The ASX bank share ANZ Group Holdings Ltd (ASX: ANZ) has suffered a knock today as one of the leading analysts in Australia has decided that the company's future is less bright. The ANZ share price is currently down by around 2% in early trading, with the S&P/ASX 200 Index (ASX: XJO) down 0.8%.
ANZ is in a competitive space, with numerous other lenders wanting to gain market share. While lending to households is a core part of the company's operations and profitability, the business also has other segments that contribute to the overall picture.
The business has a significant institutional bank capable of making sizeable profits. However, the broker Morgan Stanley suggests the outlook for this division (and other areas) is not as positive as it was.
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Pessimistic view on ANZ shares
According to reporting by The Australian, Morgan Stanley analyst Richard Wiles said:
We believe institutional bank revenues have peaked, the migration to ANZ Plus raises execution risk and will put upward pressure on deposit pricing, its Australian mortgage growth is now slowing, New Zealand has a weaker growth outlook than Australia, potential provision releases and buybacks are smaller than peers, and dividend growth is likely to be modest given the payout ratio is above the target range.
In our view, these factors will weigh on ANZ's near-term earnings outlook and keep its trading multiple at a discount to the other majors.
ANZ Plus is the bank's relatively new digital banking service which aims to help the ASX bank share catch up to other competitors like Commonwealth Bank of Australia (ASX: CBA) with tools and features.
As a result of this pessimism, Morgan Stanley decided to lower the price target on ANZ shares by approximately 6% to $26.20 and changed the rating from equal-weight to underweight. A price target is where a broker thinks the share price will be in 12 months.
Therefore, the broker is suggesting it could fall another 7% from where it is right now.
All banks have reached a peak?
The Australian also reported on negative commentary from Wiles that all of the major banks' valuations may be stretched.
Wiles said:
We had previously underestimated banks' re-rating potential this year. However, we believe share prices already reflect all the benefits of rate cuts, a soft landing and less competition in retail banking.
Although the banks have healthy balance sheets and ongoing buybacks, we believe current trading multiples are not supported by the banks' growth and return profiles, and assume almost no chance of a mild recession.
Bank loan growth is expected to remain below 5%, though margins could recover "modestly". Costs could keep rising, and provision releases could be smaller and later than anticipated.
ANZ share price snapshot
Since the start of 2024, the ANZ share price has risen by 8.5% (as shown on the chart below), compared to a rise of around 4% for the ASX 200.
