Is the ANZ share price a buy? Here's my view

Can investors bank on further gains from ANZ?

| More on:
Nervous customer in discussions at a bank.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ANZ Group Holdings Ltd (ASX: ANZ) share price has shown solid returns in the past year, rising by 12%. That compares to an increase of 11% for the S&P/ASX 200 Index (ASX: ANZ).

After the ASX bank share delivered such a good return for investors, the question is whether the share price can continue to rise or whether it has gone as far as it can for now.

Of course, first of all, I should say that past performance is not a guarantee of future performance. Just because the price went up doesn't mean it's going to keep rising – it could even drop.

Investors shouldn't focus on the share price's performance but rather on whether the valuation is attractive in the current environment and given the bank's expectations.

Let's look at the valuation with the upcoming financial year in mind.

ANZ share price FY25 valuation

I'm going to refer to UBS's forecast for what the big bank could achieve in the 2025 financial year.

The broker predicts that in FY25, ANZ could generate revenue of $22.5 billion, pre-tax profit of $10.4 billion, statutory net profit after tax (NPAT) of $7.2 billion, and cash earnings of $7.3 billion.

At the current ANZ share price, this projection suggests it is on a forward price/earnings (P/E) ratio of 12.7x.

It certainly is lower priced than its major peers. For example, the Commonwealth Bank of Australia (ASX: CBA) share price is valued at more than 26x FY25's estimated earnings. In other words, CBA is trading on a multiple that's twice that of ANZ.

However, I'd argue that CBA is significantly higher quality than ANZ, so a substantial portion of that value gap may be justified.

Is now a good time to invest in the ASX bank share?

The bank is facing a number of challenges.

For starters, it's still under a cloud from the investigation into the government bond trading scandal. Only time will tell what the ultimate cost of this is, but it's not a good look for the bank.

The ASX bank share is seeing arrears rise amid high interest rates. The bank's Australian home loan arrears that were at least 90 days overdue rose to approximately 0.80% in September 2024, which isn't promising for shorter-term profit generation, cash flow and potential dividends.

Strong competition in the lending sector is a headwind for loan volumes, the loan interest rate it can charge borrowers, and the interest rate it needs to attract and retain savers.

That makes it tricky to maintain the net interest margin (NIM), the measure of profitability for banks and their lending (including funding costs). Mortgage brokers add an additional level of competition because comparing all the loan options for borrowers is easier, and this means price becomes a key factor.

When the ANZ share price was $29.36, the broker said it was trading at 1.2x its (two-year forward) price to book ratio, which was "roughly in line with historical averages."

To invest in a large, relatively slow-moving business like ANZ, I'd want to do so at a very good price. However, I wouldn't describe the current valuation of ANZ shares as appealing, particularly given that ANZ's profit is projected to barely grow over the next couple of years.

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.

More on Bank Shares

A woman looks questioning as she puts a coin into a piggy bank.
Bank Shares

Which ASX bank share I'd buy for dividends

I’m cautious on some bank stocks for dividends, here’s why.

Read more »

A young bank customer wearing a yellow jumper smiles as she checks her bank balance on her phone.
Bank Shares

CBA shares: Another day, another new record high

What's behind CBA's latest push into record territory?

Read more »

A beautiful ocean vista is shown with a woman whose back is to the camera holding her arms up in triumph as she stands at the top of a rock feeling thrilled that ASX 200 shares are reaching multi-year high prices today
Bank Shares

Big ASX news: NAB shares hit 18-year high

The last time NAB shares were at this level was in November 2007.

Read more »

A man watches the share price movement closely.
Bank Shares

Own CBA shares? What to watch in next week's earnings update

Australia’s biggest bank will release important results next week. 

Read more »

Four friends watching sport and upset at their team losing.
Bank Shares

Why are ASX 200 big four bank shares down this week?

The big four bank shares have all dipped to start the week. 

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
Bank Shares

NAB shares: Will the dividend or a term deposit get you more cash today?

The difference between the NAB dividend and a term deposit might shock you.

Read more »

two businessmen shake hands in a close up mid-level shot with other businesspeople looking on approvingly in the background.
Bank Shares

Westpac shares higher after nabbing CBA executive

Australia's oldest bank has made a key appointment to its executive team.

Read more »

A young bank customer wearing a yellow jumper smiles as she checks her bank balance on her phone.
Bank Shares

Up 38% in a year, why the CBA share price outpaced the benchmark again in January

CBA shares delivered another month of strong returns in January. But how?

Read more »