The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price has received a boost after the broker Macquarie decided to upgrade its rating on the business to outperform, up from neutral.
ANZ is one of the largest ASX bank shares alongside Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB).
Share prices are changing all the time, but it's interesting that Macquarie has become more positive on ANZ during this period of rising interest rates.
What was the cause of the upgrade for the ANZ share price?
As first reported by my colleague James Mickleboro, Macquarie thinks that banks like ANZ can benefit from rising interest rates and the slower-increasing rate offered for term deposits.
It's because of this that the broker believes that ANZ's earnings could do well in the first half of FY23.
However, Macquarie doesn't think that this is a long-term profit boost. Instead, FY24 and future financial years could see profit hit by a weakening loan book as higher interest rates bite into borrowers' ability to make repayments.
Despite that, the positive shorter-term outlook led Macquarie to increase the ANZ share price target from $23.50 to $24.
What is the valuation?
Let's look at the price/earnings (p/e) ratio that Macquarie's projections put ANZ shares at.
Using the profit predictions, the broker thinks that ANZ is valued at 11 times FY23's estimated earnings.
Turning to FY23, Macquarie's numbers suggest that ANZ is priced at under 12 times FY23's estimated earnings.
How big will the dividend be?
Ultimately, it's the ANZ board that decides how much of a dividend to pay to shareholders each year.
However, Macquarie has estimated how much the big four ASX bank share may pay to investors.
At the current ANZ share price, the FY22 grossed-up dividend yield could be 8.75% and the FY23 grossed-up dividend yield could be 8.9%.
Margins moving higher already
In the FY22 third quarter, which was for the three months to 30 June 2022, ANZ said that "strong lending and margin momentum was evident across all our major businesses in the quarter", leading to revenue rising by 5%. Lending volumes rose by $2 billion, or 3% annualised.
Looking at the group net interest margin (NIM), it increased by 3 basis points and the underlying NIM went up 6 basis points to 164 basis points (1.64%). This was largely driven by the impact of rising interest rates, partly offset by "intense" price competition in home lending in Australia and New Zealand.
ANZ is expecting interest rate rises to be supportive of margins in the fourth quarter.
Costs across the group are being "tightly managed", with 'run-the-bank' costs expected to be "broadly flat" in the second half despite inflation.
ANZ share price snapshot
Over the past six months, ANZ has fallen by more than 10%.
