The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price fell for the second day as a broker downgrade is adding to the pressure.
The ANZ Bank share price slipped 0.4% to $27.79 in morning trade after it lost over 3% yesterday on the back of its profit results.
ANZ Bank downgraded as upgrade cycle runs out of puff
What may also be weighing on sentiment towards the ANZ Bank share price is a note by Morgan Stanley.
The broker lowered its recommendation on the ASX bank to “equal weight” from “overweight” as it believes ANZ Bank’s upgrade cycle has reached an end.
“We think ANZ’s TSR has been the best of the majors over the past year due to the execution of its simplification strategy, superior capital management and leverage to recovery,” said the broker.
“However, we now expect a pause in the upgrade cycle to limit further share price upside.”
Top-line growth hard to come by
While the bank’s 6-basis point increase in net interest margins over the half was pleasing, the bigger issue is the lack of revenue growth.
Morgan Stanley isn’t holding out much hope of any improvement to ANZ Bank’s top-line. This is because of the loss of Australian mortgage momentum, lower institutional lending, NZ macroprudential measures and a normalisation of Markets income.
Dividend growth to take backseat
The other issue it that the broker does not believe ANZ Bank can increase its dividend at the next reporting season.
“ANZ lifted the dividend to 70c, which is ‘more in line with the targeted long term payout ratio of 60-65%’,” added the broker.
“However, based on our forecasts, the dividend is unlikely to grow again until FY23.”
Morgan Stanley also lowered its 12-month price target on the ANZ Bank share price to $28 from $28.50 a share.
ANZ Bank share price may represent longer-term value
However, not all brokers have taken a dim view of the ASX bank. Macquarie Group Ltd (ASX: MQG) reiterated its “outperform” rating on ANZ Bank as it described the results as “respectable”.
On the other hand, the broker did acknowledge that the bank’s 2HFY21 guidance appears less optimistic.
“In this context, relative underperformance following the result was not surprising, particularly when coupled with the solid share price performance in the lead-up,” said Macquarie.
“However, in the medium term, we believe ANZ continues to offer better relative value than peers.”
Macquarie’s 12-month price target on the ANZ Bank share price is $30.50 a share.