The ANZ Group Holdings Ltd (ASX: ANZ) share price touched a new seven-year high of $30.10 this afternoon. As the chart below shows, it hasn't been this high since 2017.
Many ASX bank shares hit new highs yesterday, continuing a very strong period for bank share prices.
In 2024 to date:
- The ANZ share price is up 16%
- The Commonwealth Bank of Australia (ASX: CBA) share price is up 18%
- The Westpac Banking Corp (ASX: WBC) share price is up 23%
- The National Australia Bank Ltd (ASX: NAB) share price is up 22%
After such a strong run, should investors consider ANZ shares as an opportunity? Let's consider the situation.
Recent financial performance
The recent FY24 first-half result did not exactly deliver inspirational numbers. Compared to the second half of FY23, cash profit fell 1% to $3.55 billion and statutory net profit dropped by 4% to $3.4 billion. Earnings per share (EPS) declined by 1% to $1.183.
The result had a couple of positive aspects — it launched a $2 billion share buyback and grew the interim dividend per share to 83 cents. In terms of shareholder returns, it has been a rewarding time.
Property prices are rising in Australia, which lowers ANZ's risk of bad debts. However, arrears are rising at the major banks as some households struggle to keep up with the elevated interest rates. Changes in market expectations about arrears can influence the ANZ share price.
The bank's net interest margin (NIM) was 2.32% in the second quarter of FY24. This has dropped significantly from 2.47% in the first quarter of FY23. Indeed, the NIM has dropped every quarter since the post-COVID peak.
There is a lot of competition in the bank space for both loans and deposits, which is a headwind for margins. Competitors like Macquarie Group Ltd (ASX: MQG) have grown their market share.
It's understandable why ANZ wants to acquire the Suncorp Group Ltd (ASX: SUN) banking operations because it can help grow its market position and improve geographic diversification with a bigger allocation to Queensland. The bigger scale comes with benefits in the banking world.
Is it too late to buy?
Over time, companies that grow their earnings typically see their share price rise.
The broker UBS suggests that ANZ's net profit will fall in FY24, but it then sees profit growth in FY25, FY26, and FY27, partly due to the bank's enlarged scale after the deal to buy Suncorp Bank.
ANZ shares are valued at 12x FY25's estimated earnings and 11x FY27's estimated earnings, according to UBS forecasts.
If the ASX bank share can deliver earnings growth in FY25 onwards, then the ANZ share price may continue to rise.
However, UBS has a price target of $30 for the business, which may suggest that the bank does not have much capital growth potential over the next 12 months. It may not be too late to buy ANZ shares for their long-term potential, but I wouldn't expect double-digit capital growth over the next year.
