Its focus now trained on boosting growth rather than arresting inflation, the Reserve Bank of Australia (RBA) slashed its target overnight interest rate, or “cash rate,” by 50 basis points at its meeting today in Sydney.

It’s impossible to say what will result from the central bank’s efforts; two cuts at the end of 2011, which left the cash rate at 4.25 percent, provided a short-term lift as European worries weighed on sentiment in Australia, and around the world, for that matter. But the ability of the high-quality businesses that populate the Australian Edge Portfolio to sustain and grow dividends is unlikely to be impacted much by this move.

Governor Glenn Stevens explained in a statement that the move to reduce its benchmark to 3.75 percent from 4.25 percent was “based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated.”

The Australian dollar weakened on the news, sliding from its USD1.0429 close on Apr. 30 to as low as USD1.0303 intraday on May 1. Australian stocks, buoyed by what’s perceived to be a stimulating move by the central bank, rallied to a nine-month high on the bigger-than-expected benchmark reduction.

The statement released after its last meeting on Apr. 3 left little room for interpretation: If the Australian Bureau of Statistics’ (ABS) mid-month inflation reports supported it, the RBA would cut. That the ABS posted producer and consumer price data at or near historically tame levels made this a question of “how much,” not “if,” the RBA would reduce its cash rate.

The double-move–50 basis points as opposed to 25–is surely designed to bring even more pressure on Australia’s so-called “Four Pillars,” the country’s largest banks, which include Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY), our favorite among the Four Pillars, Commonwealth Bank of Australia Ltd (ASX: CBA, OTC: CBAUF, ADR: CBAUY), National Australia Bank Ltd (ASX: NAB, OTC: NAUBF, ADR: NABZY) and Westpac Banking Corp (ASX: WBC, NYSE: WBK), to reduce borrowing costs for consumers.

The RBA’s announcement was preceded by even more signs of a softening economy from the ABS, as the official data agency Down Under reported Monday, Apr. 30, that house prices declined for a fifth consecutive quarter. An index measuring prices for established houses in eight major cities dropped 1.1 percent during the quarter ended Mar. 31, 2012, compared to the quarter ended Dec. 31, 2011. Over the last 12 months prices have fallen 4.5 percent.

Mr. Stevens, closing his statement with a rather passive approach to enforcing his interest-rate authority on the banks, said, “In considering the appropriate size of adjustment to the cash rate at today’s meeting, the Board judged it desirable that financial conditions now be easier than those which had prevailed in December. A reduction of 50 basis points in the cash rate was, in this instance, therefore judged to be necessary in order to deliver the appropriate level of borrowing rates.”

It remains to be seen, however, whether this new official rate will translate into lower borrowing costs in reality, as Australia’s banks, their funding costs rising due to domestic as well as international factors, have been loath pass savings to consumers.

Regional lender Bank of Queensland Ltd (ASX: BOQ, OTC: BKQNF, ADR: BKQNY) announced Tuesday, following the RBA’s move, that it would pass on only 35 basis points of the official 50 basis point cut. CEO Stuart Grimshaw said the bank’s decision to hold back 15 basis points is rooted in continued economic uncertainty.

“Increased competition in retail term deposits continues to put upward pressure on the bank’s cost of funds,” explained Mr. Grimshaw in a statement.

Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY), which posted fiscal 2012 first-half (ended Mar. 30, 2012) earnings Tuesday evening in the US, which is Wednesday morning, May 2, in Melbourne, won’t make its next announcement on interest rates until May 14. Since early 2012 ANZ has announced changes to its mortgage rates on the second Friday of each month, a move calculated by CEO Mike Smith to decouple his bank from the RBA’s monthly cycle.

Speaking after his company’s earnings release Mr. Smith said ANZ will stick to its plan and reveal its next interest rate move on May 14. Westpac will report its fiscal 20112 first-half results the evening of May 2 in the US, the morning of May 3 in Sydney. National Australia Bank will post numbers for the first six months of its fiscal year on May 10. Commonwealth Bank will provide a fiscal 2012 third-quarter (ended Mar. 30, 2012) “trading update” on May 17.

