The ANZ Group Holdings Ltd (ASX: ANZ) share price went on a solid rise during July. At market close on the last trading day of July yesterday, ANZ finished at $25.75, a 7.70% gain for the month. In this article, I'll look at what might influence the bank's valuation in August.
It's difficult for large ASX blue-chip shares to keep delivering solid share price growth month after month because that results in a higher price/earnings (P/E) ratio, making it seem more expensive and potentially less likely to keep rising.
Nonetheless, it's possible for ANZ shares to rise, particularly with the share price still being lower than where it was in 2021.
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What could send the ANZ share price higher in August?
It's very difficult for any investor, analyst or broker to predict what's going to happen in a short-term time period like a month.
However, investors can say whether they believe the current valuation is (still) undervalued or not. According to the analyst recommendations collated by Commsec, there are currently nine buy ratings, four hold ratings and two sell ratings on ANZ. Despite the valuation rise, there is still a clear consensus among analysts that the ANZ share price is worth buying.
According to Commsec, the ASX bank share is forecast to generate earnings per share (EPS) of $2.45 in FY23 and $2.23 in FY24. That would put it at 10.5 times FY23's estimated earnings and 11.5 times FY24's estimated earnings.
While not as cheap as it has been, it's still materially cheaper than Commonwealth Bank of Australia (ASX: CBA) shares which are valued at more than 18 times FY23's estimated earnings.
I'm not expecting CBA and ANZ to trade at a similar P/E ratio any time soon, but it's a useful comparison to look at.
For me, the most important thing during August could be the CBA annual result. ANZ doesn't report until later in the year because its annual financial calendar runs to September. CBA is due to report in August – its commentary and experience regarding competition, arrears and the net interest margin (NIM) could have an important influence on the ANZ share price.
Is competition easing?
When ANZ released its FY23 half-year result in May, the CEO Shayne Elliot said:
The next six months will be more difficult than the last. Competition in retail banking is as intense as it has ever been, both in Australia and New Zealand. We understand that sustained higher inflation and interest rates create further challenges for some households and businesses across the economy. While the number of ANZ customers in difficulty remains low, we stand ready to help in these potentially challenging times.
The Australian Financial Review has recently reported on the fact that some of the major banks have ended cash backs and that Macquarie Group Ltd (ASX: MQG) has slowed its advance into the mortgage market. Macquarie's growth halt may have been because it was targeting a 5% market share and/or because it needs to continue to earn a strong return on equity (ROE).
If competition is indeed easing in the sector it means that there may be less pressure on the ANZ NIM and it could achieve stronger loan book growth too. If that occurs, it's good news for the ANZ share price.
