Is the ANZ share price too cheap to ignore?

ANZ shares could be an opportunity, according to some investors.

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Key points

  • Some analysts think the ANZ share price is cheap
  • Citi thinks it’s a buy, with upside of around 10%
  • It has been experiencing profitability impacts, but rising interest rates could help

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price hasn’t done much in recent months. But some analysts think it could be good value. Are the shares too cheap to ignore?

It’s one of the biggest banks in Australia along with Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), and Commonwealth Bank of Australia (ASX: CBA).

On a price-to-earnings (P/E) ratio basis, ANZ shares have recently been the cheapest compared to the other big banks.

Is the ANZ share price cheap?

According to Commsec estimates, ANZ shares are valued at 13x FY22’s estimated earnings.

Projections show profit growth in FY23 and FY24. The ANZ share price is valued at 12x FY23’s estimated earnings and 11x FY24’s estimated earnings, according to Commsec.

Since the start of 2022, the ANZ share price has dropped by less than 2%. That’s outperformance against plenty of ASX shares that are known for growth. For example, the REA Group Limited (ASX: REA) share price has fallen 25% in 2022 and the Seek Limited (ASX: SEK) share price has fallen by 17%.

There are plenty of ‘buy’ ratings on the ANZ share price.

For example, Citi recently called the bank a buy with a price target of $30.75. It thinks the bank will benefit from rising interest rates, which should help with the net interest margin (NIM). There is a possibility that bad debts will increase, but Citi thinks it will be a net benefit for ANZ and the ANZ share price.

However, Morgan Stanley is less convinced. It is only ‘equal-weight’ on the bank due to concerns regarding a weaker growth outlook and the loss of market share.

ANZ share price broker valuations

Citi thinks the big four ASX bank is valued at 13x FY22’s estimated earnings and under 11x FY23’s estimated earnings. The broker likes ANZ because it looks cheap compared to CBA and NAB.

Morgan Stanley has lower expectations of ANZ profit, putting the ANZ share price at 14x FY22’s estimated earnings and 13x FY23’s estimated earnings.

Latest profit result

In FY21, ANZ generated a statutory profit after tax of $6.2 billion, which was an increase of 72% year on year. However, the cash profit from continuing operations, before credit impairment and tax, was $8.4 billion. This was flat compared to the prior year. But this report was released several months ago.

The latest investors heard from the bank was a market update for the three months to 31 December 2021.

In that quarter, the group net interest margin was down eight basis points for the quarter, with the continuation of the “structural headwinds” impacting the sector. However, it did say that the impact of rising rates, predominantly in New Zealand, and recent deposit pricing changes were expected to moderate the ongoing headwinds in the second quarter.

The performance of profitability can affect the ANZ share price.

It has been working on managing both its attrition and margins. ‘Simple’ home loan application times are now in line with other major lenders. But, the bank continues to work on its complex loan application systems and processes.

Revenue with ANZ’s ‘markets’ business for the month of October was softer because of trading conditions, which is expected to impact FY22’s first-half performance.

Costs to run the bank are expected to be broadly flat in the first half. The credit quality environment has remained benign, with a total provision release of $44 million during the quarter.

The leadership said its capital position continues to provide flexibility to return further surplus capital to shareholders.

ANZ is due to release its half-year result on 4 May 2022.

Motley Fool contributor Tristan Harrison 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 recommended REA Group Limited, SEEK Limited, and Westpac Banking Corporation. 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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