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I’ve noticed yesterday (10/2/16) that the ANZ share price hit a 12-month low, and the PE, at 8.39, is close to the figure representing the dividend yield at 7.94 – something you don’t see very often.
My average price paid for ANZ shares is significantly higher than current prices (even with an anticipated bounce today). It seems clear to me that now is a terrific time to purchase and hence “average down” in relation to quality stocks, such as ANZ. Do you agree ?
A: Although ANZ is my least preferred bank stock, I think there is good value. According to FN Arena, they are trading on a FY16 multiple of 9.3 times, and FY17 multiple of 9.0 times. Even with a small dividend cut factored in, the forecast yield is 7.6%.
The downside for ANZ is that they are the bank most at risk of needing to raise capital, and where the prospect of a cut in dividend is the highest. New CEO Shayne Elliot will no doubt clear up the botched Asian strategy – this may however incur some pain.
The other thing you can’t ignore is the lead from Europe.
In Europe, they are concerned about the potential exposure banks may have to oil and energy companies, negative interest rates impacting bank margins (and profits), more problems in Greece and other weaker European states, and low rates of economic growth. Financial stocks have been punished.
When this lead is bracketed with a perception that Australian bank shares are “overpriced” on a global basis due to their high price to book value, our bank stocks follow suit.
Is it overdone? Yes.
Have we seen the end of it in Europe – not sure.
So, yes, have a nibble at ANZ – but if the train keeps moving, ANZ shares won’t be immune to this pressure. It may pay to keep some powder dry.
