Top broker says the ANZ share price is excellent value for investors

ANZ’s shares could be great value according to one top broker…

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Key points

  • Goldman Sachs believes ANZ's shares are a buy.
  • The broker thinks the market may be too bearish on bank net interest margins.
  • Its analysts see upside risk to estimates from rising rates.

If you’re wanting exposure to the banking sector, then Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares could be one way to do it.

That’s the view of the team at Goldman Sachs, which this morning spoke positively about the banking giant.

What did Goldman say about the ANZ share price?

According to a note out of the investment bank, its analysts have retained their buy rating and $30.84 price target on the bank’s shares.

Based on the current ANZ share price of $26.69, this implies potential upside of 15.5% for investors over the next 12 months.

And with Goldman expecting a 12-month fully franked dividend yield in the region of 5.5%, the total potential return on offer stretches to a sizeable 21%.

What did the broker say?

Goldman has been looking over the banking sector and believes that the market’s view on major bank net interest margins (NIMs) is too bearish given its view on rates.

It notes that the market and its own Economics Team are forecasting the cash rate to rise to just above 2.5% by the end of 2024. It believes this will be good news for retail banks as the rates earned on assets will generally follow the cash rate higher, while the cost of liabilities should rise more slowly.

Based on this, it feels the market’s view on bank NIMs is too conservative.

It explained: “Using CBA’s 1H22 NIM sensitivity disclosures as a guide, we estimate the current market pricing for the RBA cash rate implies about a nearly 30 bp tailwind to major bank net interest margins out to Dec-24. Adjusting this for the c. 40 bp variable rate mortgage front- vs. back-book spread, and GSe/Visible Alpha (VA) consensus NIM forecasts, it implies GS/VA is forecasting 24/26 bp of NIM impact from incremental price competition (and/or liquid impacts etc) over this period.”

“Our analysis of both mortgage book and deposit competition suggests that this rate of forecast competition, while possible, would appear conservative, leaving potential upside risk to NIMs. This is particularly the case given our view that, as rates rise, major banks will increasingly become the marginal competitors, as their rate inert deposit bases become more valuable,” Goldman added.

This could bode well for ANZ and its share price in the coming years.

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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