Results are in and off the cuff, they look to have beaten expectations. ANZ posted a HY cash profit a continuing basis of $3.49bn up 4% which was above an expected $3.295bn. ANZ’s Common Equity Tier 1 Capital Ratio was 11.0% up 91 basis points (bps). ROE was up 11.9% higher than an expected 9.3%. An interim dividend of 80c will be paid a touch lower than an expected 81c. It will be fully franked, reflecting a payout ratio of 66% of cash profit on a continuing basis and is broadly in line with ANZ’s target fully franked full year payout ratio of 60 to 65%. Cash EPS came in at 119.4cps which also beat an expected 112cps. NIM fell seven basis points to 1.93% from the year-earlier period. On all accounts, the result was a solid one and shares should open higher on the opening match.

Here is a snapshot of the results:

Outlook for ANZ: The bank is concerned that the Royal Banking Commission will have a negative impact due to higher regulation and costs. On the plus side, economic growth is expected to tick up but it could be offset by high levels of household debt and low wage growth. Consumers are expected to remain cautious. For that reason ANZ sees the tough trading conditions in 2016 continuing through for the foreseeable future. ANZ says it will focus all their strength on the “simplification and digital transformation”. For example It has the number #1 ranking app out of the big banks. The Royal Commission has a long way yet to run and will continue to have a big impact on the entire sector. The banks says it will “learn from this Inquiry and continue to take real action to restore trust within the community.”

Unconventional View: At the moment, it’s too early to make a call on whether ANZ is a buy or not. At its current levels sure ANZ is cheap. Trading on a forward PE of 11.59x and a ROE of 11.90%, Gross yield 8.51%. It is cheap. But with the Royal Banking commission hanging over its head, conditions will remain difficult and could overhang its share price. ANZ expects revenue growth for the second half of 2018 to continue to be constrained by tighter regulation and intense competition. On the chart ANZ is in a downtrend channel, and is sitting on its support line. The overall impression from this set of results is that they were good given the tough environment it was operating in. Bed debts were down, profit was up. The focus from here on in, is the outlook for the entire sector. We’re taking a ‘wait and see’ approach. ANZ will go ex-dividend May 14, paid July 2.