(ANZ) 1H25 results - Digital Transformation and Suncorp Integration Driving Strategic Growth
Target Price: $28.54 | May 08, 2025 | Share Price: $30.00
Investor Profile Snapshot
| INCOME | VALUE | GROWTH | QUALITY | THEMATIC |
|---|---|---|---|---|
| ★★★★★ 90% | ★★★ 60% | ★★ 45% | ★★★★ 80% | ★★★ 60% |
Note: This report provides analysis and commentary based on public information and is not intended as investment advice. Investors should conduct their own research and consult with financial advisors before making investment decisions.
Latest Update - H1 FY25 Key Takeaways
- Record half-year revenue of $11.2 billion, up 10% year-on-year, driven by net interest income growth of 12%
- Statutory profit increased 7% to $3.64 billion, though cash profit remained flat at $3.57 billion
- Suncorp Bank acquisition contributed $286 million to cash profit with synergies materializing ahead of schedule
- Digital transformation progressing with ANZ Plus reaching 1 million customers and over $20 billion in deposits
- Credit quality showing normalization with impaired assets up 48% to $2.25 billion (0.27% of gross loans)
- CET1 ratio at 11.8%, down 170bps year-on-year but remaining well above regulatory requirements
- Cost-to-income ratio deteriorated 180bps to 52.2%, indicating challenges in expense management
What's Changed?
- Core Business Performance: Cash profit excluding Suncorp declined 8% year-on-year, indicating underlying pressure in core operations
- Digital Transformation Progress: ANZ Plus reached milestone of 1 million customers with $20+ billion deposits, validating strategic approach
- Regulatory Challenges: Enforceable undertaking with APRA regarding non-financial risk management, requiring $250 million operational risk capital overlay
- Leadership Transition: CEO Shayne Elliott concluding 9.5-year tenure in May 2025, to be succeeded by Nuno Matos from HSBC
- Credit Normalization: Early signs of credit cycle turn with impaired assets increasing 48% year-on-year, though still at historically low levels
Executive Summary
ANZ Group delivered record half-year revenue of $11.2 billion in H1 2025, representing a 10% increase year-on-year. This growth was primarily driven by net interest income expansion of 12% to $8.87 billion, while other operating income increased modestly by 3% to $2.31 billion. Statutory profit rose 7% to $3.64 billion, though cash profit remained flat at $3.57 billion as higher expenses (+12%) and increased credit charges (+107%) offset revenue growth. Notably, cash profit excluding Suncorp Bank declined 8% year-on-year, indicating challenges in the core business.
Segment performance varied significantly, with Australia Retail profit declining 11% and Institutional profit falling 9%, while New Zealand maintained stable results. Suncorp Bank contributed $286 million in its first full half under ANZ ownership. The balance sheet expanded considerably, with total assets increasing 20% to $1.3 trillion, though this growth was largely attributable to the Suncorp acquisition. Credit quality showed signs of normalization, with impaired assets increasing 48% year-on-year, though still at historically low levels (0.27% of gross loans).
ANZ's strategic initiatives are gaining momentum, with the digital transformation advancing as ANZ Plus reached one million customers and over $20 billion in deposits, while Suncorp integration is proceeding with synergies materializing ahead of schedule. The bank faces regulatory challenges following an enforceable undertaking with APRA regarding non-financial risk management. The upcoming CEO transition from Shayne Elliott to Nuno Matos in May 2025 introduces some execution uncertainty during a critical period of strategic implementation.
Financial Highlights
| Key Metric | H1 FY25 | H1 FY24 | Change |
|---|---|---|---|
| Cash earnings | $3,568M | $3,552M | +0.0% |
| Net interest income | $8,869M | $7,899M | +12.0% |
| Other operating income | $2,310M | $2,246M | +3.0% |
| Operating income | $11,179M | $10,145M | +10.0% |
| Operating expenses | $5,824M | $5,215M | +12.0% |
| Credit impairment charge | $145M | $70M | +107.0% |
| Statutory profit | $3,642M | $3,407M | +7.0% |
| Cash profit (excl. Suncorp) | $3,282M | $3,552M | -8.0% |
| Net interest margin | 1.56% | 1.56% | 0bps |
| Cost-to-income ratio | 52.1% | 51.4% | +70bps |
| Gross loans & advances | $820.2B | $715.2B | +15.0% |
| Customer deposits | $756.6B | $641.1B | +18.0% |
| CET1 capital ratio | 11.8% | 13.5% | -170bps |
| Return on equity | 10.2% | 10.1% | +10bps |
| Dividend per share | 83 cents | 83 cents | 0.0% |
Segment Performance
| Segment | Earnings Growth | Margin Trend | Key Developments |
|---|---|---|---|
| Australia Retail | -11% YoY to $705M | NIM down 10bps to 1.84% | ANZ Plus reached 1M customers with $20B+ deposits; home loan growth of 6% offset by margin compression and higher costs |
| Australia Commercial | -2% YoY to $655M | NIM down 7bps to 2.53% | Solid deposit growth of 3%; portfolio quality strong with 82% of exposures fully secured, though impaired assets rising |
| Institutional | -9% YoY to $1,380M | NIM stable at 0.76% | Markets revenue declined 11%; maintained leadership position with five consecutive halves with ROE above 13% |
| New Zealand | Flat YoY at $792M | NIM up 4bps to 2.60% | Industry-leading cost-to-income ratio of 38.5%; solid performance despite challenging economic environment |
| Suncorp Bank | $286M (first full period) | NIM at 2.12% | Record half-year profit; integration progressing with synergies realized ahead of schedule |
Key Outlook Points
| Category | Current/Near-Term | Medium-Term | Long-Term |
|---|---|---|---|
