The Australia and New Zealand Banking GrpLtd (ASX: ANZ) is outperforming after a leading broker upgraded the stock to "buy".
The Australia and New Zealand Banking Group share price jumped 2.4% to an 18 -month high of $28.23 at the time of writing when the S&P/ASX 200 Index (Index:^AXJO) fell 0.8%.
In contrast, the Commonwealth Bank of Australia (ASX: CBA) share price gained 0.8%, the National Australia Bank Ltd. (ASX: NAB) share price added 1.8% and the Westpac Banking Corp (ASX: WBC) share price increased 0.8%.
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Broker upgrades ANZ Bank share price to "buy"
The ANZ Bank share price may be getting an extra boost from Goldman Sachs. The broker upgraded the stock to "buy" as the sector's net interest margins (NIMs) are performing better than expected.
NIMs measures how much a bank makes from loans compared to its cost of funds. It's a key profitability measure and the outlook is bright for the sector through to FY22.
"Analysis of Canstar product pricing data suggests that deposit pricing already announced should provide about a 5 bp [basis points] tailwind to sector FY21 NIMs, with the banks potentially having a further 3 bp of NIM tailwinds thereafter if they move their online savings and term deposits rates down to 10 bp," said Goldman.
"Drawing down on their remaining term funding facility (TFF) will add about another 2 bp to NIMs, and there's another 4 bp of NIM tailwinds to come through over five years if current senior unsecured spreads hold."
Margin pressure a longer-term issue
These factors are enough to offset the margin squeeze from structural changes for another year or so.
"While funding and deposit mix might provide some offset to these structural NIM headwinds, it's difficult to envisage a scenario in FY23-25E in which margins are not down cumulatively 10-15 bp," added the broker.
"We suspect any outperformance against this estimate would likely require either higher cash rates, an alleviation of mortgage competition, or mortgage back-book repricing."
Why ANZ Bank shares are worth buying now
Having said that, the longer-term margin risks isn't enough to dissuade Goldman from urging investors to buy the ANZ Bank share price now.
This is because the broker believes management will provide an update on the bank's cost targets at its first half results in May. This could be a positive catalyst for the shares.
Further, ANZ Bank's balance sheet is strengthening and its first quarter trading update showed its well placed in the current NIM environment.
It also helps that the ANZ Bank share price is trading at around a 20% discount to its peers.
Goldman's 12-month price target on the shares is $29.01.
