Australia proudly owns a refined financial sector that is acknowledged across the globe. Its strategically positioned as a prime financial hub in the world's swiftest growing region.
The sector remains resilient and has proven its strength after combatting the Great Financial Crisis of 2008-2009. The addition of the Royal Commission this year was a boon in addressing deficiencies surrounding governance, and while positive steps have already been taken by institutions and regulators, challenges are being tackled with time amid the fear of a recession in a slumped global economy.
Vulnerable to the business dynamics at a macro and micro level, publicly traded financial stocks have always interested investors and market enthusiasts in the country and beyond, as the financial sector remains to be one of the strongest in Australia.
After the close of the trade session on 8 November 2019, the S&P/ASX 200 Financials (Sector) quoted 6.256.6, up by 66.5 basis point, or 1.06%.
Let us now look at five stocks, trading on ASX, and understand the reasons that have kept them in the hot stocks list:
Stocks in Discussion
BOQ’s Disappointing Results but Good Progress in Foundational Investments
In FY19, for the period ended on 31 August 2019, Bank Of Queensland Limited’s (ASX: BOQ) cash earnings after tax was $320 million, down by 14% on pcp, and the Statutory NPAT was $298 million, down by 11%. Reporting the slump, BOQ’s Board still announced a final dividend of 31 cps (full year dividend being 65 cps), with the payout ratio being 82%, in sync with the interim dividend payout ratio.
A slowing credit demand, lower interest rates, increased regulatory costs and amendments impacting non-interest income were the drivers of the Bank’s disappointing result.
On the bright side and in line with the guidance provided at the 1H19 result, the Bank’s operating expenses zoomed by $23 million (4%) from FY18. Moreover, overall lending growth of 2% was achieved in FY19.
The Bank reported significant progress across a number of key foundational investments during the year and began works on development of a new mobile banking application, expected to launch in 2020. Lending process, regulatory projects and investment in the implementation of a new Virgin Money digital bank improved.
MD & CEO George Frazis believes that BOQ’s capital is well positioned and several opportunities await the Bank in 2020. The strategic and productivity review along with BOQ’s plans would be presented in February 2020.
Challenger Limited Demonstrates Resilience In Royal Commission Era
2019 has been a challenging year for the financial services industry. Amid significant disruption in the operating environment driven by the Royal Commission’s engagement into Misconduct in the Banking and Financial Services Industry, Challenger Limited (ASX: CGF) faced a difficult 2019 as:
- consumer confidence in financial advice reduced;
- several major business restructures occurred at large advice businesses.
- adviser educational standards increased;
- regulatory and compliance changes took place;
- large number of advisers left the industry;
As a result of the above, the industry sales in 2019 by CGF’s retail distribution partners were noticeably the lowest witnessed in the last 15 years.
However, despite these near-term headwinds, what should be noticed is that the Company did validate its flexibility and capital strength the Group assets under management soared by $627 million on pcp to $81.8 billion (as on 30 June 2019), and the normalised NPBT was slightly up to $548 million (in tune with January’s revised guidance), though the Statutory NPAT slumped by $15 million and stood at $308 million.
Moreover, CGF maintains a solid capital position, with $1.4 billion of additional regulatory capital (as at 30 June 2019), 53% over APRA’s minimum threshold.
The Board also declared a full-year dividend of 35.5 cps and expects to maintain the same in FY20, moving above the target payout ratio range of 45% and 50% of normalised NPAT.
CGF remains confident to sail through the current environment and deliver outcomes for clients and investors in the longer term.
CYBG PLC Now Serves Customers from A Single Authorised And Regulated Banking Entity
CYBG PLC (ASX: CYB) changed its name to Virgin Money UK PLC effective 30 October 2019, post a Board Meeting. The shares will trade under its new name and the LSE symbol will change to VMUK. The Group is in the process of registering its change of foreign company name with the ASIC and an ASX announcement would be released shortly along with the new trading code. The move is looked up as a significant milestone in the Group’s integration program.
The Group intimated that it has completed the Part VII banking business transfer process which means that CYB now serves its customers from a single authorised and regulated banking entity (effective 21 October 2019). The integration of CYB’s customer propositions would:
- enable CYB to provide services and products from the combined business;
- begin the re-brand of the Group on a whole (incl. the re-launch of Virgin Money)
- allow the Group to advance with the platform integration events, supporting the delivery of its (targeted) cost savings;
The re-branding process will begin with the B digital banking service re-branded to Virgin Money by the end of 2019, post which customers will have a digitally enabled Virgin Money branded current account and linked savings product for the first time.
Moreover, in 2020, Virgin Money for Business will be unveiled with an enhanced customer proposition, an improved personal current account relationship proposition will be launched and the re-branding of Yorkshire Bank and Clydesdale Bank to Virgin Money will also begin.
NHF Reaffirms FY20 UOP Guidance
NIB Holdings Limited (ASX: NHF) witnessed actual arhi claims inflation per person expense of 2.9% in FY2019, which was understated by product mix erosion/ downgrading. The pattern is likely to persist next year.
Based on the current market trading conditions, the Company is maintaining its current FY20 guidance (to be circa 6%). Moreover, the mental health waiver, which instigated episode price inflation in terms of both utilisation and costs per episode is expected to moderate in FY20. The total hospital inflation in FY19 was 3.2%.
In 2019, NHF’s total Group revenue rose an impressive 8.3% to $2.4 billion (as on 30 June 2019) and the Group NPAT was $149.3 million, a gain of 11.8% on the previous year. The DRP was made available for the final dividend of 13 cents per share (paid on 30 September 2019).
The NHF stock has a total shareholder return (since 2007) of over 1,700%.
The market awaits NHF’s FY20 interim results, to be released on 24 February 2020.
SDF Thrives to Maintain Consistent Increase in Shareholder Value
Steadfast Group Limited (ASX: SDF) posted its total shareholder return for FY19 to be 28%, and since listing, this has been 239% to 30 June 2019. During FY19, the underlying revenue was up by 21.4% Y-O-Y to $688 million and the underlying EBITDA jumped by 17.8% to $193 million. An institutional equity raising and SPP raised ~$119 million to fund current and potential acquisitions.
The Company continue to be prudent with its capital management as the Board setting a maximum Group gearing ratio of 30% (incl. subsidiary borrowings). The total Group gearing ratio was 23.9% (as on 30 June 2019).
During FY19 SDF made a total investment worth $136 million in EPS accretive industries, inclusive of 12 upturns in the equity holdings in underwriting agencies and Steadfast Network brokerages and 7 new acquisitions. The recent IBNA transaction added 79 brokers to the network.
IN FY20, SDF expects the underlying EBITA to be in the range of $215 - $225 million and the underlying NPAT to be in the range of $100- $110 million. With boosted shares on issue, this transforms to 5- 10% growth in the underlying diluted EPS.
Let us browse through the stock performance of the discussed stocks, after the close of the trade session on ASX on 8 November 2019:
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