The ANZ Group Holdings Ltd (ASX: ANZ) share price has been rising. After rising 5% in a month and 13% in six months, is the ASX bank share still an opportunity to invest in?
It's about to be reporting season for many of the companies on the ASX, though not for ANZ. The bank is planning to release its half-year result on 4 May 2023. However, we may see some interesting details announced in its quarterly update which should be released in the next few weeks.
However, investors will be able to get a good look at the banking sector with updates from ASX bank shares like Commonwealth Bank of Australia (ASX: CBA), Bendigo and Adelaide Bank Ltd (ASX: BEN), Suncorp Group Ltd (ASX: SUN) and Mystate Ltd (ASX: MYS). We could also get insights from non-banks such as Pepper Money Ltd (ASX: PPM).
Are ANZ shares a good opportunity?
Using the estimates on Commsec, the ANZ share price is valued at under 11 times FY23's estimated earnings. However, the profit projections show that the big ASX bank share's earnings could remain virtually flat over the following two financial years to 2025.
The potential dividend income could be very promising.
Commsec numbers suggest that ANZ could pay an annual dividend per share of $1.54 in FY23. This would translate into a grossed-up dividend yield of 8.8%.
An even bigger dividend is expected in FY24 of $1.60 per share, which would translate into a grossed-up dividend yield of 9.2%.
Regardless of what the ANZ share price does, I think the dividend income alone could provide a good return for the bank.
Improvement of banking performance
Over the last few years, ANZ has reportedly lagged behind its major peers in terms of how quickly it is able to process a loan application. If a prospective borrower has the choice between two identical loans, one that takes three weeks and one that takes five weeks, I'd guess that they would choose the quicker one.
ANZ has been investing in technology to get back up to speed. In its 2022 annual report, it said that operational improvements have resulted in home loan processing times being back in line with the market.
Perhaps even more importantly, the business is benefiting from a rising net interest margin (NIM).
With the Reserve Bank of Australia (RBA) increasing interest rates, this is boosting how much interest-related profit the ASX bank share is able to generate. Not only does a higher interest rate mean more income, but it can result in more profit because banks are passing on rate hikes to borrowers at a stronger pace than savers.
Higher interest rates are certainly a short-term net benefit for banks, though it'll be interesting to see how this impacts arrears in the longer term.
ANZ expects to earn $1.5 billion more net interest income in FY23 and over $3 billion in FY25 because of higher interest rates.
Time to buy ANZ shares?
The ASX bank share does look cheap, particularly compared to a bank like CBA. But, I'm keeping in mind that acquiring the banking division of Suncorp could be a distraction from improving the core banking division.
According to Commsec, ANZ is rated as a buy by seven analysts, it's rated as a hold by seven analysts and it is rated as a sell by three analysts.
I think it would be a decent long-term buy at this level, though I prefer others in the ASX bank share sector.
