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Down 9% in a month, is the ANZ share price a buy?

ANZ Bank

The Australia and New Zealand Banking Group (ASX: ANZ) share price has fallen around 9%, is it a buy?

The major ASX bank’s FY19 result didn’t inspire confidence for investors. Statutory profit after tax fell 7% to $5.95 billion. Continuing cash profit was essentially flat at $6.47 billion, return on equity (ROE) fell 10 basis points (0.10%) to 10.9%, return on average assets dropped 4 basis points (0.04%) to 0.68% and the total credit impairment charge as a percentage of average gross loans and advances increased by 1 basis point (0.01%) to 0.13%.

The share buyback helped continuing cash profit per share (EPS) grow by 2% to 227.6 cents, which helped the total dividend per share stay at $1.60, although the composition of earnings meant the franking credit level was reduced from 100% to 70%.

Franking credits are only generated by Australian taxes paid. In FY19 ANZ only generated 55% of its statutory profit from Australia, 29% was from New Zealand and 16% was from international sources. In FY17, 64% of ANZ’s earnings were generated from Australia.

The lower the share price the better value, so it’s more attractive to buy ANZ today than it was a month ago. The dividend yield is now boosted to a partially franked 6.3%, with franking credits it still amounts to around 8%.

Foolish takeaway

A business can go up after reporting and be cheap, or it can down and be expensive. ANZ is trading at under 12x FY20’s estimated earnings. I don’t think ANZ looks look a screaming buy even if it’s price/earnings ratio is low. I’m unconvinced that it can grow profit in this low net interest margin (NIM) environment.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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