MENU

This blue-chip bank share could have made you 3 times your money

Australia and New Zealand Banking Group (ASX: ANZ) is Australia’s fifth-largest listed company with a market capital of $81.36 billion. With a current share price of $28.08, ANZ has a P/E ratio of 13 which has some investors sniffing around for value. 

Shareholders who bought the stock in January 2009, just after the global financial crisis, could have secured over 200% in capital growth. In recent times however, the share price has suffered.

Since March 2015, the ANZ share price has fallen from over $36 to just over $28 currently. The pain for shareholders has continued with the recent Royal Commission into the banking sector.  

Despite hitting near 52-week lows of $26 in mid-June, the ANZ share price has made positive strides in the past 3 weeks with a 7% rise. This has some investors thinking that ANZ is eyeing off a profitable future. 

Historically, ANZ is a fundamentally strong company. Since 2008, ANZ has earnt $20.73 per share whilst paying out $14.92 in fully franked dividends. During the same time period, ANZ has grown book value per share from $12.55 to $20.07. 

This means that per share, ANZ has retained $5.81 in earnings for $7.52 in book value growth. Concurrent with effective allocation of profits, ANZ has increased earnings per share from $1.36 in 2008 to $1.95 in 2017. 

Earnings growth is largely attributed to revenue from interest bearing assets that ANZ holds. Since 2008, ANZ has grown its net interest income from $7.85 billion to $14.96 billion last year.  

Despite this growth, the factors underpinning net interest income should be questioned by investors. As at 30 June 2017, ANZ had $580.3 billion in net loans and advances which is approximately 7 times larger than its current market capital. 

A 2018 priority for the bank was to “maintain momentum in our home loan and small business franchises to deliver consistent, above-system growth in a cautious and responsible way”.  

With murmurs of a housing correction and Sydney prices now falling, ANZ appears susceptible to any adverse developments.

Furthermore, with the integrity of banks being placed under scrutiny, investors should examine the “cautious and responsible” behaviour of ANZ. 

Foolish takeaway

If ANZ is acting responsibly, investors are exposed to a significant discount on a historically strong company. In my opinion however, regardless of behaviour, ANZ is far too exposed to the home loan bubble that I believe to exist. 

The ASX small cap up 285% with no sign of stopping...

One Australian company has developed a state of the art device that's revolutionizing hospitals all over the world. Even better, this device is so profitable that the company rakes in 90% margins. That's a lot of cash. So no wonder the stock's up 285% since 2008 – with no signs of stopping...

To discover the name and code, simply click the link below. You'll discover our expert's #1 medical technology pick... and you can decide for yourself whether to get invested today.

Click here to claim your free report.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.