Thursday’s ASX session saw investors seeming to prefer the results announced by the NAB and Telstra to that of fallen financial giant AMP, whose shares fell more than 13% on the day.
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National Australia Bank has joined its bugger rival CBA in revealing a big rise in income due to the Reserve bank’s numerous interest rates increases in 2022, as well as a small increase in loan impairments as well as higher cash earnings.
The loan impairments increase was not substantial, more some housekeeping by prudent bankers but the 18.7% rise in the NAB’s unaudited cash earnings to $2.15 billion for the December quarter certainly was.
The NAB said its unaudited statutory profit was a solid $2.05 billion for the quarter.
That rise in cash earnings was more than double the pace of annual rate of inflation in the quarter of 7.8% as the NAB kept a tight hold on costs in the quarter.
(The NAB’s report was for the three months to the end of December – the first quarter of its 2022-23 financial year while the CBA was for the six months to December.)
Investors were cautious in assessing the NAB’s report and pushed the shares up 0.66% to $30.51, which partly restored some of the 4.1% drop on Wednesday in the wake of the selloff triggered by analysts’ concerns about the Commonwealth Bank’s half year profit and margin levels.
Like the CBA, those higher interest rates squeezed some borrowers in the quarter but also saw the bank earn much more from customers paying higher interest rates, a point made by CEO, Ross McEwan in a short statement in the release.
“We know these changing circumstances, combined with cost-of-living pressures, will create difficulties for some of our customers, and we have a range of options available for those needing support.
“Overall, though, continued strong employment conditions and healthy savings buffers mean most customers look well placed to manage through this period,” he said.
Like the CBA, operating income and revenue grew faster than costs, boosting the bank’s margins. Revenue jumped 15%, but expenses only rose 4% in the quarter with higher staff costs offset by efficiencies and lower remediation payments for past fines and charges as a result of the banking royal commission.
NAB also mirrored CBA with its key net interest margin (NIM) jumping sharply – up 12 points in the quarter to 1.79% – due to “the rising interest rate environment partly offset by home lending competition”, according to the NAB.
CBA’s had jumped 22 points to 2.1% for the half year.
The NAB said its credit impairment charge (CIC) was $158 million in the quarter, “reflecting the impact of lower house prices and business lending volume growth. Specific charges remain at low levels.
“There has been no impact on CICs from changes to assumptions used in the Economic Adjustment or Forward Looking Adjustments during the quarter.”
“Compared with September 2022, the ratio of collective provisions to credit risk weighted assets increased 2 bps to 1.33% while the ratio of 90+ days past due and gross impaired assets to gross loans and acceptances decreased 4 bps to 0.62%. “
“This mainly reflects continued improvement across the Australian home loan portfolio, along with a continued low level of impaired assets in the business lending portfolio.”
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AMP is not out of the woods yet, according to investors sold down the shares yesterday despite the embattled financial services group returning to profit for its December 2022 financial year.
AMP shares fell more than 13% to $1.143 on Thursday after the company declared a final dividend of 2.5 cents per share (20% franked) and a statutory net profit after tax of $387 million, up from a loss of $252 million in 2021.
The dividend was the first since a final paid in 2020.
The selloff seems to have been due to a couple of factors – an earnings forecast miss and a fall in assets under management and a sizeable outflow of cash.
AMP said assets under management slipped to $124.2 billion, from $142.3 billion, due to weaker investment markets and $5.3 billion in net cash outflows.
Underlying after tax net profit dropped 34% to $184 million which was well short of estimates and despite statutory after-tax profit of $387 million, up from a $252 million loss in in 2021.
AMP Bank reported strong growth in its loan book and wider net interest margins in the December half. but the bank reported lower underlying profits of $103 million, compared with $153 million a year earlier, when it benefited from Covid related provisions being released.
AMP said its underlying after-tax net profit fell primarily because of investment market volatility which hurt Assets Under Management.
There was also “strategic repricing” in the wealth management businesses and a reduction in the net interest margin (NIM) – lending profitability – for AMP Bank.
But the group said it cut costs by $54 million in the year (excluding the now discontinued operations at AMP Capital).
CEO Alexis George said the company was making progress on its strategy, but it had been a tough environment.
“Our strategic focus has been on simplifying our operations and repositioning AMP as a leading wealth management and banking business in Australia and New Zealand. We are now focused on driving growth in our core businesses and exploring new business opportunities for longer-term growth,” George said.
The company has previously committed to returning $1.1 billion in capital to shareholders
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After years of no rises (in fact, more trims) Telstra will reward its shareholders with an increase in interim dividend after growth in the mobile business and the acquisition of Digicel Pacific boosted profits by 25% for the six months to December.
But don’t get too eager if you are a Telstra shareholder, the fully franked interim dividend of 8.5 cents is only half a cent higher than a year ago.
New CEO Vicki Brady said the 6% rise in the interim dividend “is consistent with our policy to maximise the fully franked dividend and seek to grow it over time.”
But it should be pointed out that the increase is not really an increase but merely takes the interim back to where it was for the December, 2016 half year.
The telco reported an 11.4% increase in earnings before interest, tax, depreciation and amortisation for the half year to $3.8 billion, while revenue grew 7.6% to $11.3 billion.
Net profit after tax was up 25% to $900 million.
Telstra also reaffirmed its full-year guidance but cautioned that revenue would be at the “the bottom end of guidance due to mobile hardware and fixed product revenues being lower than expected.”
That cautionary note didn’t worry investors who marked the shares up 1.9% to a close of $4.22. That’s the highest they have been for more than five years.
The company said the boost in revenue was driven by a 9.3% rise in mobile services revenue, helped by the return of international roaming (once Australia’s borders were re-opened and overseas travel allowed) and $163 million in revenue from the acquisition of Digicel Pacific.
Ms Brady said the company would continue to grow under its new strategy, known as T25.
“It’s an ambitious strategy built around our customers and recognises that providing them great connectivity is only half the customer experience equation – we have to make doing business with us an exceptional experience too,” she said in Thursday’s release.
“On cost, while inflation is having an impact, we continue to have cost mitigants and revenue levers, and remain committed to our FY25 $500 million cost out ambition.
“I also understand the current economic climate creates challenges for our customers. The changes we have made in recent years to remove lock-in contracts and move to a multi-brand strategy mean we can continue to provide customers with flexibility and options to ensure they can choose plans they can afford. This is very much front of mind for me,” she added.
