Could it be time to buy Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares at today's share price?
The ANZ share price hasn't moved much over the last month, but it has gone up just over 60% over the last six months.
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Why has the ANZ share price risen so much?
ANZ and the overall market are seeing a recovery right now. The painful credit provisions that were taken earlier during 2020, because of the COVID-19 pandemic, are not being repeated.
In the three months to 31 December 2020 (the first quarter of ANZ's FY21), it generated cash profit from continuing operations of $1.81 billion – up 54% on the average of the last two quarters of 2020. It was a similar sort of story as the bank generated $1.62 billion of statutory profit.
That quarterly average of the credit impairment charge in the first half of FY20 was $827 million and in the second half the quarterly average was $541 million. In the first quarter of FY21, ANZ decided on a capital release of $150 million reflecting improved economic conditions.
ANZ said that margins were up across the group due to higher volume growth in targeted segments and a "disciplined and active approach to risk and pricing". ANZ managed to achieve the profit result whilst keeping costs in check and operating with the majority of employees still working remotely.
The number of Australian loans being deferred has dramatically reduced. In mid-February, ANZ said that of the 96,000 loans where a deferral was provided, only 15,000 were still being deferred. Those active deferrals represented $6 billion.
Balance sheet
The ANZ share price is also being supported by its strengthening balance sheet. At 31 March 2020, it had an APRA common equity tier 1 (CET) ratio of 10.8%, which had increased to 11.3% at 30 September 2020 and rose again to 11.7% at 31 December 2020.
Is now a good time to buy the ANZ share price?
ANZ has already risen quite a bit, the broker Macquarie Group Ltd (ASX: MQG) thinks the major bank can rise further with a price target of $30 and rates it as a buy.
However, Macquarie believes that low interest rates could be a pain for ANZ's margins.
Morgan Stanley has a price target of $26.20 for ANZ, which suggests a bit of a decline. Using Morgan Stanley's numbers, the ANZ share price is valued at 14x FY21's estimated earnings with a dividend of $1.15 per share. That would be a grossed-up dividend yield of 5.9% if the dividend is fully franked.
