Stockbroking firms expect branch closures and operating synergies will enable Home Building Society to achieve strong profit growth following its planned merger with StateWest Credit Society.
Stockbroking firms expect branch closures and operating synergies will enable Home Building Society to achieve strong profit growth following its planned merger with StateWest Credit Society.
The merger, announced last month, coincided with healthy profit increases by Home and StateWest as well as their direct rival, Police & Nurses Credit Society.
P&N has reported a $10.2 million net profit for the year ended June 2005.
Its net profit was up 32 per cent on the depressed 2004 result, but only 2 per cent above the 2003 profit.
Home increased profit by 24 per cent to $7 million, helped by another increased contribution from its extensive land development activities.
The average profit per lot sold increased by 15 per cent, which more than offset a fall in the volume of lots sold.
StateWest reported an 11.7 per cent drop in net profit to $7.2 million.
However, excluding one-off gains in 2004 from the sale of investments, StateWest actually achieved a 7.9 per cent lift in profit.
Comparing the profitability of each institution, Home had the strongest result with an 11.9 per cent return on average equity.
This put it just ahead of StateWest and P&N.
In terms of lending growth, Home also led by the way, with a very strong 29 per cent lift in loans (on and off-balance sheet) to $1.1 billion.
StateWest increased its loan book by 9.2 per cent to $632 million, while P&N reported 8.5 per cent growth in loans under management to $1.3 billion.
P&N chief executive Fred Huis said he was pleased with the result and anticipated further profit growth in the current financial year.
“We are performing strongly compared to our peers,” he said.
Mr Huis said P&N expected to benefit from the merger of Home and StateWest, since some of their existing members would choose to remain with a mutual society.
United Credit Union chief executive Ian Williams also expected to pick up new customers, since the merged entity would be listed on the stock exchange and aimed to become a bank.
He also suspected the merged entity may be forced to adopt “irrational pricing” to try and retain the loyalty of its customers.
Patersons Securities analyst Robert Gee expects the merged group, to be chaired by Home chairman Tony Howarth and run by StateWest chief executive Greg Wall, will benefit from the planned changes.
“The enlarged group is set to assume the mantle of the only locally owned regional bank of any substance in Western Australia,” Mr Gee told WA Business News.
He said the merged entity was likely to operate more efficiently, benefit from higher revenue opportunities and possibly have lower funding costs.
He also expects the merger to result in the closure of six branches and a reduction in staffing of about 70 positions, with merger costs offset by asset sales.
Mr Gee has forecast the merged entity will report a profit of $14.6 million in 2006 and $21.3 million in 2007.
Euroz Securities analyst Gavin Allen is slightly more bullish, tipping an annual profit of $23.1 million once the full benefits of the merger are achieved.
This is based on 15 per cent growth in earnings by the two existing businesses and an assumption that merger synergies will total about $10 million pre-tax, or 40 per cent of the current operating costs of StateWest.
• See Briefcase, page 26