Over the next couple of weeks, the big four banks will be handing in their latest report cards. Ahead of their releases, I thought I would take a look to see what the market is expecting from them.
On this occasion, I'm going to look at the Australia and New Zealand Banking GrpLtd (ASX: ANZ) half year result.
What is expected from ANZ in the first half?
ANZ Bank will be releasing its half year results on Wednesday 5 May.
According to a note out of Goldman Sachs, its analysts are expecting the banking giant to report first half cash earnings (pre-one offs) of $3,073 million. This will be a massive 117% increase on the prior corresponding period, which of course was impacted by COVID-19.
The broker is expecting this to allow the ANZ board to declare a fully franked interim dividend of 60 cents per share.
What else should you look out for?
Goldman has named three key things to look out for with ANZ's results next week.
One of those is its margins. The broker notes that ANZ's first quarter net interest margin (NIM) was 1.62%, up 5 basis points from the second half average of FY 2020. It expects this to have carried over into the second quarter.
"Management expects the 1H21E NIM to be up slightly on the 1.59% delivered in 2H20 driven by further upside from TD pricing and mix benefits, offset by ongoing asset competition. This is consistent with our detailed analysis which quantifies the scope for sector NIM upside in the near term. Accordingly, we forecast 1H21E NIM of 1.62% which is up 5bp vs 2H20 and will be paying attention to the NIM drivers at the result particularly on funding."
Asset quality will be another key focus for Goldman Sachs. It is forecasting a notable drop in the bank's bad and doubtful debts during the half.
"ANZ reported a 1Q21 bad debt benefit of A$150 mn which significantly outperformed what was implied by our prior 1H21E bad debt forecast. This comprised an individually assessed provision (IP) charge of A$23 mn and a collective provision (CP) release of A$173 mn. While management expects IPs to rise as government and bank support fell away post Mar-21, it sees ANZ as well-placed given strong CP coverage, its large Institutional exposures being in strong shape and the de-risking of its Institutional book over recent years. We currently forecast a moderation of 1H21E BDDs/TL to 8bp from 35bp in the previous half and will be keeping a close eye on commentary around underlying asset quality."
Finally, the broker has suggested that ANZ's expenses could decline during the first half of FY 2021 and will be looking for a 0.6% reduction.
"Expenses were flat in the quarter on the 2H20 average, and we think the 1Q21 run-rate is broadly consistent with the A$8.4-8.5 bn FY21E cost base (ex-notable items) implied by comments made by management at the 2H20 result (here). While ANZ expects investment spend to be >A$1.8 bn in FY21E (c. 75% of that to be expensed), it believes longer-term investment spend should settle at c. A$1.5 bn. We are forecasting 1H21E expense growth of -0.6% hoh and will be looking for details management can provide on how its c.A$8 bn cost target could be achieved."
Is the ANZ share price in the buy zone?
Goldman Sachs is positive on ANZ and has a buy rating and $29.24 price target on its shares.
However, with the ANZ share price currently trading at $29.10, the near term upside is limited based on this price target.
