Despite a very excited ANZ Group Holdings Ltd (ASX: ANZ) share price market reaction after the ASX bank share reported its result, not every analyst is convinced about its appeal.
ANZ reported its FY26 first-quarter update, with the bank showing a cash net profit of $1.94 billion, representing a 17% rise compared to the FY25 second half quarterly average, excluding significant items.
However, on that basis of excluding significant items, operating income only increased by 1%, while operating expenses fell by 8%.
The cash profit and cost cuts were stronger than what UBS and other market analysts were expecting.
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What to like about the quarterly update
UBS said that it was particularly interested to see that expenses declined 1% year-over-year, leading to a cost to income ratio of 49.5%.
Additionally, as seen with Commonwealth Bank of Australia (ASX: CBA), the credit environment is still "very benign", which helps support profit being stronger than expected.
UBS then said:
This is clearly a good start to FY26 for ANZ and the new management team but ANZ has reaffirmed cost guidance of -3% (~$11.5B) for FY26E and cautioned around run-rating Q1 26 into the half year…
Positively, Q1 26 operational deposit growth was strong at +5.0% YoY, with NIM (1.56% and +2bps) benefitting from the mix changes…
On the back of this stronger than expected Q1 26 update, we increase our EPS by +3.6% / +1.3% / +1.1% for FY26/27/28E, reflecting a number of factors…EPS changes mainly benefit from lower cost growth expectations and reduced credit impairments, with credit provisioning trends more favourable than expected.
Why UBS is not bullish on the ANZ share price
While there were positives with the ANZ update, there were also some negatives.
UBS said that New Zealand and US rate cuts could be a headwind, particularly for the institutional division.
The broker also noted that net interest income only grew by 3%, with lending only increasing by 1% quarter-over-quarter, or 3% including institutional.
UBS then explained why it rates the business as a sell and has a price target of $36.50 on the ASX bank share, implying a possible double-digit decline over the next 12 months:
We remain Sell-rated on ANZ with a price target of $36.5/share (was $35/share), as we think the stock has run ahead of fundamentals, with a particularly strong positive price reaction to this 1Q26 earnings update (~+10%). We remain cautious on ANZ's strategy to reset profitability. ANZ is trading at 15.8x P/E (2-years forward)…
The broker noted that the ASX bank share's price/earnings (P/E) ratio is trading significantly higher than it has historically, so there could be other opportunities elsewhere.
