No obvious threat to Mr Consistency
January 18, 2008
Restrictions preventing a takeover of Adelaide Bank will be lifted soon - but are any buyers likely to appear on the horizon? The Advertiser's Business Editor ANTHONY KEANE reports.
Barry Fitzpatrick was in complete control yesterday.
Adelaide Bank's group managing director delivered a strong profit outlook to 450 shareholders at the bank's annual meeting and confidently answered prickly questions.
He even received applause from shareholders after being asked by one about a $200,000 loan from the company, explaining the money was to finance his mother's move into a retirement village.
Mr Fitzpatrick is Australia's longest-serving bank boss with 19 years at the helm and has told the board he wants to stay for a least another four or five years.
"I might stay on until I'm 80,'' he joked after the meeting.
However, control of the bank - South Australia's fourth-largest listed company - is moving into a period of uncertainty with its anti-takeover provisions due to expire on January 1.
Adelaide Bank's Restrictive Articles of Association, applied when it converted from a building society to a bank 10 years ago, prohibit a shareholder owning more than 10 per cent of the company.
Westpac and the Commonwealth Bank are reported to be potential buyers but Mr Fitzpatrick does not expect a takeover bid to appear.
"This will be a total fizz and go the same way as St George,'' he said. St George Bank was the target of takeover speculation when its restrictive articles expired 16 months ago, but likely bidder National Australia Bank made no move.
Analysts said Adelaide Bank's strong financial performance and share price - combined with a housing market at is peak - were the main barriers for potential bidders.
The bank's 2002-03 net profit leapt 24.5 per cent to $51.3 million and its shares have climbed almost $1 over the past year, rising 3c to $8.28 yesterday.
"I think it unlikely they would be taken over in the near term,'' said Taylor Collison's head of research, Kym Masters.
"Adelaide Bank has established a niche in the market which means they don't have a natural fit with the major banks.''
Mr Masters said the shares were "not inexpensive at the moment'' and said there was no takeover premium built into the shares. This meant any predator would have to pay significantly more than the share price.
"I think that would price it out of some likely candidates' valuation range,'' he said.
"The bottom line is, if they continue to achieve their growth targets, the market will continue to apply a higher valuation.''
Mr Masters said from an Australian Competition and Consumer Commission point of view, the major bank least likely to have competition issues with an Adelaide Bank takeover was Westpac.
"ANZ is strong in South Australia and St George has BankSA so they wouldn't be able to do it."
"NAB is significant in SA and Westpac is the one with the least amount of presence in SA.''
Shaw Stockbroking banking analyst David McDonald said with the housing cycle at its peak, anyone wanting to buy a bank now ``would be paying top dollar''.
"It's a good company and is performing well, but I just don't see the banking sector as seeing a whole lot of consolidation,'' Mr McDonald said.
He said longer term, Adelaide Bank could be a target for overseas players such as Halifax Bank of Scotland which owns Bank of Western Australia.
"A lot of foreign companies think highly of our banking sector, economy and reliable steady returns,'' Mr McDonald said.
Ord Minnett client adviser Tony Catt said Australia's other major banks were addressing other issues, such as ANZ's acquisition of National Bank of New Zealand and NAB's interest in AMP.
"I don't think someone is going to come in and start snapping up Adelaide Bank,'' Mr Catt said.
"Longer term, it's inevitable someone will seriously consider them - it's a question of who and how much they would be prepared to pay.''
Mr Catt said the slowing down of the housing market would cause lower credit growth for residential lending. ``That could hurt banks which are overly exposed to this area,'' he said.
Home lending accounts for 76 per cent of Adelaide Bank's assets, but Mr Fitzpatrick said yesterday the outlook remained strong.
"Adelaide Bank is in very good shape and you, our shareholders, will receive increased returns next year and in the years ahead,'' he said.
The September quarter was slightly ahead of the bank's budget and loan approvals up 42 per cent year-on-year. The bank remained on track for double-digit earnings growth and was starting a push into the mortgage broking market, he said.
"We have had an alliance with Aussie Mortgage Market for some time and recently entered an alliance with PLAN Australia. Our targets are the top six mortgage brokers in the country and we are gradually developing alliances as we go.''
Adelaide Bank chairman Dick McKay said a "soft landing'' in the housing market was expected after the boom times of 2002 and 2003.
"Latest indications from the Housing Industry Association are that despite two years of near-record activity, the industry faces only a modest easing in activity as a result of subdued first home buyer and investor demand,'' Mr McKay said.
"Dwelling commencements are forecast to drop by around 7 per cent during 2003-04 and a further 7 per cent in the next financial year.''
Mr McKay said SA could look forward to a resurgence in the rural economy after a "wonderfully wet winter''.
Mr McKay also explained bank dealings with controversial share trader David Tweed after questions from shareholder activist Stephen Mayne.
Mr Mayne said Adelaide Bank's margin lending business, Leveraged Equities, had offered a $10 million line of credit to Mr Tweed whose company, National Exchange, bought stock from unsuspecting shareholders at well below market prices.
Mr McKay said the funding arrangement with Mr Tweed had now ceased. "When the organisation discovered what his underlying transactions were, he was quickly invited to close his accounts and they were subsequently closed,'' Mr McKay said.
"Bear in mind that we cannot discriminate who we deal with,'' he added.
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