Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?
ANZ is a leading Australian and New Zealand banking institution, with a presence throughout the oceanic region. ANZ is one of the Big Four Aussie banks and derives much of its revenue from mortgages, personal loans and credit.
Is the ANZ share price a buy?
Compared to the other large ASX banks of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), ANZ may be the one that is differentiated the most.
Whilst it does have the typical retail banking, institutional banking, a New Zealand division and so on, it does have some Asian operations – however it has sold some of these businesses so it’s smaller than it was a few years ago.
The full year profit to 30 September 2018 was a bit rough for the bank, with cash profit down 16% to $5.8 billion, however continuing operations cash profit only fell by 5% to $6.5 billion.
ANZ Dividend
ANZ has been the only major bank to cut its dividend since the GFC, although it has held the dividend at 160 cents per share annually since then.
Looking at continuing cash earnings per share (EPS) for FY18, ANZ only had a payout ratio of 71.6%, so the dividend is well funded. A lower dividend payout ratio means the dividend might be safer if earnings were to decline somewhat.
Is ANZ getting better?
The Royal Commission
was a harrowing affair for all major financial institutions, but that isn’t the only problem that ANZ is facing.
Wholesale funding costs, which is where ANZ gets loans to then give out, are rising.
Between FY17 and FY18, ANZ’s continuing operations return on equity (ROE) fell from 11.7% to 11% and return on average assets declined from 0.78% to 0.72%.
The issue is further complicated by the fact that the Reserve Bank of New Zealand wants Kiwi banks to hold more capital than the currently do, which could further reduce the profitability of ANZ. There is speculation that the major ASX banks could divest their NZ operations, but they probably don’t want to do that.
Is ANZ a buy?
Unless a substantial recession happens in Australia, the best time to buy its shares has probably passed. It still does look fairly cheap at 12 times FY18’s earnings and a fully franked dividend yield of 5.75%.
I don’t want to buy ANZ shares, instead I’d rather look at one of the proven businesses in the free report below.
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