Australia’s stock market is the second biggest in the Asia-Pacific region after Japan’s, holding a vital position in the global financial markets. Despite only having a short 4 years history through a merger of The Australian Stock Exchange and the Sydney Futures Exchange, the Australian Securities Exchange (ASX) is the world’s 8th largest listed exchange. The ASX has a unique position in the world’s financial market as its trading day spans the closure of the markets in the United States and the opening of markets in Europe. Situated in Asia, the ASX is also well positioned with strong relationships with major stock markets of Asia.
Based on the statistics for the past five years, the Australia Stock Market Index has been performing well, with the exception of year 2009 due to the global economic crisis. However, the stock market is going on the upwards trend once again with the new beginning of the year 2010. (Source: http://www. tradingeconomics. com/default. aspx) Financial Industry Australia’s financial industry comprises mainly of investment and trading banks, assets management and insurance companies. Its financial industry has a global footprint, with linkages formed all around the world.
The financial industry is one of Australia’s largest contributors to its GDP and is a fast growing vibrant and diverse sector. It is the largest industry sector by capitalization, constituting 35% of Australia’s market and amounting to a significant amount of AUD$442 billion, equivalent to almost 4 times its GDP. (Source: http://203. 15. 147. 66/research/pdf/financial_sector_factsheet. pdf) The financial sector is also adding the most value to Australia total industry growth value, ranking first with 11. 7 percent. (Source: http://www. dfat. gov. au/facts/service_sector. html)
ASX is also very much affected by the financial sector as can be seen from the similar trend of the S&P/ASX 200 and S&P/ASX 200 Financials. Regardless of the direction of influence, the financial industry is an integral component to Australia’ economy as a whole and also has high importance and impact on ASX itself. (Source: http://203. 15. 147. 66/research/pdf/financial_sector_factsheet. pdf) Banks Banks are an integral segment of the growing financial industry. Australia’s commercial banking sector is dominated by 4 large private banks: the National Australia Bank, Commonwealth Bank, Westpac, and Australia and New Zealand Bank.
These 4 banks account for 70 percent of the market share and are competing aggressively domestically and internationally. Despite intense competition, the Australia’s banks are thriving with consistent improvements and modernization, climbing up the world’s ranks. Company Australia and New Zealand Bank (ANZ) is the fourth largest bank in Australia, with a long history of 170 years. It is also one of the ten largest and most successful companies in Australia, with assets of AUD$476. 99 billion. Its operation spans 32 countries across many continents, with a massive number of almost 400,000 shareholders.
ANZ’s performance and reputation has received much attention and accolades with it being named the most sustainable bank globally in the 2008 Dow Jones Sustainability Index, the 2nd year in a row ANZ has been granted the title. In 2007, the title was shared with another Australian bank, Westpac, which had held the title for the previous five years With such global recognition, ANZ has been expanding and moving up its ladder. It has been expanding its operation aggressively in the Asia-Pacific region and is also the leading bank in New Zealand.
In July 2006, ANZ acquired a 20 percent share in Tianjin City Commercial Bank and Shanghai Rural Commercial Bank respectively. One of the most recent and considerable milestone of ANZ would be its purchase of portions of the Royal Bank of Scotland in year 2009, spanning across geographically in Taiwan, Singapore, Indonesia, Hong Kong, Philippines and Vietnam. With such performance and increasing market power and global presence, ANZ is currently one of the best performing stocks in the financial sector of the ASX.
It is ranked 3rd in the competitive 295 companies sector, with a contribution of AUD$54, 754 million. The financial sector has been going through a 12% growth for the past year, with ANZ one of its largest contributors. (http://www. anz. com) (Source: Australian Securities Exchange) Stock’s Intrinsic Value (ANZ) The above chart is determined by using the Free Cash Flow Discount Dividend model, using the Company’s Average Free Cash Flows from investments from year 2000 to 2009 to calculate the Intrinsic Value.
Intrinsic value per share is calculated based on Free Cash Flow value with calculated growth based on ROE and b. The Intrinsic Value is divided by the total number of shares currently in the market to attain the Intrinsic Value per share. Growth rate is calculated to be at 6%pa based on the payout ratio and retention ratio. Due to the ANZ’s recent acquisition of Royal Bank of Scotland and it being in its maturity stage, we estimate the growth rate of the company to be gradually increasing from the current 6% to 20% in the next 5 years. Conclusion
Based on the fundamental analysis, ANZ stock price is in a good position to move up. Therefore, Johnnie should buy the stock. Technical Analysis Introduction Technical analysis is an entire different approach from fundamental analysis. To put it simply, technical analysis is only interested in the price movements in the market and this is often done through the use of charts. Technical analysis attempts to study supply and demand of the market to determine the direction and trend that may happen in the future. The field of technical analysis is based on three assumptions.