Strong buy: Why Goldman Sachs has ANZ shares on its conviction list

Why would ANZ be the best bank share to buy now?

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ANZ Group Holdings Ltd (ASX: ANZ) shares could be the best way to gain exposure to the banking sector right now.

That's the view of analysts at Goldman Sachs, which remain positive on the banking giant following a review of the sector.

What is Goldman saying about the sector?

Goldman has made adjustments to its bank earnings forecasts to reflect recent data. It explains:

We undertake a full reassessment of our bank earnings forecasts, with the key changes being: i) we now have system housing credit growth troughing at c. 4% (previously 1%), and outperforming system business credit growth over the course of FY24/25, ii) while we've seen some relief in mortgage competition, we do not expect this to be sustained over the remainder of CY23 and into 2024, and with ongoing deposit (pricing and mix) pressures, we now forecast FY24/25E NIMs down 8/6 bp, iii) we increase our FY24E expenses, largely driven by elevated non-staff inflation, which contributes to FY24/25E PPOP growth (ex-large/notable items) of -6%/-1% on pcp, iv) we expect sector BDDs to be more benign than previously, which adds 3% to FY24E EPS.

In respect to ANZ, these changes have resulted in the broker boosting its earnings per share estimates modestly in FY 2023 and by 1.8% in FY 2024.

In light of this, the broker has reiterated its conviction buy rating with a new price target of $27.25. Based on the current ANZ share price of $25.27, this implies a potential upside of approximately 8% over the next 12 months.

Goldman also continues to forecast fully franked dividends per share of $1.62 each year through to FY 2025. This equates to dividend yields of 6.4%, which boosts the total potential return beyond 14%.

Why ANZ shares?

Goldman outlined a total of four key reasons why it rates ANZ shares above other options in the banking sector. It said:

1) further upside risk to ANZ Group returns from mix shifts in its Institutional division (towards higher returning Payments and Cash Management (PCM)); 2. current market competitive dynamics which should continue to be a relative tailwind for Institutional NIMs; 3. our assessment of the profitability of this division which concludes that these return improvements are largely sustainable; and 4. the stock is trading at a 29% discount to peers on 12-mo fwd PPOP, vs. 14% 15-yr average.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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