Stock Takes: Banks facing hefty challenges

Combined cash profit for the four lenders' New Zealand divisions rose 4.7 per cent to $4.4 billion. Photo / Paul Taylor

Despite record results brands easily damaged.

The A$30 billion combined annual cash profit reported by Australasia's big four banking giants is an eye-popping figure by anyone's measure.

But corporate advisory KPMG says the record result, which was a 5.4 per cent increase on 2014, masks some underlying challenges facing Westpac,ANZ, Commonwealth Bank of Australia and National Australia Bank.

Return on equity fell to 15 per cent from 15.5 per cent in the previous year, and KPMG said that trend was likely to continue as banks increased capital levels in coming years.

The record profits were achieved despite high levels of competition driving an ongoing contraction in net interest margin to a record low of 2.02 per cent, down from 2.07 per cent in the previous year.

Combined cash profit for the four lenders' New Zealand divisions rose 4.7 per cent to $4.4 billion.

"Real courage will need to be shown by bank management over the next few years and if banks push too hard on maintaining short-term return to shareholders, they risk significantly damaging their long-term franchise value and reputations," KPMG said.

Kiwi Shayne Elliot, who will take ANZ's helm on January 1, has a tough job ahead.

Up and down

Jetpack maker Martin Aircraft Company shares have had a wild ride.

New Zealand jetpack maker the Martin Aircraft Company was always going to be a volatile investment and has proved just that during its first eight and a bit months as a listed firm.

Back in March, shortly after its Australian stock exchange float, the stock rocketed to a record A$3.15, giving the firm a market capitalisation of A$769.5 million.

Since then its shares have closed as low as A39.5c on September 22, just below the A40c listing price, before regaining some momentum to open at A55.5c yesterday.

At the annual meeting in Christchurch last week, chairman Jon Mayson said the company was on track to deliver its first commercial jetpacks during the second half of next year.

Intueri's comeback

Intueri Education Group has staged quite the share price comeback over the past couple of weeks.

The stock, which listed on the NZX and ASX at $2.35 in May last year, surged to a record close of $3.30 in September 2014 before coming rapidly off the boil as the company missed prospectus forecasts and cut earnings guidance following weak sales and cost pressures.

Intueri shares hit a record closing low of $1.08 on October 21, but have gained 40 per cent since then to open at $1.51 yesterday.

Auckland's Pie Funds wrote last month that the stock was looking cheap, and the firm had recently increased its holding.

While guidance downgrades and missed prospectus forecasts had contributed to the stock's slump, souring investor sentiment towards the vocational training sector also had impacted Intueri, the fund manager noted.

"In the long-term, the domestic New Zealand business should provide a solid foundation for the business, while international students and the company's Australian business provide growth."

Meanwhile, Xero - which reported a 71 per cent increase in half-year revenue, to $92.8 million, yesterday - is another resurgent stock.

The cloud accounting software developer's shares were up 3.1 per cent at $18.30 at midday, 38 per cent above this year's closing low of $13.30, reached on September 18.

Healthy rise for Blackmores

On Thursday last week Blackmores became the first stock on the S&P/ASX 200 index to cross the A$200 threshold.

It took 30 years for Blackmores shares to hit the A$40 mark. That milestone was reached in January, three decades after the health supplement maker's 1985 ASX listing.

But a fire has been lit beneath its shares over the course of this year thanks to strong Asian demand for the Sydney-based firm's products.

On Thursday last week Blackmores became the first stock on the S&P/ASX 200 index to cross the A$200 threshold after it revealed profits had jumped 161 per cent to A$22.6 million in the first quarter, largely as a result of strong Chinese sales growth.

An accompanying announcement of a baby formula deal with ASX-listed Bega Cheese also contributed to the rally.

Blackmores shares have since given up a bit of ground, to open at A$172.97 yesterday, but they're still up an impressive 392 per cent in the year to date. And one Australian analyst reckons the stock could be approaching the A$300 mark within a year. Asia Pacific Prudential Securities analyst Gordon Anderson has a 12-month target price of A$282 on the stock.