The Motley Fool

Is the ANZ share price in the buy zone?

On Friday the Australia and New Zealand Banking Group (ASX: ANZ) share price pushed higher following the release of its Pillar 3 update for the June quarter.

This release provides an update on the bank’s credit quality, capital, and Australian housing mortgage flows.

ANZ revealed that it recorded a total provision charge of $209 million for the June quarter, which was broadly flat compared with the first half quarterly average. It was a similar story for its total loss rate, which at 13 basis points was consistent with the first half loss rate.

The bank finished the period with a Group Common Equity Tier 1 ratio of 11.8%, up 30 basis points since the end of the March quarter. And on a pro forma basis, which includes announced divestments and recently announced capital changes, ANZ’s CET1 ratio is now 11.5%.

Does this make ANZ’s shares a buy?

Whilst I continue to believe that ANZ’s shares would be a good option for investors looking for exposure to the banking sector, not everyone shares this view.

One broker which isn’t quite as positive is Goldman Sachs.  According to a note out of the investment bank, it has retained its neutral rating and $28.54 price target on its shares following the update.

This price target implies potential upside of 8.8% for its shares over the next 12 months excluding dividends and almost 15% including them.

Goldman explained: “Today’s result continues to highlight that capital remains strong and well above APRA’s 10.5% ‘unquestionably strong’ minimum. To this end we estimate that ANZ’s pro-forma ratio of 11.5% implies >A$4bn in surplus capital, albeit uncertainty around RBNZ’s capital proposal remains. Further, while it continues to see challenges across mortgage lending, management appear to have prioritized focus in reversing the soft trends given policy and process changes implemented in the quarter.”

It continues to favour National Australia Bank Ltd (ASX: NAB) and has a buy rating on its shares. Though I suspect it might not be long before Goldman Sachs changes its rating on ANZ’s shares given the potential returns on offer with its current price target.

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Motley Fool contributor James Mickleboro 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.

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