ASX bank shares have had a great year thanks to large share price gains. While the biggest banks have grabbed the headlines, it could be time to look beyond the big four ASX bank shares as opportunities for next year.
It's certainly impressive that the Commonwealth Bank of Australia (ASX: CBA) share price has risen more than 36% this year, and the Westpac Banking Corp (ASX: WBC) share price has soared 40%. But I'd argue that those banks are now priced very highly for the profit they could make in the next three to five years.
Instead, I'm looking at some of the other banks as opportunities. Here's why I like them.
Image source: Getty Images
Macquarie Group Ltd (ASX: MQG)
Macquarie is another of Australia's largest financial institutions. With a market capitalisation of $85.25 billion, it is now slightly bigger than ANZ Group Holdings Ltd (ASX: ANZ), which has a market cap of $85.18 billion.
But, I think Macquarie has much stronger growth potential than the big four ASX bank shares because it has global operations across multiple divisions, including investment banking, Macquarie Asset Management (MAM), and commodities and global markets (CGM).
Macquarie is also looking to challenge the domestic Australian banks by growing in the mortgage and deposit segments of Australia's banking industry.
With Donald Trump and the Republicans taking charge in the US, combined with the lower interest rates in the US, I think there could be much stronger deal flow in the US (and globally in general) for Macquarie to try to capture a piece of. This would be positive for earnings.
According to the forecasts on Commsec, the Macquarie share price is valued at 23x FY25's estimated earnings and 19x FY26's estimated earnings.
MyState Ltd (ASX: MYS)
MyState is a smaller ASX bank share with its headquarters in Tasmania, though it also has a sizeable presence across the mainland.
I think there are three good reasons to like the banking business.
First, the company is looking to merge with Auswide Bank Ltd (ASX: ABA). This merger is expected to deliver significant advantages for the company, including scale benefits, increased funding flexibility, and a boost in earnings per share (EPS). Cost synergies are expected to be between $20 million and $25 million, including the consolidation of technology platforms, integration of shared services, a "refined" leadership and management structure, and a consolidation of third-party providers.
Second, the business trades on a more appealing price-earnings (P/E) ratio than the major ASX bank shares. According to Commsec, the Mystate share price is valued at 12.5x FY25's forecast earnings and 10.8x FY26's forecast earnings.
Third, the ASX bank share offers a very appealing dividend yield (which is expected to grow). According to Commsec, it could pay a grossed-up dividend yield of 7.9% in FY25 and 8.5% in FY26, including franking credits.
