The pros and cons of buying ANZ shares right now

Is this a good time to buy ANZ?

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ANZ Group Holdings Ltd (ASX: ANZ) shares have been on an impressive run lately, rising 13% in 2024 to date. This compares to a 3.5% rise for the S&P/ASX 200 Index (ASX: XJO).

Since the start of December 2023, the ANZ share price has gone up by around 20%.

I recently wrote about some of the possible drivers that have sent ASX bank shares higher. So, I'm going to look at some of the potential positives and negatives.

Reasons to buy

One of the most exciting reasons to look at banks right now is because there could be an improvement in the outlook if there are interest rate cuts within the next 12 months.

A lower interest rate could reduce the risk of heightened arrears in the loan book. A reduction in the cost of debt could also increase demand for credit, which would be helpful for loan book growth.

Another positive is the planned acquisition of the banking division of Suncorp Group Ltd (ASX: SUN). There are advantages to becoming bigger, such as economies of scale across the business and an increased market position in Queensland.

The company is paying a large dividend, which is helping boost the cash returns from the ASX bank share.

According to Commsec, owners of ANZ shares are projected to receive an annual dividend per share of $1.62 in FY24, which would translate to a grossed-up dividend yield of 7.9%.

Why to avoid ANZ shares for now

The valuation of ANZ has soared when there haven't actually been any changes, so the market may have gotten ahead of itself.

Inflation remains stronger than central banks seemingly want, so interest rates may stay higher for longer. Even so, a cut of 0.25% or even 0.50% would mean the RBA cash rate is still a lot higher than it was before COVID-19. Arrears may keep rising over the rest of 2024.

The bank's acquisition of Suncorp may help some things, but it could take a lot of effort, time and cost to integrate. Westpac Banking Corp (ASX: WBC) is only just getting around to integrating its technology of Bank of St George onto one platform.

There is a lot of competition in the lending and deposit space, which could mean challenged net interest margins (NIM) for the foreseeable future. This reduces the potential profit generation in the future. Internet banking has nullified the need to have a large branch network to be successful, creating more competition.

ANZ's profit is currently projected to decrease in FY24 and again in FY25. That's not exactly exciting for the ANZ share price. It's priced at 13 times FY25's estimated earnings.

I'd be cautious about buying ANZ shares at this level – I think there are more attractive ASX shares out there.

Motley Fool contributor Tristan Harrison 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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