As it stands, 2015 is going to be a year to forget for Australia and New Zealand Banking Group (ASX: ANZ) shareholders.
Source: Yahoo! Finance
Indeed, ANZ shares are down 13.65% so far in 2015, compared to market's, or S&P/ASX 200's (ASX: XJO) (Index: ^AXJO), decline of just 6.4%.
Are ANZ shares a buy?
But as savvy investors know, the time to consider buying blue chip stocks like ANZ is when their out of favour with the market – which ANZ clearly is.
ANZ shares are down roughly 22% in just six months. Although I'm merely speculating, I believe the selloff is largely attributable to the following:
- The group's exposure to Asia, where we've seen intense amounts of volatility over the past six months; and
- The banks' $3.2 billion capital raising, which some criticised as non-shareholder friendly
Yesterday, CEO Mike Smith moved to quell investors' concerns about ANZ's exposure to Asia, particularly China.
In an announcement to the ASX, Smith said, "China only accounts for about three per cent of our total outstandings as a Group which is very small." Adding, "The significance of that is that 88% of our exposure to China is of a tenor of less than one year which….means that should there be issues, our ability to reduce our exposure is very straight forward."
Even still, some analysts hold reservations about the group's Super Regional Strategy, which ANZ hopes will generate between 25% and 30% of group profit by 2017.
Mr Smith said that while some may see the Asian expansion as riskier than the strategies being employed by its domestically focused peers, by going abroad it has been able to secure modest growth but further down the risk curve.
"We have a very high quality exposure in China and therefore return is going to be a little lower than if you were to go up the risk curve," He said. "The alternative in terms of the institutional bank is to look for growth in Australia at a much higher risk. We have not done that …. and the credit quality of the group is better than it ever has been."
ANZ shares are currently trading another 1.55% lower following the announcement yesterday afternoon.
Are ANZ shares good value?
Analysts will often overlook a bleaker growth outlook if a company's shares are priced for the slowing profits, and, therefore, present a sound buying opportunity. Indeed, according to those polled by The Wall Street Journal, 10 of the 16 analysts surveyed currently rate ANZ shares as 'overweight' or 'buy'.
While I can't comment on their reasoning, in my opinion ANZ shares are not a buy at current levels. While I've previously opined ANZ is the closest to fair value of the Big Four banks, it'd need to drop meaningfully below $25 before I'd consider building a position.
Indeed, in the face of a slowing economy and potentially higher bad debt charges, I think ANZ is closest to a hold.
