ANZ Banking Group Ltd [ASX:ANZ] fell almost 2% today, to a low of $31.49.
What happened to ANZ Banking Group?
According to the Australian Financial Review:
‘Bank analysts have taken the knife to their earnings forecasts for ANZ Banking after Tuesday’s interim result revealed the extent of the earnings hole in the institutional bank.’
Their half-yearly results showed an operating income decline of 3%, to $9.99 billion.
‘Credit Suisse analysts Jarrod Martin and James Ellis said ANZ provided “a sombre tone to kick-off bank reporting season, with soft revenues highlighting the urgency for efficiency actions”,’ according to the AFR.
‘Like many other analysts, Credit Suisse downgraded its ANZ earnings estimates. It moved them down by up to 2 per cent throughout the forecast period, while noting that lower revenues would be offset by lower costs and bad debts.’
What now for ANZ Banking Group shares?
Even though ANZ’s share price has fallen 2%, it doesn’t make it cheap. The company has a price-to-earnings ratio of 16.6-times earnings, which is more or less in line with their peers. However, on a cash flow basis, ANZ does look cheap.
ANZ is trading at 7.7-times their 12-month free cash flow (the cash shareholders could theoretically take out of the business). In contrast, competitor Westpac Banking Corp is trading at 26-times their free cash flow.
Goldman Sachs analyst Andrew Lyons expects ANZ to outperform their peers, given its focus on cost-cutting and rebalancing away from risky lending.
Maybe Lyons is right. But I’d encourage you to do your own research and judge ANZ’s future prosperity yourself.
Junior Analyst, Money Morning
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