| NIM Evolution | 🟨 1.54-1.56% in FY25, stable but with segment-level pressure | 🟨 Gradual compression to 1.49-1.51% by FY27 | 🟨 Stabilizing around 1.49% |
| Loan Growth | 🟩 Expansion of 4-5% driven by Suncorp integration | 🟩 Sustainable 3.5-4.5% growth through FY27 | 🟩 Steady growth of 3-4% |
| Cost-to-Income | 🟨 Limited improvement to 51.5-52.0% in FY25-26 | 🟩 Progressive improvement to 49.5-50.5% by FY28 | 🟩 Trending toward 49% |
| Operating Leverage | 🟨 Challenged in FY25 with 10% revenue vs 12% expense growth | 🟩 Improving from FY26 as digital efficiencies materialize | 🟩 Sustainable positive jaws |
| Credit Quality | 🟨 Continued normalization with impairments at 0.07-0.10% of GLA | 🟨 Gradual increase toward 0.12-0.15% by FY27 | 🟨 Stabilizing at 0.15% |
| Digital Transformation | 🟩 Continued ANZ Plus customer acquisition momentum | 🟩 Accelerated migration of existing customers | 🟩 Cost efficiency benefits fully realized |
Color Key: 🟩 Positive for the company 🟨 Neutral or moderate 🟥 Challenging or negative
Valuation Summary
Our analysis derives a base case valuation of $28.54 per share, representing 4.9% downside to the current price of $30.00. This valuation reflects ANZ's strong institutional franchise and Suncorp integration potential, balanced against margin pressure, emerging credit quality concerns, and execution risk during leadership transition.
| Methodology | Implied Price Per Share |
|---|---|
| DDM - Base Case | $28.54 |
| DDM - Bull Case | $33.11 |
| DDM - Bear Case | $23.99 |
| Forward P/E Multiple (12.0x) | $30.84 |
| P/B-ROE Regression Model | $31.79 |
| Dividend Discount Model | $26.25 |
| Implied Valuation Range | $24.00 - $33.00 |
| Current Share Price | $30.00 |
| Up/Downside to Base Case | -4.9% |
Our Bottom Line
ANZ Group's H1 FY25 results present a mixed picture, with record revenue driven primarily by the Suncorp Bank acquisition while underlying performance in the core business showed concerning signs of strain. The 8% decline in cash profit excluding Suncorp underscores margin and expense challenges that warrant careful monitoring. The digital transformation strategy is gaining traction, with ANZ Plus reaching one million customers, though its full benefits in terms of cost efficiency and customer acquisition have yet to materialize.
Suncorp Bank integration provides a clear growth vector, with synergies being realized ahead of schedule and record profit contribution in its first full half under ANZ ownership. The higher margin profile of Suncorp (2.12% NIM vs. Group 1.56%) offers positive mix benefits as integration progresses. However, execution risk during leadership transition represents a significant near-term uncertainty, particularly given the complexity of simultaneously managing Suncorp integration, digital transformation, and regulatory remediation.
Credit quality trends show early signs of normalization, with impaired assets increasing 48% year-on-year, though from historically benign levels. The bank has built substantial buffers through conservative provisioning and years of portfolio de-risking, which should provide resilience through a moderate credit cycle. ANZ's strong capital position (CET1 ratio of 11.8%) and conservative liquidity metrics support continued capital returns while maintaining flexibility for strategic investments.
At the current price of $30.00, ANZ trades slightly above our base case valuation of $28.54, suggesting limited near-term upside without clearer evidence of improving operating leverage or accelerated realization of strategic benefits. The bank's high dividend yield of 5.7% provides attractive income support while investors wait for strategic initiatives to translate into improved financial performance.
What to Watch
- Suncorp Integration Progress: Further synergy realization and integration milestones
- ANZ Plus Customer Migration: Acceleration of existing customer transition to new platform
- Credit Quality Evolution: Pace of normalization in impaired assets and credit charges
- APRA Remediation: Progress addressing non-financial risk management concerns
- CEO Transition: Continuity and momentum during leadership change in May 2025
Growth Catalysts
- Suncorp Bank Integration: Continued synergy realization beyond initial expectations
- Digital Transformation: ANZ Plus scaling driving improved cost efficiency and customer acquisition
- Geographic Diversification: Presence across 29 markets providing resilience amid trade disruption
- Institutional Banking Strength: Consistently delivering ROE above 13% in this segment
- New Zealand Efficiency: Industry-leading cost-to-income ratio of 38.5% providing operational benchmark
Risk Factors
- Credit Quality Normalization: Accelerated deterioration beyond gradual path currently projected
- Net Interest Margin Pressure: Intensifying competition driving deeper compression than expected
- Integration Execution: Challenges managing Suncorp absorption during leadership transition
- Regulatory Compliance: Ongoing remediation costs associated with APRA undertaking
- Digital Transformation Costs: Extended investment horizon delaying efficiency benefits
ANZ's diversified business model, Suncorp integration opportunity, and digital transformation momentum provide solid foundations for navigating current challenges. However, with the shares trading above our base case valuation and facing headwinds from margin pressure, expense growth, and leadership transition, we see limited near-term upside without clearer evidence of improved operating leverage or accelerated strategic benefits realization. The attractive dividend yield of 5.7% provides meaningful income support for patient investors.
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