ANZ shares tumble despite $3.5b half-year profit

Did the bank deliver on expectations during the half? Let's find out.

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ANZ Group Holdings Ltd (ASX: ANZ) shares are falling on Tuesday.

In early trade, the banking giant's shares were down almost 3% to $27.99.

They have since recovered but remain down 0.5% at the time of writing.

Why are ANZ shares falling?

Investors have been hitting the sell button today after the bank released its first-half results for FY 2024.

In case you missed it, the bank reported a cash profit of $3,552 million for the six months ended 31 March. This represents a 1% decline compared to the second half of FY 2023.

Although ANZ's shares are falling today, this result was actually slightly ahead of the consensus estimate of $3,531 million.

However, with the bank's share price rallying this month in response to the release of solid results from other banks, it's possible that the market had already priced in an earnings beat (and some more).

Not even a larger-than-expected interim dividend (85 cents per share partially franked) and a $2 billion on-market share buyback has been enough to keep its shares afloat.

Broker reaction

Analysts at Goldman Sachs have had a quick look at the result and appeared to be pleased. While the bank's profits fell short of their expectations, they note that it was above the consensus estimate. It commented:

ANZ reported 1H24 cash earnings (company basis) from continued operations were slightly down -7% on pcp to A$3,552 mn, and was -3.5% below GSe and +1% higher than Visible Alpha Consensus Estimates (VAe). The miss to GSe was driven largely by higher expenses, partially offset by a lower BDD charge.

One disappointment that could be weighing on ANZ shares is the bank's net interest margin, which fell short of expectations. However, Goldman believes it is a one-off. It said:

ANZ's 1H24 group reported NIM was down -9 bp hoh to 1.56% (vs.GSe/VAe of 1.61%/1.62%). However, the miss was predominantly due to the impact of Markets activities, with the NIM ex-Markets activities down -2 bp hoh to 1.63%. The -7 bp drag from Markets activities was split -5 bp from mix (growth in Markets AIEA) and -2 bp from rate (funding costs recognised in NII with associated revenue in OOI).

Furthermore, Goldman highlights that margin weakness in the retail business appears to have stabilised. Though, other sides of the business are still showing a spot of weakness. It adds:

ANZ provided an analysis of quarterly NIM trends which suggests ANZ's Australia Retail NIMs have stabilised while Australia Commercial, Institutional and NZ Divisions continue to deteriorate.

Finally, the broker was pleased with the bank's larger-than-expected capital returns. It said:

The proposed interim DPS of A83¢ was ahead of GSe/VAe (A81¢), and will be franked at 65%, representing a payout ratio of 70% (GSe 66%). ANZ also announced a A$2 bn on-market buyback (GSe A$1.5 bn in total). ANZ's pro-forma CET1 ratio also adjusting for the completion of the buyback would be 11.85%. ANZ's NSFR rose to 118%, from 116% in 2H23, and its LCR was 134% up from 132% in 2H23.

Goldman currently has a buy rating and a $27.69 price target on ANZ's shares. Though, that could change once it has updated its financial model to reflect this result.

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 positions in and has recommended Goldman Sachs Group. 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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