Yes mate as you suggest its probably time we had a look at the relative PE of HNZ compared to some of the Australian banks and see how they stack up.
Going off the 4 traders website the first thing I notice is there's only 3 analysts covering HNZ and consensus 2015 EPS is now 9.75 cents, previously 10.2 cps last time I looked. One of the brokers downgraded to under-perform in March and we've seen the SP correct materially since then. the other two brokers have HNZ as a Hold. Consensus EPS for 2016 is 10.4 cps.
Seeing as FY2015 is 11 months through its course I believe most astute investors will be looking to base investments on where they see EPS in FY16 and FY17.
In this regard I have zeroed in on FY16 as data is available from brokers for estimates and again off the
www.4traders.com website I see based on FY16 consensus estimates and going off closing prices on Friday this week we have the following stocks on comparative multiples based on FY 16 of:-
HNZ 12.35
NAB 12.35, (this is not a typo the multiple is the same for HNZ)
WBC 13.13
ANZ 11.99
BEN 13.32
BOQ 12.94
Dairy in my view is to HNZ what iron ore is to the Australian banks. While I have the greatest respect for our dear friend Percy, there were many many consumer finance companies that collapsed in the GFC, most of which were not in that list I provided a link for recently and I have intimate knowledge of how one of them was behaving, (Geneva finance). HNZ's activities in the
www.ifinance.co.nz, harmony and through lending like the aforementioned no wallet no worries campaign plays like a very bad groundhog day movie to me.
I think the current PE considering the risks have changed is about right. My gut feel is extra delinquencies in the riskier consumer finance sector they appear to be targeting as well as problem dairy loans will make net effective earnings growth more challenging. I think the brokers have this about right as a hold with a slight bias towards under-perform. In my view its become a yield story for the foreseeable future and I struggle to see the SP getting much northward traction this year. I guess a good and strong EPS accretive acquisition could change that, (risk to the upside) and likewise extra problems than currently foreseen with consumer and dairy loans could ameliorate consensus broker EPS growth forecast for 2016 and if especially bad could provide some EPS downside risk.
I think on balance its a hold for its good dividend yield and for growth in more favourable times ahead maybe FY2017 will see the dairy sector performing better but who would know, its a lottery really... In my view the SP could potentially track sideways for a considerable period of time and the chart quite obviously is suggesting there may be more downside risk.
This begs the question of how well we are being paid to wait ?
I'm forecasting total fully imputed divvy's this year of 7.5 cents, that's 10.42cps gross which @ $1.28 provides a 8.14% gross return which gives a reasonably supportive argument towards being on the right side of the ledger in terms of having your money as a shareholder with HNZ as opposed to earning ~ 4.5% on deposit :) Its also an attractive yield especially by virtue of its full imputation credits compared to the Australian banks.
Whether Australian banks have more headwinds than HNZ, who could reasonably say ?, but my gut tells me they face similar challenges, with quite obviously the Aussie banks under pressure to increase their capital ratio, which possibly gives those banks that haven't done so already, some specific downside risk ?
In terms of relative PE its perhaps worth noting the types of business the various banks do and the superior credit rating of the larger Aussie banks as well as their vastly longer track records.
On this basis you'd have to say the FY16 HNZ PE looks very fulsome as a ratio on a relative basis.
Hold an appropriate moderate allocation in anticipation of better economic times in the long run. FWIW that's what I'm doing at present. I mainly see it as a good yield story for the foreseeable future.