Target Price: $34.20 | April 30, 2025
Share Price used in analysis: $30.48
(Readers should adjust context drawn from the report, when required)
Investor Profile Snapshot
| INCOME | VALUE | GROWTH | QUALITY | THEMATIC |
|---|---|---|---|---|
| ★★★★ 85% | ★★★ 75% | ★★★ 70% | ★★★★ 80% | ★★★ 70% |
Note: This report provides analysis and commentary based on public information and is not intended as investment advice. Investors should conduct their own research and consult with financial advisors before making investment decisions.
Latest Update - FY2024 & Q1 FY2025 Key Takeaways
- FY2024 cash profit of $6.7 billion, down 9% YoY, reflecting margin pressure and integration costs
- Net interest margin contracted 13bps to 1.57% due to intense competition in home lending and deposits
- Suncorp Bank acquisition (July 2024) significantly expanded Australian retail presence, adding $70.9B in loans
- Institutional division delivered record revenue and ROE (15%), demonstrating diversification benefits
- ANZ Plus digital platform grew 84% YoY to ~690,000 customers and approaching $14B in deposits
- Strong capital position maintained with CET1 ratio at 12.2% despite Suncorp acquisition
- Total shareholder return of 27% in FY2024, significantly outperforming prior year (20%)
- $2 billion share buyback program announced, demonstrating confidence in capital generation
What's Changed?
- Suncorp Integration: Acquisition completed in July 2024, integration "well-advanced" with management expressing confidence in delivering synergies "faster than originally expected"
- Digital Transformation: ANZ Plus now represents nearly 20% of active retail customers in Australia
- Margin Pressure: NIM contracted 13bps to 1.57%, with further compression expected before stabilizing around 1.45%
- Cost Management: Cost-to-income ratio deteriorated 310bps to 51.6% despite $200 million in productivity savings
- Credit Quality: Early signs of stress with impairment charges up 66% YoY, though from historically low levels
Executive Summary
ANZ Group delivered mixed performance in FY2024, with cash profit declining 9% to $6.7 billion as net interest margin contracted 13bps to 1.57% amid intense competition in retail banking. Despite these challenges, the Group achieved substantial balance sheet growth with net loans and advances increasing 14% to $803 billion, significantly enhanced by the Suncorp Bank acquisition completed in July 2024.
The Group's diversified business model proved valuable, with Institutional banking delivering record revenue and a strong 15% return on equity, offsetting weakness in the retail segments. This performance demonstrates ANZ's resilience in challenging market conditions and the strategic value of maintaining strength across multiple banking segments.
Digital transformation showed meaningful progress with ANZ Plus customer growth of 84% year-on-year to approximately 690,000 customers, now representing nearly 20% of active retail customers in Australia with deposits approaching $14 billion. This initiative positions ANZ for changing customer preferences and potentially improves customer acquisition economics compared to traditional branch-based models.
The landmark acquisition of Suncorp Bank represents a transformative expansion of ANZ's retail and commercial banking presence, particularly in Queensland. With $70.9 billion in loans and $54.7 billion in deposits, this acquisition materially enhances ANZ's scale and geographic diversification. Management expresses confidence that integration preparations are "well-advanced" with potential to "deliver synergies faster than originally expected."
Despite margin headwinds, the Group maintained a strong capital position with a CET1 ratio of 12.2% and delivered exceptional shareholder returns of 27% in FY2024. The announced $2 billion share buyback program demonstrates management's confidence in capital generation capacity despite integration investments.
Financial Highlights
| Key Metric | FY2024 | FY2023 | Change |
|---|---|---|---|
| Net interest income ($m) | 16,069 | 16,574 | -3% |
| Other operating income ($m) | 4,740 | 4,331 | +9% |
| Operating income ($m) | 20,809 | 20,905 | 0% |
| Operating expenses ($m) | 10,741 | 10,139 | +6% |
| Credit impairment charge ($m) | 406 | 245 | +66% |
| Cash profit ($m) | 6,725 | 7,413 | -9% |
| Earnings per share (cash) | 224.3c | 247.3c | -9% |
| Dividend per share | 166c | 175c | -5% |
| Return on equity (cash) | 9.7% | 11.0% | -130bps |
| Net interest margin | 1.57% | 1.70% | -13bps |
| Cost to income ratio | 51.6% | 48.5% | +310bps |
| CET1 ratio | 12.2% | 13.3% | -110bps |
Segment Performance
| Segment | YoY Profit | YoY Revenue | Key Developments |
|---|---|---|---|
| Australia Retail | -17% | -2.5% | Home loan growth 7% (above system); ANZ Plus now ~20% of active retail customers |
| Australia Commercial | -7% | +1.2% | Strong ROE of 25% despite margin pressure; loan growth of 5.5% |
| Institutional | -3% | +4.7% | Record Markets revenue of $2.3 billion (up 20%); strong ROE of 15% |
| New Zealand | -1% | +0.4% | Resilient performance despite challenging economic conditions; strong cost-to-income ratio of 38.8% |
| Suncorp Bank | n/a | n/a | Two months of results; $122 million loss due to acquisition-related adjustments |
Key Outlook Points
| Category | Current/Near-Term | Medium-Term | Long-Term |
|---|---|---|---|
| NIM Evolution | 🟥 Further compression to 1.52% in FY25 | 🟨 Stabilizing around 1.45% by FY27 | 🟩 Stable at 1.45% with potential for modest expansion |
| Revenue Growth | 🟨 6.7% in FY25 (including full Suncorp contribution) | 🟩 5.0% annually FY26-27 | 🟩 4.0% sustainable growth FY28+ |
| Cost-to-Income | 🟥 Worsening slightly to 51.7% in FY25 | 🟨 Improving to 49.0% by FY27 | 🟩 Further improving to 47.1% by FY29 |
| Suncorp Synergies | 🟨 Integration costs outweighing benefits | 🟩 $260M annual synergies by FY27 | 🟩 Full synergy realization with potential upside |
| Credit Quality | 🟨 Normalizing to 7.5bps charge rate in FY25 | 🟨 Increasing to ~9bps by FY27 | 🟨 Stable around 10bps (below historical average) |
| Shareholder Returns | 🟩 Dividend of 172c in FY25 (5.6% yield) | 🟩 Growing to 200c by FY27 (6.6% yield) | 🟩 Reaching 225c by FY29 (7.4% yield) |
Color Key:
- 🟩 Positive for the company
- 🟨 Neutral or moderate
- 🟥 Challenging or negative
Valuation Summary
Our analysis derives a base case valuation of $34.20 per share, representing 12.2% upside to the current price of $30.48. This valuation reflects ANZ's strong institutional banking franchise and potential Suncorp Bank synergies, balanced against near-term margin pressures and integration challenges.