The ASX/S&P 200 Index closed up 0.7 percent the day of the RBA’s announcement, settling down a bit after adding as much as 1.2 percent intraday following the big-cut news. The Australian dollar is trending lower as of this writing, though the Australian Securities Exchange SPI 200 Index futures contract is indicating a positive open for equities Down Under when trading resumes May 2.

A softer Australian dollar would theoretically help those with “new” money establish positions in recommended Australian Edge Portfolio Holdings, such as Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY), that currently trade above our value-based buy-under targets.

Telstra, which currently yields 7.8 percent and sustained its dividend through the Great Financial Crisis, is positioned to extend its dominance Down Under in the aftermath of the announcement of its “capital management” strategy for the AUD11 billion it will receive from Australia’s National Broadband Network to hand over its copper-wire network and customers.

If the RBA’s cut has its desired effect, however, what appears to be a stagnating economy will get a bit of a lift. Of course a cloudy view from 30,000 feet isn’t hampering Telstra as it transitions away from its effective state-sanctioned monopoly, continues to build out its wireless network and extends its technology advantage.

The company added 958,000 new domestic mobile customers to its subscriber roll during its fiscal 2012 first half (ended Dec. 31, 2011) and grew its top line by 1.1 percent to AUD12.4 billion. Earnings before interest, taxation, depreciation and amortization (EBITDA) were AUD4.8 billion, up 3.7 percent from the first six months of fiscal 2011.

Telstra’s efforts on network applications and services–what’s now commonly referred to as “The Cloud”–generated growth of 19.7 percent.

Accrued capital expenditure–where Telstra’s competitive advantage lies–was AUD1.7 billion in the half, or 13.8 percent of sales, up 18 percent from fiscal 2011, and free cash flow was AUD1.8 billion. Increased CAPEX has gone to support rising wireless demand as well as efforts to boost “Cloud” offerings.

Post-paid handheld “churn,” or customer turnover, came in at 13.2 percent, a significant improvement on fiscal 2010, when it was about 16 percent. This supported lower costs of goods sold, reduced customer retention activity and fewer mobile customers leaving.

Cash flow was down 11.1 percent on a half-over-half basis to AUD1.8 billion, due primarily to the proceeds from the sale of SouFun in the first half of 2011 boosting the previous corresponding period by net AUD288 million. Excluding this item cash flow was up 3.6 percent.

Telstra reduced net borrowing costs by about AUD20 million, largely because of a reduction in average net debt. The company was “well inside the comfort zones of [its] key prudent financial parameters” during the period.

Management guided “for growth across top and bottom lines, with low single-digit growth for total revenue and EBITDA” and noted that “given the performance of the business in the first half, we’re tracking well towards these outcomes.”

Telstra will report full-year results on Aug. 9, 2012. Management is entirely focused on maintaining a strong balance sheet and building a quality network, which means a dividend increase won’t happen until fiscal 2014. Management has declared its intention to pay AUD0.28 per share per year for fiscal 2012 and fiscal 2013.

As of Dec. 31, 2011, Telstra had about AUD3.3 billion in short-term debt, which was adequately covered by AUD3 billion in cash and cash equivalents, significant ongoing cash generation and about AUD750 million in undrawn credit facilities. Telstra has also significantly reduced its exposure to the commercial paper markets in the past two years, with only AUD500 million outstanding at the end of 2011.

The relationship of the Australian dollar to the US dollar is a key factor to watch, however, as any investor that’s long Australian equities is long the underlying currency. The RBA’s 50 basis point cut reduces its “interest rate” advantage relative to its peers, but at 3.75 percent the cash rate remains the highest in the developed world.

And the big picture is always comprised of what happens on the ground.

The Roundup

AE Portfolio Conservative Holding Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY) reported statutory net profit after tax (NPAT) of AUD2.92 billion for the six months ended Mar. 30, 2012, up 8 percent from the second half of fiscal 2011 and 10 percent over the prior corresponding period.

During its fiscal 2012 first half ANZ generated underlying profit–which adjusts for non-core items–of AUD2.97 billion, up 5 percent from the second half of fiscal 2011 and 6 percent over the prior corresponding period.

