At $ 27, is ANZ Banking Group stock price a good value?

With the ANZ share price trading around $ 27.03, are ANZ Banking Group (ASX: ANZ) Stocks today, tomorrow or next month is as good as a guess. However, over the longer term, stocks with a consistent history of earnings, dividends and / or cash flow will often fall back to their underlying analyst price target.

ANZ Banking Group is a leading Australian and Kiwi bank, with an additional presence throughout the ocean region. ANZ is one of Australia’s Big Four banks and a leader in the New Zealand banking market, deriving a large portion of its income from mortgages, personal loans and credit.

At $ 27, is ANZ Banking Group stock price a good value?

What’s going on inside

For long-term investors looking to invest in big companies and own them for five, 10 or 20 years, at Rask we think it’s fair to say that a good work environment and a good culture of staff can lead to better retention of high quality staff and, in turn, the long-term financial success of a business.

Australian investors can take a look inside a company like ANZ Banking Group or National Australia Bank Ltd. To look for. Seek’s website includes corporate HR data, including things like employee reviews. According to the most recent data we got from ANZ, for example, the overall corporate culture rating of the company of 3.4 / 5 was bigger than ASX banking sector average score of 3.23.

Watch those (net) margins

ASX bank stocks like ANZ need debt and good profit margins to make their business profitable. This means that a bank obtains money from term deposit holders and wholesale debt investors and lends that money to owners, businesses and investors. The difference between what a bank is pay to savers and what made of mortgage holders (for example) is the net interest margin or NIM. Remember: When it comes to NIMs, the wider the margin, the better.

If you plan to estimate the profits of a bank like ANZ or Commonwealth of Australia Bank (ASX: CBA) it is important to know how much money the bank lends and what it earns per dollar loaned to borrowers. This is why the NIM is arguably the most important measure of ANZ’s profitability. Among the major ASX banking stocks, we calculated that the average NIM was 1.92% while the ANZ Banking Group bank line of credit was 1.63%, noting that it generated a return. loans below average compared to its peer group. This can happen for a number of reasons, which deserve to be investigated.

The reason analysts study NIM so closely is that banking group ANZ earned 80% of its total income (akin to income) just from loans last year.

Return on equity (ROE)

Return on equity or simply “ROE” helps you compare a bank’s profit against its total equity, as shown on its balance sheet. The highest the ROE the best. ANZ Banking Group’s ROE in the last full year was 5.1%, which means that for every $ 100 of bank equity, it generated $ 5.10 in annual profit. . This was below the industry average of 7.46%.

ANZ’s emergency bank capital

For Australian banks, the CET1 ratio (aka “common equity tier one”) is essential. CET1 represents the bank’s capital cushion that can be used to protect it against financial collapse. According to our figures, ANZ Banking Group had a CET1 ratio of 11.3%. This figure was lower than the industry average.

ANZ dividend valuation – some tips for bank stocks

A dividend discount or DDM template is one of the most effective ways to create an ASX bank stock estimate. To do a DDM, we need to come up with an estimate of the bank’s future dividends (i.e. the next dividend for the full year) and then apply a risk score. Suppose the ANZ dividend payout increases at a constant rate every year in the future, somewhere between 2% and 3%. We will use multiple risk rates (between 6% and 11%) and then average the valuations.

According to this quick and easy DDM model, an ANZ stock valuation is $ 10.20. However, using an “adjusted” or expected dividend payment of $ 1.40 per share, which is the preferred metric because it uses expected dividends, the valuation rises to $ 23.79. The valuation compares to the current ANZ stock price of $ 27.03. Since the company’s dividends are fully franked, we may make an additional adjustment and valuation based on a “gross” dividend payment. Using gross dividend payments, which factor in postage credits, the valuation is estimated at $ 33.99.

This means that while the ANZ share price may seem expensive using our simple DDM model, do not make a decision based on this article. Please go now and consider all of the risks and ideas that we have presented here, including the benefit of improving dividends and the solid impact of postage credits. Consider receiving our investment report by email for free (read on).

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