after tax for the six months to December 2020, to $78.4 million from $328m. Given the circumstances SKC is doing all it can in terms of controllable factors, and the share were higher on the announcement.


3 Things Markets will be Watching this Week

  1. ​​​​​​​​​​Local COVID news-flow – a reminder that COVID news is still relevant on both sides of the Tasman, with both Victoria and Auckland entering fresh lockdowns. 
  2. The week ahead is dominated by corporate earnings. In NZ & Aussie. Contact Energy, Fletcher Building, EBOS, SkyCity and Auckland Airport are all scheduled to report. In Australia, key results include BHP, Treasury Wine, Rio Tinto, Wesfarmers, Fortescue, CSL, Crown, Woodside, and QBE. In addition, NAB hands in its quarterly report on Tues, with Westpac on Wed, and ANZ on Thu. 
  3. In Australia, the latest employment data is due along with retail sales and minutes from last month’s RBA meeting. 


It’s been a busy time with local earnings season. While we touch on company announcements below, as always, we will release full updates in our weekly report.

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