ANZ will pay an interim dividend of AUD0.66 per share, up 3 percent over its 2011 interim dividend. The payout ratio for the period, based on underlying earnings per share, is 58.8 percent.

Results outside Australia were solid; underlying profit at home was down 7 percent, but earnings in New Zealand ticked up 11 percent and 21 percent in Asia Pacific, Europe & America (APEA).  

Net interest margin for the period was 2.38 percent, down 9 basis points year over year and 6 half over half, as funding pressures brought on by domestic competition for deposits as well as higher wholesale funding costs driven by the on-again/off-again crisis in Europe.

ANZ has steadily diversified its funding base and boasts the smallest absolute structural funding requirement among Australia’s “Four Pillars,” the country’s largest banks, so named because they’re prohibited by statute from merging with one another. Customer funding accounts for 60 percent of total funding, and approximately 80 percent of its fiscal 2012 wholesale term funding requirements have been met.

ANZ posted 4 percent half-over-half and 15 percent year-over-year deposit growth, while net loans and advances, including bankers’ acceptances, grew 4 percent and 9 percent, respectively. Operating income for the period was AUD8.7 billion, up 4 percent sequentially and 3 percent year over year, as expenses ticked up 3 percent and 5 percent, respectively, to AUD4.02 billion. Total provisions across ANZ’s global operations were AUD565 million, up 3 percent from the second half of 2011 but down 14 percent compared to the first half of 2011.

Even in a challenging period at home ANZ continued to strengthen relative to its peers, as it added market share in all relevant segments. Domestic deposits were up 6 percent, and mortgages grew 4 percent.

Margin pressure from higher deposit pricing in Retail and Commercial plus higher long-term funding costs together with persistent low demand for credit led to the 7 percent profit decline. Income for the unit was down 2 percent, while costs were up 3 percent. Management anticipates benefits from a recently rolled out productivity program will rein in cost growth in the second half of the year. Wealth profit was down 9 percent due to tough market conditions and negative investor sentiment.

The New Zealand division posted solid results across the board, punctuated by strong cost management and lower provisions. Combined with a reduction in the corporate tax rate, this led to profit growth of 11 percent. Lending was flat, but deposits grew 4 percent. Retail profit increased 18 percent, Commercial 6 percent and Wealth 28 percent. Credit quality continued to improve as did margin, increasing to 2.65 percent.

APEA lending grew 12 percent, with expansion in all businesses. Deposits increased 17 percent, while the maturity profile of deposits continued to lengthen. The loan-to-deposit ratio sits at 58 percent. The 21 percent profit boost was driven primarily by a 76 percent increase in Institutional business profit. Global Markets trading revenues recovered strongly, and the unit reported 17 percent growth in customer revenues.

Well positioned internationally and doing well at home despite challenges, ANZ remains our favorite among Australia’s Four Pillars. These results, including the 3 percent dividend increase, support an increase in our buy-under target for Australia & New Zealand Banking Group, up to USD24.

Following are dates (confirmed, tentative or estimate) for each AE Portfolio Holding’s next earnings announcement. Where companies have reported we’ve included a link to our discussion and analysis of results.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Aug. 22, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• APA Group (ASX: APA, OTC: APAJF)–Aug. 21, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Jul. 26, 2012 (confirmed, CY/FY 2012 1H, end Jun. 30, 2012)
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2 Down Under Digest
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Aug. 16, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Aug. 21, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Aug. 27, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Aug. 29, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Aug. 9, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Transurban Group (ASX: TCL, OTC: TRAUF)–Aug. 2, 2012 (confirmed, FY 2012, end Jun. 30, 2012)

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 22, 2012 (confirmed, FY 2012 1H, end Mar. 30, 2012)
• Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY)–Aug. 23, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Aug. 20, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Aug. 13, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Sept. 20, 2012 (estimate, FY 2012, end Jul. 31, 2012)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Jul. 24, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Aug. 23, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Aug. 8, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–Aug. 29, 2012 (estimate, FY 2012, end Jun. 30, 2012)