Is the ANZ share price a buy ahead of next week’s full-year results?

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is down 1.28% to $25.50 today. But over the past month, it’s had quite a run — up 8%.

Next week, ANZ will report its FY22 full-year results and final dividend on Thursday.

ANZ will be the first among three of the big four banks to report soon. Westpac Banking Corp (ASX: WBC) will follow on 7 November, and National Australia Bank Ltd (ASX: NAB) on 9 November.

So, is this ASX 200 bank share a buy ahead of its results reveal?

Is the ANZ share price in the buy zone?

Currently, the ANZ share price is 13% off its 52-week high of $28.75, which it reached in January.

It’s 46% off its highest-ever share price of $37.25, reached in April 2015.

According to Westpac data, ANZ is trading on a price-to-earnings (P/E) ratio of 12.12. This compares to a sector (ASX financials) ratio of 9.55 and a broader market ratio of 12.98.

The ANZ dividend yield is 5.5%, and the dividends are usually 100% franked.

But we need more than numbers to determine whether it’s a buy. How’s the business?

Was buying Suncorp a good idea?

The big news relating to ANZ of late is its $4.9 billion acquisition of the banking operations of Suncorp Group Ltd (ASX: SUN). The bank also announced a $3.5 billion capital raising to help fund the deal.

As my Fool colleague James reported at the time, the purchase price represented a P/E of 13.8 times pre-synergies or 9.3 times post-full run-rate synergies.

The acquisition is expected to be earnings per share (EPS) neutral pre-synergies and low single-digit earnings per share accretive, including full run-rate synergies on a pro forma FY23 basis.

Joseph Koh, a senior analyst at Schroders, writes on Livewire that the deal “highlights a common problem in much of corporate thinking: that a company would be better if it were bigger”.

Koh says:

Another company that has, in our view, been unfaithful in the small things is ANZ when it agreed to buy Suncorp Bank in July this year. ‘Small’ here is relative; it is a $4.9bn transaction, after all – but with ANZ’s market cap of around $65bn the transaction represents less than 8% of ANZ’s value. Which is just as well for ANZ shareholders.

The acquisition price equates to about 1.3x Price / Net Tangible Assets, a significant premium to ANZ’s own shares trading at 1.1x, and comparable regional banks such as BOQ and Bendigo at 0.8-0.9x Price / Net Tangible Assets.

While ANZ has directed investors’ attention to potential synergies, there is every likelihood that the assimilation of a small company into big bank bureaucracy will more than wipe out any such theoretical benefits …

Why buy ANZ shares ahead of the bank’s report?

Some investors adopt a strategy called ‘dividend stripping’. It’s when you buy an ASX share that is due to announce, or has announced, a dividend. You buy the share before its ex-dividend date, which entitles you to the dividend, then you look to exit the position as soon as possible.

Of course, we don’t know what amount of dividend ANZ is going to pay, but brokers can give us an educated guess.

Citi tips ANZ to declare a 72-cent final dividend, bringing the full dividend for FY22 to $1.44 per share.

So, if you bought 1,000 ANZ shares at the current share price, you’d pay $25,400 and you’d receive a $720 dividend fully franked, if Citi is right. That’s a 2.83% base dividend yield or a 4.05% grossed-up dividend yield (taking franking into account).

Another reason to buy ANZ is that it may follow the fortunes of the Bank of Queensland Ltd (ASX: BOQ).

Earlier this month, the Bank of Queensland share price soared by 8% when the company revealed better-than-expected net interest margins (NIMs). This could bode well for other banks and their NIMs.

If ANZ also reports a surprisingly strong NIM, will the ANZ share price receive a boost on Thursday?

What do other experts think?

It’s interesting to note what the experts think about an ASX share we are considering buying. So, here’s one more insight.

Last month, top broker Macquarie upgraded its rating on ANZ from neutral to outperform. The broker increased its share price target from $23.50 to $24 for ANZ shares.

The ANZ share price is already above that level, so is that a sign it’s not a buy?

Over to you.

The post Is the ANZ share price a buy ahead of next week’s full-year results? appeared first on The Motley Fool Australia.

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More reading

• ASX dividend shares ‘likely to remain attractive’ despite rising bank deposit rates: expert
• Own ANZ shares? Here’s what to expect from the bank’s FY22 results next week
• What’s driving the ANZ share price today?
• Top broker says ‘we struggle to see CBA underperforming peers’. Here’s why
• ANZ shares: Buy, hold, or fold?

Motley Fool contributor Bronwyn Allen has positions in Australia & New Zealand Banking Group Limited, Macquarie Group Limited, and Westpac Banking Corporation. 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 recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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