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Australia and New Zealand Banking Group earnings preview

Tomorrow morning banking giant Australia and New Zealand Banking Group (ASX: ANZ) will be the first of the big four to report its half-year results for FY 2018.

Ahead of the release I thought I would take a quick look at what the market is expecting from ANZ Bank tomorrow.

What is the market expecting ANZ Bank to report?

According to a note out of Goldman Sachs, the broker expects ANZ Bank to report cash earnings from continued operations (pre-nonrecurring items) of $3,398 million.

This will be an increase of approximately 1.3% on the prior corresponding period.

Although cash earnings are expected to grow, the broker doesn’t believe this will result in a lift to its interim dividend. Goldman has forecast a fully franked dividend of 80 cents per share for the first half, flat on the prior period.

In addition to this, the broker expects ANZ Bank to deliver solid Australian loan growth that is 1.1x the system growth in the six months to March 31. This forecast is backed up by data provided by APRA which revealed that ANZ was the strongest of the major banks in home loans in the five months to February 2018.

In respect to the bank’s capital position, Goldman believes it will be comfortably ahead of APRA’s 10.5% requirement after offloading assets during the half. It also notes that the bank is coming towards the end of its $1.5 billion share buyback and feels further capital management is likely.

Should you invest?

If ANZ Bank delivers a result in line with the market’s expectations, then I think it would be a great option for investors.

Especially those in search of income. Even though ANZ Bank is forecast to keep its dividend on hold at 80 cents per share, this still translates to be a generous yield of just under 6% based on its last close price.

Further, Goldman rates ANZ Bank ahead of its Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA) and has it on its conviction buy list with a price target of $32.80.

This implies potential upside of over 22% for the bank’s shares over the next 12 months, or over 28% when factoring in its dividend. I think this means that its shares offer a compelling risk/reward that makes it well worth considering.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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