On Thursday morning, the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is edging lower.
At the time of writing, the banking giant’s shares are down 0.5% to $27.77.
This means the ANZ share price is now down 3.5% since the release of its half year results.
Is the weakness in the ANZ share price a buying opportunity for investors?
According to a note out of Goldman Sachs, its analysts believe the ANZ share price is in the buy zone.
In response to its half year results, the broker has retained its buy rating and increased its price target to $30.20.
This price target implies potential upside of approximately 9% over the next 12 months excluding dividends.
And if you include the 5% fully franked dividend yield that Goldman Sachs is forecasting, this potential return stretches to 14%.
What did the broker say?
Goldman gave its verdict on ANZ’s half year result.
It stated: “ANZ’s 1H21 cash earnings grew 112% on pcp to A$2,990 mn, with the beat largely driven by a lower than expected BDD charge. 1H21 PPOP came in 3% lower than GSe, driven by trading and fee income, partially offset by better NIMs and expenses. The proposed interim DPS of A70¢ implies a payout ratio of 67% (DRP to be neutralised) and 1H21 CET1 ratio of 12.4% (18.1% globally-harmonised), 44 bp stronger than GSe.”
Why is Goldman Sachs bullish?
Goldman Sachs is positive on the ANZ share price due to its valuation and cost reduction plans. It expects the latter to offset income pressures.
The broker said: “We maintain our Buy rating on ANZ given our expectation that cost reductions, if achieved, will more than offset income pressures, while valuations remain supportive.”
“To this end, we note that i) ANZ’s NIM is being very effectively managed in the face of weaker volumes; a trend we expect to continue through FY21E, ii) the resulting revenue pressures, which are also being adversely impacted by fees (and Markets in 1H21), should be offset by productivity benefits in outer years, iii) the stock is trading more than one standard deviation cheap versus the sector on PPOP multiples (24% discount vs. 11% long-run average discount), despite our expectations that it will deliver 5% PPOP/share CAGR in the two years to FY23E (with upside from capital management), with a c. 5% dividend yield; and iv) our TP offers c. 13% TSR [now ~14%],” it concluded.
Despite this recent weakness, the ANZ share price is up 20% year to date.
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More reading
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- Why Afterpay, ANZ, Domino’s, & Flight Centre shares are tumbling lower
- The ASX 200 is within an arms reach of all-time record highs
- Here’s how much ANZ’s (ASX:ANZ) dividend is worth now
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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