The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price may be a buy according to fund manager Rhett Kessler from Pengana Capital Group (ASX: PCG).
A quick overview of ANZ
ANZ is one of the biggest banks across Australia and New Zealand. It has a market capitalisation of $65.4 billion according to the ASX.
It's one of Australia's biggest banks along with Commonwealth Group of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB).
What happened in the latest result?
ANZ reported its FY20 result to investors just over a month ago.
Its profit had a difficult year with (continuing operations) cash profit falling by 42% to $3.76 billion. Statutory net profit after tax fell by 40% to $3.58 billion.
When ANZ excluded certain items, the profit decline didn't look as steep. Profit before the credit impairments and tax fell by 16% to $8.37 billion. Profit before credit impairments, tax and large notable items only fell by 1% to $10.1 billion.
The ANZ share price has gone up over 20% since the release of the result. But there are have been other major news items since then such as the US election winner and the effectiveness of COVID-19 vaccines.
The major ASX bank explained that the total provision charge in the second half was $1.06 billion and followed the $1.67 billion charge taken at the first half. The bank wanted to strengthen its credit reserves for its retail and commercial customers affected by COVID-19. The collective provision balance increased to $5 billion at 30 September 2020.
ANZ revealed that its gross loans and advances increased by 1% to $622 billion whilst customer deposits grew by 8% to $552.4 million.
Its common equity tier 1 (CET1) ratio declined by 2 basis points to 11.3%.
Why the ANZ share price may be a buy
Mr Kessler from Pengana said there are a few reasons why his fund recently increased its exposure to banks including ANZ shares.
The first point was accelerating home loan growth (supported by low-interest rates and first homeowner support). The second point was a supportive federal budget, improving housing finance approvals and house prices holding up better than expected. The third point was a meaningful reduction in loan deferrals. The final point was lower than anticipated loss provisioning.
What about the dividend?
In FY20 ANZ decided to reduce its dividend by 62.5% to $0.60 per share. Under the Australian Prudential Regulation Authority's (APRA) guidance, banks were limited to paying dividends of 50% of the statutory profit.
There is now talk that APRA may end those dividend restrictions. According to reporting by ShareCafe, APRA boss Wayne Byers told a Sydney finance conference that:
"We have deliberately never put in place guidance for a long period of time. Obviously we will be minded how the situation has evolved. On the whole, I think the outlook has improved, bank capital has certainly increased, the economic situation looks more positive. I think it is time we look at the issue again."
At the current ANZ share price it has a trailing grossed-up dividend yield of 3.7%. According to Commsec, it's valued at 13x FY22's estimated earnings. By FY23 it's projected to be paying an annual dividend per share of $1.41, which equates to a forward grossed-up dividend yield of 8.6%.
