If you don't have exposure to the banking sector, then it could be worth considering ANZ Group Holdings Ltd (ASX: ANZ) shares.
That's because analysts at Citi see some big returns ahead for investors if you're buying at current levels.
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What is Citi saying about ANZ shares?
According to a note from last week, the broker has retained its buy rating on the bank's shares with an improved price target of $27.00.
Based on the current ANZ share price of $23.28, this implies potential upside of 16% for investors over the next 12 months.
But it gets better! The broker is forecasting fully franked dividends per share of 164 cents in FY 2023 and 166 cents in FY 2024. This equates to very generous yields of 7% and 7.1%, respectively, for investors, which stretches the total potential 12-month return to approximately 23%.
What did Citi say?
Citi notes that ANZ's economic team is expecting the RBA to raise the cash rate two more times. In response to this, the broker expects a stronger net interest margin (NIM) to result in higher than forecast earnings in the near term.
Interestingly, the broker also revealed that it has doubts that the bank's proposed acquisition of the banking operations of Suncorp Group Ltd (ASX: SUN) will complete. It said:
We change cash earnings by +2%/+1%/-2% for FY23E/FY24E/FY25E. This is on account of revision in NIM assumptions by +1bp/0bp/-2bps and removal of ANZ-SUN merger from our forecasts (as we view ACCC would likely oppose the merger). Citi Economics team forecast two additional 25bpts cash rate hikes from current 4.1% level to reach terminal rate of 4.6% by Aug-23.
Rate cuts are expected to begin early next year to reach 3.35% by Jun-24. Reflecting this, we change our NIMs assumption to account for benefit from at-call deposits re-repricing as well as replicating portfolio (as yield curve moves up). However, there is offset of elevated at-call-to-TD switching, as deposit competition becomes more intense. Overall, our half yearly NIMs follow a decreasing trajectory, reaching 1.63% by 2H25E from current 1H23 1.75%, with asset (mortgage) competition offsetting the liability benefits.
