This broker says ANZ shares aren’t as cheap as they seem on face value.
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ANZ Group Holdings Ltd (ASX: ANZ) shares had an interesting year in 2024. On the one hand, the stock outperformed the broader market.
But compared to its banking peers, not so much. While the bank’s shares are up more than 11% in the past year, the broader S&P/ASX 200 Banks Index (ASX: XBK) has climbed more than 29%. Quite the difference.
And now some experts reckon that ANZ shares are far from a bargain at the time of writing. Let’s take a closer look.
Broker questions value of ANZ shares
On face value, ANZ shares might appear ‘cheap’, trading on a price-to-earnings (P/E) ratio of 13.7x at the time of writing.
That means investors pay $13.70 for every dollar of the bank’s profits. In contrast, the VanEck Vectors Australian Banks ETF (ASX: MVB), which tracks the sector’s performance, had a P/E ratio of 17.6x, as per its December factsheet. Note that this excludes any impact from dividends.
However, according to Tony Paterno from Ord Minnett, just because ANZ shares trade at a lower valuation than their peers doesn’t necessarily mean they are attractively priced.
Speaking to The Bull, Paterno said although the bank “screens as better value” than its rivals, it isn’t “fundamentally” cheap.
ANZ Group has appointed veteran HSBC and Santander executive Nuno Matos as its chief executive. We don’t expect any substantial changes to existing strategy.
ANZ screens as better value than its bigger rivals, although, as with the sector in general, it’s not fundamentally cheap.
The bank’s institutional business has recovered well and should now be a more reliable contributor to group earnings. The bank’s commercial and New Zealand divisions are tracking well.
Paterno’s comments have some weight when compared to the bank’s financials. As I reported last year, ANZ booked an 8% decline in profits for the year to $6.5 billion.
While home loans grew by 7%, the bank’s net interest margin (NIM) decreased due to increased operating costs and intense competition in the mortgage market. NIM is a key measure of bank profitability.
As such, the broker recommends holding off buying ANZ shares for now.
And it wouldn’t be alone in its neutral view on the banking major. Fellow broker Macquarie also rated ANZ shares a hold on Tuesday, according to The Australian.
It lifted its rating from a sell, which I think is food for thought. Meanwhile, according to CommSec, the consensus of analyst estimates also rates ANZ shares a hold.
Foolish takeout
On balance, analysts aren’t bullish on ANZ shares and are instead adopting a neutral stance on their outlook for the bank this year.
Whilst the bank is trading at cheaper valuation multiples than some of its peers, Ord Minnett says this doesn’t make it ‘cheap’ when checking its fundamentals as well. I agree.
Investors looking for bargains among ASX banks might be better off looking elsewhere. Time will tell what happens from here.
Motley Fool contributor Zach Bristow 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 Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