| Methodology | Implied Price Per Share |
|---|---|
| DCF - Base Case | $34.20 |
| DCF - Bull Case | $42.75 |
| DCF - Bear Case | $27.80 |
| EV/EBITDA Multiple - NTM | $31.15 |
| P/E Multiple - NTM | $30.60 |
| P/B Multiple | $33.20 |
| Dividend Discount Model | $31.85 |
| Implied Valuation Range | $29.00 - $35.00 |
| Current Share Price | $30.48 |
| Up/Downside to Base Case | +12.2% |
Our Bottom Line
ANZ Group's FY2024 results demonstrate the resilience of its diversified business model in a challenging banking environment. While margin pressures and integration costs have temporarily impacted profitability, the strategic value of the Suncorp Bank acquisition and ongoing digital transformation position the Group for improved performance as these initiatives mature.
The strong performance of the Institutional division, with record Markets revenue and 15% ROE, highlights the value of ANZ's diversified approach and provides stability while retail banking navigates competitive pressures. This segment represents a competitive advantage that differentiates ANZ from peers with more retail-centric models.
The successful acquisition of Suncorp Bank represents a transformative expansion of ANZ's retail and commercial presence, particularly in Queensland. While integration will present near-term costs and execution challenges, the long-term strategic benefits are substantial, with targeted synergies of $260 million annually by Year 3.
Digital transformation through ANZ Plus shows encouraging momentum, with 84% customer growth reaching approximately 690,000 customers. This initiative positions ANZ for changing customer preferences and potentially improves economics compared to traditional branch-based models, though benefits will take time to fully materialize.
At the current price of $30.48, ANZ trades at approximately 13.5x NTM earnings and 1.29x book value, a modest discount to Commonwealth Bank but at a slight premium to Westpac and NAB. This valuation reflects both near-term challenges and longer-term strategic positioning. Our target price of $34.20 represents 12.2% upside as the market gradually recognizes the value of ANZ's diversified model and strategic initiatives.
What to Watch
- Suncorp Integration Progress: Pace of customer migration, technology integration, and synergy realization
- Net Interest Margin Evolution: Trajectory and potential stabilization of NIM as competition and rate environment evolve
- ANZ Plus Adoption: Continued customer acquisition momentum and deposit growth on digital platform
- Cost-to-Income Trajectory: Evidence of productivity benefits offsetting inflation and investment costs
- Credit Quality Trends: Early warning indicators and impairment charge evolution as economic challenges persist
Growth Catalysts
- Suncorp Synergies: Potential for $260 million in annual synergies by Year 3, with management indicating faster realization than originally expected
- Digital Transformation: ANZ Plus momentum creating potential for improved customer acquisition economics and service efficiency
- Institutional Banking Strength: Record Markets revenue demonstrates value of specialized capabilities and international presence
- Balance Sheet Scale: Enhanced competitive position following Suncorp acquisition providing opportunities for improved economics
- Geographic Diversification: Reduced concentration risk through Queensland expansion and maintained international presence
Risk Factors
- Integration Execution: Suncorp Bank integration presents substantial challenges including systems migration, product harmonization, and cultural alignment
- Margin Pressure: Intense competition in retail banking continues to compress NIM with potential for further deterioration
- Economic Uncertainty: Below-trend growth, persistent inflation, and higher rates creating headwinds for both loan growth and credit quality
- Cost Management Challenges: Rising expenses outpacing productivity savings, with cost-to-income ratio deteriorating despite efficiency initiatives
- Digital Disruption: Rapid evolution of payments landscape and digital banking creating both opportunities and competitive threats
ANZ's diversified business model, enhanced scale following the Suncorp acquisition, and ongoing digital transformation provide a solid foundation for navigating current challenges. With 12.2% upside to our base valuation of $34.20 per share and a robust 5.4% dividend yield, ANZ offers an attractive risk-reward profile for investors seeking exposure to the Australian banking sector with strategic diversification benefits.
Discussion