established: 1994, ASX code: ADB, homepage: www.adelaidebank.com.au

Overview:
With only 25 branches across Australia, Adelaide Bank is one the smallest and youngest Australian banks formed only about 13 years ago. Its 2007 income seem to be evenly spread across various banking categories - business lending and wealth management were each responsible for 26% of the total profits, retail banking contributed by further 25% and the remaining 23% was made on wholesale mortgages.

Analysis of 2007 financial results:

• Market Cap: Depending on the daily stock price the market cap of this company, the total market capitalization is around $1.7 billion over 108 million shares on issue
• Shareholders Equity: $651 million making the stock’s book value approx. $6.03 per share (1.25% growth on FY2006)
• Earnings per share: $0.93 making the average EPS growth in last 3 years about 13.6%
• Return on Equity: 15.4%, averaging about 14.2%pa in last 3 years
• Return on total Assets: 0.32%, averaging about 0.4%pa in last 3 years
• Balance Sheet: Total assets $31.4 billion versus total liabilities of $30.5 billion (TA/TL ratio of 1.03)

Sharemaket’s valuation:
Average ADB’s Price to Earnings ratio of 14 suggests the share price around $13 ($0.93 EPS x 14 P/E)

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 8.5%
• Share price in 10 years time: about $29.3 (EPS in year 10 based on fore casted yearly EPS growth times average P/E)
• Total shareholders return in 10 years times: $39.45 (share price of $29.30 plus $10.15 of the 10 years worth of dividends if the current payout ratio of 68% persists)
• Rate of Return in next 10 years based on mid November 2007 price of $14.50 per share: 10.5%

Pros and cons:
+++ Well established stable banking institution
+++ Good ROE
— Total assets vs. total liabilities ratio uncomfortably
— Rather low and still decreasing returns on total managed assets

Note: Upcoming merger with Bendigo Bank in the current time of credit markets instability may bring some new and unknown risks into this long established business.

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This entry was posted on Tuesday, November 20th, 2007 at 10:04 am and is filed under Australian stock. You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.