Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?
Economists at ANZ may certainly think so after the bank predicted that house prices are going to grow by the end of the year. If that happens then ANZ’s prospects may well be better than they have been for a lot of the past 12 months. Better credit growth could return.
ANZ is the only major ASX bank to have done a share buy-back in recent times, it has been performing quite well. Perhaps that’s because it was being strict with its lending. Whilst credit growth has been low, profit growth hasn’t been bad.
In the March 2019 half-year report ANZ reported that its continuing cash profit increased by 2% and continuing earnings per share (EPS) increased by 5% (thanks to the reduced share count from the buy-back). These are solid numbers in this environment.
The cash profit including discontinued operations increased by 22%, although the statutory profit after tax fell 5% and the dividend was maintained at $0.80 per share.
In some ways ANZ has been the best bank over the past year with provision charges falling and the loss rate decreasing marginally, but it is certainly not out of the woods.
Other banks like Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) are seeing an increase in their mortgage arrears and this could certainly have a flow-on effect to ANZ indirectly if the economy were to worsen.
Even ANZ CEO Shayne Elliot said at the time “Retail banking in Australia will remain under pressure for the foreseeable future with subdued credit growth, intense competition and increased compliance costs impacting earnings.”
I certainly agree that ANZ is in a tough market at the moment. It might be trading at 11x FY20’s estimated earnings with a grossed-up dividend yield of 8.4%, but there is still a chance things could still go wrong over the next 12 months. I wouldn’t want to buy shares today.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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.