The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is defying the market weakness and pushing higher on Friday.
In afternoon trade, the banking giant's shares are up 0.5% to $25.11.
Where next for the ANZ share price?
Unfortunately for investors, one leading broker believes the ANZ share price is about fair value now and unlikely to climb meaningfully higher.
According to a note out of Goldman Sachs, in response to the bank's full year results, the broker has retained its neutral rating with a slightly improved price target of $26.25.
Based on the current ANZ share price, this implies potential upside of 4.5% for investors.
Though, it is worth remembering that the bank is a dividend payer, so there's more to it than just potential share price gains.
Goldman is now expecting a fully franked dividend of $1.58 per share in FY 2023, up from its previous estimate of $1.57. This equates to a generous 6.3% yield, taking the total potential return closer to 11%.
What did the broker say?
Goldman was pleased with ANZ's full year results and has updated its earnings estimates to reflect a higher than expected exit net interest margin (NIM). It explained:
ANZ's FY22 cash earnings were up 5% on pcp and 1.4% ahead of GSe, with the beat driven primarily by outperformance on the BDD charge. We revise our FY23/24/25E EPS by +6.1%/+0.9%/+0.6%, largely due to higher NIMs in FY23, and as a result, our 12-mo TP moves to A$26.25 (from A$26.09).
And while ANZ's NIM is peaking higher and sooner than expected, the broker ultimately expects the majority of this benefit to be wiped out by increasing costs in FY 2024. It said:
Today's result suggested that while ANZ's NIM is likely to peak at higher levels than we previously forecast, this peak is also likely to come through earlier (GSe 1H23). While this bodes well for ANZ's FY23E revenue growth (GSe +16%), the benefits do not sustain into FY24E, while cost pressures will. To this end, we note our revised FY24E PPOP growth is flat. Therefore, with the stock trading on 6.5x PPOP earnings, broadly in line with its 15-yr average, stay Neutral.
In light of the above, the broker sees the ANZ share price as fairly valued now and prefers other options in the sector.
