Many investors hold ANZ Group Holdings Ltd (ASX: ANZ) shares for the juicy dividends they pay. However, the size of future dividends is largely dependent on the bank's profit. So just how much profit is ANZ expected to make in the next few years?
With a rapidly changing economic environment, and uncertainty surrounding inflation and interest rates, no one can know precisely how much profit the ASX bank stock will deliver in FY25 or FY26. But we can rely on ANZ's recent earnings updates and predictions from top brokers to gain a pretty good idea of what's to come.
Also to be considered is the fact that ANZ is looking to boost its scale and geographic diversification (particularly in Queensland) by buying the banking operations of Suncorp Group Ltd (ASX: SUN).
Let's dive into the outlook!
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FY24
The bank recently reported its FY24 first-half result, which according to broker UBS, was largely in line with market expectations. Net profit after tax (NPAT) came in at $3.5 billion, down 1% half-over-half. ANZ benefitted from a stronger non-net interest income performance, supported by its loan book doing better than expected.
UBS said the $2 billion on-market share buyback was a "welcome positive".
However, there was a 9 basis point (0.09%) hit to the net interest margin (NIM) to 1.56%, which the broker said was a "negative overhang on the result". Excluding 'markets', ANZ's NIM declined 2 basis points (0.02%) to 1.63%.
After reviewing the results, UBS increased its FY24 profit forecast for ANZ by around 6%, but downgraded the FY25 and FY26 forecasts by 0.1% and 0.6%, respectively. The downgrades were due to higher cost expectations.
The broker is forecasting the bank could make $7 billion in FY24 and deliver earnings per share (EPS) of $2.29. This suggests ANZ is valued at around 12x FY24's estimated earnings.
FY25
UBS is still forecasting FY25 will see a sizeable increase in profitability for ANZ shares, despite the challenge of rising arrears and lending competition.
The broker is suggesting ANZ's net profit can rise by more than $200 million to $7.2 billion. This would translate to the bank making EPS of $2.42. If this eventuates, it would mean the ANZ share price is currently valued at under 12x FY25's estimated earnings.
FY26
UBS suggests that ANZ's profit could rise again by around $500 million to $7.7 billion in FY26. This would mean the ASX bank stock could deliver EPS of $2.58, despite the broker's warning of higher costs than previously expected for FY26.
Based on those profit estimates, the ANZ share price is currently trading at under 11x FY26's estimated earnings.
Foolish takeaway
Whilst UBS tapered its profit forecast slightly based on the bank's most recent results, the outlook still looks pretty promising to me. If ANZ can deliver on the broker's predictions, I believe that the current share price trading at under 11x FY26's earnings seems like good value for ASX income investors.
