The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price could be close to being fully valued.
That's the view of analysts at Goldman Sachs following the banking giant's half-year results.
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How did ANZ perform compared to expectations?
According to the note, ANZ delivered cash earnings ahead of the broker's expectations thanks to lower bad debts. However, things weren't quite as positive for its operating profit, which fell short of forecasts due to higher costs.
Goldman explained:
"ANZ's 1H22 cash earnings grew by 4% on pcp, 5% ahead of GSe. In contrast, 1H22 PPOP came in -3% lower than GSe, as a stronger NIM performance was more than offset by higher operating expenses and weaker non-interest income. The proposed interim DPS of A72¢ implies a payout ratio of 65% (non discounted DRP), while the 1H22 CET1 ratio of 11.5% (18.0% globally-harmonised) was 26 bp lower than GSe, largely driven by the RWA impact of higher rates."
What did Goldman say about the ANZ share price?
The note reveals that Goldman no longer sees sufficient value in the ANZ share price.
It has downgraded the bank's shares to a neutral rating and cut the price target on them to $29.84. And while this still implies potential upside of 9%, Goldman sees better opportunities elsewhere in the financial sector.
Particularly given how ANZ has now effectively abandoned its FY 2023 $8 billion cost base target, which offered valuation support, and a couple of specific issues putting pressure on the bank's performance.
Goldman commented:
"Today's result highlighted a significant shift in ANZ's cost aspirations, and our analysis suggests this is not just due to inflationary pressures, but also ANZ specific issues, including higher than previously anticipated investment spend requirements (that will also be expensed quicker), and lower than previously expected levels of productivity.
With our revised TP now implying only 9% upside, in the middle of our A&NZ Financials' coverage, we downgrade to Neutral. For the sector, beyond the cost issues, we saw ANZ's NIM result and rate leverage as more constructive than we had previously expected, and asset quality — and therefore provisioning — trends as benign."
