Ann: ANZ Wealth Management updated financial information, page-7

hi @madamswer

from announcement 17/10/2017:
- "Pre-tax cost synergies expected to be approximately A$65m per annum from FY2021, with further potential for enhanced revenue" (bold text my inclusion)
- "Anticipated mid-single digit EPS accretion in FY2019, expected to increase to ~15% in the first full year and over ~20% thereafter"
- "IOOF estimates that it will incur separation costs of approximately A$130m over three years to integrate ANZ Wealth Management."

I'm a bit weary of using underlying NPAT to arrive at a PE multiple because they can vary wildly as shown below. Would it be fair to say that, when its all said and done, over many years, it is the reported EPS that captures the true performance of the business? For example, amortisation of intangible assets and impairment of goodwill, and settlement of legal claims, actually matter over the long term. Hence the accounting standards.

FY, Reported EPS, Underlying EPS, difference

18, 26.4, 57.3, +117%
17, 38.7, 56.5, +46%
16, 65.7, 57.8, -12%
15, 47.7, 59.9, +25%
14, 43.7, 53.1, +21%
13, 34.4, 46.9, +36%
12, 8.4, 41.6, +395%
11, 43.1, 48.3, +12%
10, 33.7, 42.3, +25%

Average over the past 9 years. 37.9, 51.5, +35%

Average Underlying EPS of 56.9 over past 5 years.

If we apply say a 20% discount to arrive at Reported EPS, which seems very reasonable given the historical data above, then an average reported EPS of 45.5 over past 5 years.

Then applying the accretion percentages stated in the companies announcement, gives

5% accretion in FY19 gives 47.7 cps reported, at todays price of $7 gives FY19 forward PE of 14.6
15% accretion in FY20 gives 52.3 cps reported, at todays price of $7 gives FY20 forward PE of 13.4
20% accretion in FY21 gives 54.6 cps reported, at todays price of $7 gives FY21 forward PE of 12.8

Maybe at $10-$12, the market was getting way too ahead of itself and placing too much emphasis on underlying EPS figures?

For example, $11/FY18 UEPS = $11/0.573 = PE of 19.

But if we apply the average 45.5 reported EPS I calculated above, it was $11/0.455 = PE of 24

At current prices $7/0.455 = PE of 15.4

To put that into perspective, the one year forward PE average of the banks is 11.18

Maybe, collectively, we were dreaming with IFL and quite possibly still are. I think it could easily head lower below $6.

Also note, level of shorts, now above 10%.