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Fusion Investing Fund Buys ANZ Bank

July 15, 2008 3:10 pm by Dean Morel

Now is one of the times you need to be a net buyer of stocks.

While I don’t have strong conviction that the bottom is in I do see a lot of extremely good value in the market at the moment. I have been focusing on US stocks recently and will continue to do so as I also believe now is a great time for international investors to be buying US assets. From my perspective the Australian dollar is at a 25 year high against the US dollar. While the upward trend is strong and almost everyone is expecting parity, I am happy to be buying US assets now.

I realise I am swimming against two strong currents, the falling US dollar and flailing US stock market, but to catch good waves you sometimes need to get into position early.

I will be continuing to buy over the coming year. With the high level of cash the FI portfolio has I can’t sit around waiting for a mythical bell to ring at the bottom. We may be headed lower. A lot lower is not impossible. However, I am confident enough that in the long run I will be rewarded for buying excellent value in the current market.

Today for something completely different I’m back buying in Australia. Following on from yesterday and buying what you know I am buying my bank, ANZ Banking Group Limited, ANZ. As per above I’m not calling a bottom on ANZ, but I will crawl out on a limb and say we’re closer to a bottom than the top. wink

Quick Fundamentals

The last decade has been a great time to be an Australian company. Earnings and margins have swelled. While earnings may have peaked and Australia may go into a recession if the US leads the world down, I am very confident that in the long run the four major Australian banks will continue to prosper and will have higher earnings. I’m a patient guy. That is a long way to say I don’t think the past ten years growth rates for ANZ are maintainable and I’m not investing based on the past growth.

10yr

5yr

1 Year

2yr Fcst

Sales:

6.8%

8.4%

15.2%

-

Cash Flow:

-204.7%

-214.1%

22.1%

-

Earnings:

12.1%

9.5%

8.6%

2.2%

Dividends:

11.8%

10.9%

8.8%

2.9%

If the consensus 2 year forecast process correct then ANZ is a steal at current prices. I’m not counting on any growth.

Dividend yield quoted at 7.6%

Next Dividend Ex Date 6 Nov 2008

Dividend History Since 1993 (extent of my history) ANZ have never failed to raise their dividend. The last dividends were; interim 62c and final 74c, both 100% fully franked. That represents a 7.9% yield or around 9.1% after tax for the Fund (tax rate 15%).

Credit Ratings of Aa1 and AA from Moody’s and Standard & Poor’s.

For a swathe of fundamental details check out the ANZ Analyst Toolkit This features ten year summary data, historical interactive charts which go back 13 years. For example the 13 year net non performing loan graph below. The site also has financial spreadsheets, presentations and more.

ANZ non-performing loans

Quick Technical View

ANZ 5 year chart

  • Ugly. Falling Knife. Fall accelerating. Many buyers already exhausted at higher levels.
  • Panic setting in.
  • But is it time for a bounce? Looking at the shorter term six month chart I think it’s fair chance.

anz 6 month chart

Quick Behavioural View

  • The early value hounds who bought in first half of March and second half of April may now be feeling the pinch as the shares are down 15-30%.
  • A lot of buyers have already bought. However, thanks to superannuation more money pours into the kitty every month and patient value buyers must be getting interested.
  • When a bounce occurs from these depressed levels many buyers will quickly emerge. Although the next bounce may falter it should have enough momentum for a 20% bounce (based on recent history).
  • The Fund bought ANZ at $17.16. If a bounce occurs soon I’d be looking for $21 as a first target. If ANZ continues lower then I will be averaging down.
  • Funds managers’ TV advertisements currently pushing idea of buy and hold. I don’t even need to look at the fund flows to know they are out.

Summary

This is both an opportunistic buy and a long term buy. If I get a 20% return in a couple months and there is no large fundamental difference to the global economy I will re-evaluate with a eye to taking my profits. As we are close to a fundamental strong buy and long term technical support I see the chances of a bounce as at least 50:50. For the long term I am happy to start buying ANZ at these levels and believe a long term hold will outperform the ASX200.

Even under the worst circumstances of the dividend being cut in the short term, over the long term there is very small risk of losing capital on ANZ and a good probability of market beating returns with a healthy dividend.

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