Goldman Sachs gives its verdict on the ANZ share price

Is the ANZ share price good value at current levels?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

A man thinks very carefully about his money and investments.

Image source: Getty Images

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.

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 Scott Phillips.

More on Bank Shares

Corporate businesspeople group discussing strategies in professional indoors setting.
Bank Shares

CBA vs Westpac shares: Which is the best buy?

One is cheaper. The other has the stronger franchise in my view.

Read more »

View from below of a banker jumping for joy in the CBD surrounded by high-rise office buildings.
Bank Shares

CBA shares bounce after settling long-running class action

The bank is back in the green after a difficult month.

Read more »

A little girl wearing a gold crown sulks and pokes her tongue out.
Bank Shares

Will CBA shares ever get back to the top of the ASX 200?

Can CBA take back what it lost?

Read more »

Gold piggy bank on top of Australian notes.
Bank Shares

How many CBA shares do I need to buy for $8,000 of passive income?

What sort of dividend income can CBA produce?

Read more »

View of a business man's hand passing a $100 note to another with a bank in the background.
Dividend Investing

6%: Bendigo Bank just unveiled its latest dividend

Can this bank maintain its massive yield?

Read more »

Worried woman calculating domestic bills.
Bank Shares

Are Westpac shares a buy at their new 52-week low?

The shares are cheaper, but I still have concerns about the growth outlook.

Read more »

Happy young woman saving money in a piggy bank.
Earnings Results

Bendigo and Adelaide Bank FY26 earnings: profit lifts to $375.1 million, dividend steady

The regional bank has released its FY 2026 results this morning.

Read more »

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

3 reasons to buy CBA shares following its results

CBA's scale and technology remain major strengths in my view.

Read more »