$1.5bn buy-back: Is the ANZ (ASX:ANZ) share price a bargain buy?

Is now a good time to buy ANZ shares?

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The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price defied the market weakness on Tuesday and pushed higher.

The banking giant’s shares ended the day with a gain of 0.6% to $27.32.

This means the ANZ share price is now up almost 19% in 2021.

What drove the ANZ share price higher?

The catalyst for the rise in the ANZ share price on Tuesday was the positive reaction to its surprise announcement of a $1.5 billion on-market share buy-back.

ANZ’s Chair, Paul O’Sullivan, commented: “Despite the very real challenges being experienced by many of our customers, we have the financial strength to continue to support our customers, while also returning surplus capital to shareholders. After reviewing options, we consider an on-market buy-back to be the most prudent, fairest and flexible method to return capital in the current environment.”

What was the reaction?

The market was caught by surprise by the announcement. With Australia battling COVID-19 outbreaks and lockdowns occurring across much of the country, most analysts expected the big four banks to postpone capital management initiatives.

One broker that was pleased with the news is Goldman Sachs. In response, the broker retained its buy rating and lifted its price target on the company’s shares to $30.50.

Based on the current ANZ share price, this implies potential upside of 11.5% excluding dividends.

What did the broker say?

Goldman commented: “While today’s announcement is broadly consistent with management commentary at its 1H21 result, the timing does come as a positive surprise, particularly in light of the current Sydney-centric Covid-19 outbreak and announcement today by APRA of further regulatory capital support for loans subsequently impacted.”

The broker notes that APRA has signed off on the buyback, which bodes well for Commonwealth Bank of Australia (ASX: CBA) and the rest of the big four.

It explained: “With APRA having signed off on this buyback, we think the ANZ announcement highlights the regulator’s comfort around the financial strength of ANZ — and the sector more broadly — despite the recent Covid-19 outbreak.”

“We forecast CBA to announce a A$3.5 bn special dividend at its FY21 results on 11-Aug and note that pro-forma surplus capital as a percentage of market capitalisation currently sits at 9.1% for NAB, 7.7% for WBC, 6.4% for CBA and 5.7% for ANZ.,” Goldman added.

The good news for shareholders and the ANZ share price, is that Goldman doesn’t expect the capital returns to stop there. It is forecasting a further $1.5 billion buy-back over the course of FY 2022 due to the surplus capital that still remains.

Should you invest $1,000 in ANZ right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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