With the downturn in the ASX200 over the last couple of weeks, Australia and New Zealand Banking Group (ASX: ANZ) is starting to look cheap. It is now trading at below $32, having been as high as $37 less than three months ago.
That is a fall of nearly 15% with very little material news that investors might expect to cause such a fall in price.
The banking sector as a whole appears to have suffered a loss of confidence by the market. One possible reason is the negative media attention on some of the actions of the banks, as highlighted by the ASIC enquiry into rate fixing. The spectre of a housing bubble – and the potential fall out for mortgage lenders — is another issue at the forefront of investors' minds.
Despite these issues, ANZ remains in a very strong financial position. Its half yearly report confirmed it is on track with revenue, profit and cash growth.
ANZ's Asian strategy helps to diversify risk if there is indeed a downturn in Australia. It has the only meaningful exposure to the Asian market amongst our big banks and should continue to benefit from the predicted strong growth there.
The dividend yield is currently nearly 6% with 100% franking. It's interesting to note that even after the impact of the GFC, ANZ was able to maintain a dividend of $1.02. If the dividend were to drop to that low point again, it would still return a yield of more than 3%.
ANZ currently trades on a price-to-earnings ratio of about 12. While it is not a metric that should be used in isolation, it is well below the market average and does indicate that at current prices it is potentially a sensible buy.
Another measure I consider when analysing corporate financial health is equity valuation-to-earnings ratio, ANZ is trading at a ratio of 15.3 which is also well below the market average of 20.
Overall market retracements such as what occurred in the ASX recently will often provide opportunities to buy shares in high quality, large capitalisation companies like ANZ at a discount to intrinsic value. I will be looking to buy more ANZ shares for my SMSF this week.
