Why ANZ shares are Citi's 'top pick' in the ASX 200 banking sector

This is the bank stock to by now according to analysts at Citi.

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Key points
  • Citi is bullish on ANZ and has named it as its top sector pick
  • The broker believes it is performing ahead of expectations in FY 2023
  • Its analysts also believe its institutional business is a key reason to invest

There are plenty of options for investors to choose from in the ASX 200 banking sector. But as far as analysts at Citi are concerned, investors should be loading up on ANZ Group Holdings Ltd (ASX: ANZ) shares.

The broker recently named ANZ as its top pick in the sector and sees some big returns ahead for investors.

Happy man at an ATM.

Image source: Getty Images

Why ANZ shares?

According to the note, the broker believes that ANZ shares are the best option in the sector right now due to the bank's stronger than expected performance in FY 2023 and its institutional business.

In respect to its performance, the broker believes that ANZ's first-quarter update suggests that it is performing above the market's expectations. It said:

ANZ's 1Q23 disclosures exhibited strong trends in both lending growth and asset quality. No earnings disclosure was provided, but we think that after backing out RWA movements from capital, it comfortably implies above market earnings.

A key driver of this could be its institutional business, which the broker believes is performing particularly well in the current environment. It adds:

Institutional lending momentum continued and accelerated in the Dec qtr, which we expect was driven by more available liquidity and pricing vs debt markets. ANZ remains our top pick in the sector, and we expect the lending momentum, particularly in institutional, to continue to differentiate vs peers.

Big returns

The note reveals that Citi has a buy rating and $27.25 price target on the bank's shares.

Based on the current ANZ share price of $24.33, this implies potential upside of 12% over the next 12 months.

And with Citi forecasting fully franked dividends of $1.66 per share in FY 2023, which equates to a 6.8% yield, the total return on offer with ANZ shares stretches to almost 19%.

All in all, this could make it worth considering ANZ if you're looking for banking sector exposure after recent weakness.

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.

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