The Motley Fool

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. 

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