ANZ Group Holdings Ltd (ASX: ANZ) shares are not on my watchlist because of a few key factors.
ASX bank shares are going through a very interesting period of time.
I'll acknowledge that a couple of the metrics of ANZ do look compelling. Commsec numbers suggest that ANZ shares are valued at just 10 times FY23's estimated earnings with a potential grossed-up dividend yield of 9.6%.
Those numbers do seem attractive, but a cheap, high-yielding ASX share isn't necessarily going to perform strongly.
ANZ may well produce good returns from here, but there are a few reasons why I'm not looking to buy shares.
Acquisition distraction
ANZ is currently on a distracting mission to try to buy the banking division of Suncorp Group Ltd (ASX: SUN).
It's not a done deal yet. Not in the slightest. Even if the deal were to go ahead, I think the integration process would be very distracting for management. I think the next year or two is when management needs to be laser-focused on the banking settings after all of the interest rate rises.
In the ACCC's statement of preliminary views, it noted that despite the various developments and trends in Australian banking in recent years, there remain "significant regulatory and structural barriers for new entrants and smaller providers."
Despite all the effort and attention that has been put into this potential deal, there's no guarantee it's even going to go ahead.
Weakening economic picture
The last 12 months have really shaken things up.
Initially, the higher interest rates were seen to be a really good boost for the ANZ lending margins. But, there's now so much competition that this may now be harming all of the banks' profit margins.
The situation now seems to be that the lending profitability is falling and there's the prospect of higher bad debts as the effects of higher interest rates start to kick in.
If ANZ can't grow its profit any time soon, then I'm not sure what's going to drive the ANZ share price much higher from where it is today.
Let's also keep in mind that the economic picture for credit growth is fairly weak at the moment.
Low growth likely
Not only is the wider picture difficult for ANZ, but the business itself may not be able to deliver a lot of growth. Yes, there may not be much system growth.
But, for some time ANZ has been trying to catch up with its technology and systems so that it is able to offer the same approval times for loans as other lenders. If ANZ can't compete properly then it's going to miss out on the best borrowers.
ANZ has been doing a lot of work on improving its digital capabilities, but I fear that its focus on trying to buy growth with the Suncorp deal means that ANZ isn't keeping its eye on the prize.
I'm looking for businesses that can deliver more growth over the longer term, which I don't think describes ANZ.
