ANZ Group Holdings Ltd (ASX: ANZ) shares could be the ones to buy now if you're wanting exposure to the banking sector.
That's the view of analysts at Goldman Sachs, which have switched their allegiance in the sector this morning.
For some time, Westpac Banking Corp (ASX: WBC) shares were the way forward for Goldman. However, it has now downgraded Australia's oldest bank's shares and taken them off its coveted conviction list.
At the same time, the broker has upgraded ANZ shares to a buy rating with a $27.38 price target and popped them on its list.
Based on the current ANZ share price of $23.43, this implies a potential upside of 16.9% for investors over the next 12 months.
In addition, the broker is expecting fully franked 7% annual dividend yields through to at least FY 2025.
Why buy ANZ shares?
Goldman made the move on the belief that the company's institutional business will be a key driver of outperformance. It explains:
Institutional is ANZ's largest division, representing 44%/33% of Group RWAs/revenues, and the division's 1H23 PPOP RoRWA increased to 2.2%, from a 2H16 trough of 1.2%. Our assessment of the profitability of this division concludes that these return improvements are largely sustainable.
It then concludes:
Given our more optimistic view around the sustainability of ANZ's improvement in its Institutional returns, we have more confidence in capitalising our forecast ROTE profile into our valuation models, and so increase our target P/NTA multiple to 1.1x (from 1.0x), which increases our ANZ TP by 5% to A$27.38. With our revised TP now offering 26% TSR, we upgrade ANZ to Buy (onto CL).
Westpac shares are now rated neutral with a trimmed price target of $23.39.
