The impact on ANZ’s future earnings of the sale of part of its wealth management business will be “broadly neutral to slightly dilutive”, according to Macquarie Securities, which has maintained an ‘outperform’ recommendation on ANZ stock.
Macquarie says it see longer-term value as ANZ simplifies its business and manages its expenses better than peers.
ANZ announced last week that it had sold its OnePath pensions and investments business and its aligned dealer groups business to IOOF Holdings for $975 million.
OnePath P&I has $48 billion of funds under management and the aligned dealer group businesses (which include Millenium3, RI Advice, Elders Financial Planning and Financial Services Partners) have 717 advisers ad $19.5 billion of funds under administration.
As part of the deal, ANZ will enter into a 20-year strategic alliance with IOOF to make IOOF superannuation and investment products available to ANZ customers.
ANZ retained its life and general insurance businesses and ANZ Financial Planning (which has 286 advisers). The bank said it was still considering options for the life insurance business.
Macquarie estimates that ANZ’s capital position will improve by about $600 million following the sale and it expects that much of this will be returned to shareholders by way of a capital management initiative, such as a special dividend or a buyback.
In a note to clients, Macquarie says: “We estimate the impact on ANZ’s earnings to be around $35 million before the impact of stranded costs [entrenched systems and processes that cannot be removed with the sale].
“We expect the impact on earnings per share to be broadly neutral, which is a disappointing outcome given wealth management businesses generally trade at a premium to bank multiples. However, we note that ANZ’s funds management business has been under pressure in recent years.”
Macquarie has a 12-month price target of $31.50 on ANZ stock, which closed at $30.59 on Friday. The stock has climbed from a recent low of $28.04 in June.
“ANZ is trading on a 13.3 times one-year forward price-earning multiple, which is broadly in line with peers. We continue to see longer-term value as ANZ simplifies its business and manages its expenses better than peers.”
The bank also announced the sale of its 40 per cent holding in Metrobank Card Corp. The business is a joint venture between ANZ, which holds 40 per cent, and Metropolitan Bank & Trust Co of the Philippines. The sale is worth $184 million.
Macquarie described the sale as “a small but incrementally positive step towards a desired simplified and more optimal business structure.”