ANZ: Mixed Broker Views And Payments JV Review Will Shape Forward Balance

Narrative Update on ANZ Group Holdings

The analyst price target for ANZ Group Holdings has been adjusted marginally to A$37.07 from A$37.07 as analysts factor in slightly lower revenue growth and profit margin assumptions, along with a modestly reduced discount rate and a small uptick in future P/E, following mixed recent research views including a Neutral stance with an A$38.14 target.

Analyst Commentary

Recent research on ANZ Group Holdings shows a mix of optimism and caution, with some analysts adjusting ratings and targets as they reassess the balance between growth prospects, revenue headwinds and current valuation.

Bullish Takeaways

Bullish analysts, including JPMorgan, have issued upgrades, which suggests they see the current share price as reasonable relative to ANZ Group's earnings profile and potential execution on its plans.
The modest uptick in future P/E assumptions in recent models signals that some analysts are comfortable assigning a slightly higher earnings multiple, reflecting confidence in the durability of ANZ Group's earnings stream.
The recent adjustment to the A$37.07 target price is described as marginal, which indicates that the latest research did not point to any major change in the long term investment thesis.
Supportive views on ANZ Group's positioning in its core markets contribute to expectations that the bank can continue to execute on its strategy without needing a substantial discount in valuation.

Bearish Takeaways

Bearish analysts, including Goldman Sachs, have shifted to a Neutral stance, citing revenue headwinds that could weigh on near term growth and limit upside for earnings.
References to the stock's current valuation as a factor in the downgrade highlight concerns that, at recent prices, the margin for error on execution and growth may be relatively tight.
The latest target of A$38.14 linked to the Neutral rating suggests that some analysts see only modest room between the share price and their fair value estimates, which makes them more cautious on the balance of risk and reward.
Assumptions of slightly lower revenue growth and profit margins in updated models indicate concerns about ANZ Group's ability to offset potential pressure on its core banking income and maintain prior earnings trajectories.

What's in the News

Speculation is building that ANZ Group Holdings may move to buy Worldline SA's 50% stake in their A$925 million merchant payments joint venture after a year long review reportedly found the partnership unworkable, with private equity interest said to have stalled over economics and technology fit. (Key Developments)
Sources indicate one issue for the joint venture has been Worldline's European banking technology stack, which is described as poorly suited to the Australian market, while ANZ is reported to place high importance on keeping direct ownership of customer relationships. (Key Developments)
The review process has involved Macquarie Capital, with reports that former Macquarie banker Laura Golis, who led the options process before moving to Jefferies, could see the process picked up by Jefferies once she starts there. (Key Developments)
Background to the joint venture includes ANZ selling its merchant acquiring business into the partnership in 2020 rather than spend an estimated A$200 million and three years building its own platform, with Worldline attracted by Australia's high use of electronic payments. Worldline later faced a fraud scandal and a 38% share price fall. (Key Developments)
ANZ Group Holdings welcomed former CEO Shayne Elliott's decision to discontinue legal proceedings related to his 2025 remuneration, confirming there were no payments or commitments made to him and that both parties will bear their own costs. (Key Developments)

Valuation Changes

Fair Value: A$37.06714 adjusted marginally to A$37.06711, effectively unchanged at the two decimal place level.
Discount Rate: Reduced slightly from 7.84% to about 7.77%, a small move that modestly lowers the required return in the updated model.
Revenue Growth: Trimmed from roughly 3.62% to about 3.53%, reflecting slightly more conservative top line assumptions in the forecast period.
Net Profit Margin: Eased from about 33.77% to roughly 33.59%, pointing to a small reduction in expected profitability on each A$ of revenue.
Future P/E: Increased from 17.16x to about 17.26x, indicating a modestly higher earnings multiple assigned in the revised valuation.

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Key Takeaways

Successful Suncorp acquisition and platform innovations expected to enhance revenue, market share, and net margins through increased efficiency and cost savings.
Digital investments and AI-driven customer engagement initiatives position ANZ for improved growth and profitability in digital transactions and financial services.
Regulatory scrutiny and technology investments may increase costs, while competition and economic uncertainties could challenge revenue and earnings growth projections.

Catalysts

About ANZ Group Holdings

Provides various banking and financial products and services to retail, individuals and business customers in Australia and internationally.What are the underlying business or industry changes driving this perspective?

The completion of the Suncorp Bank acquisition is expected to yield larger and earlier synergies than initially planned, enhancing scale and growth in Queensland, which should positively impact revenue and net margins.
A significant shift towards a lower-cost, dual platform system with ANZ Plus and Transactive aims to improve efficiency, reduce costs, and allow faster roll-out of new products, which is projected to increase market share and positively impact net margins.
The launch of ANZ Plus and the integration of financial well-being features, along with generational AI enhancements, could drive higher customer engagement and acquisition, resulting in increased revenue.
The continued investment in digital platforms and payments innovation, including Transactive Global and ANZ Pay 2, positions the company to leverage increasing volumes in digital transactions, potentially enhancing revenue and profit margins.
The strategic move to a simpler, automated operation with projected decommissioning of legacy systems from 2026-2028 is anticipated to bring substantial cost savings, contributing to improved earnings over time.

ANZ Group Holdings Earnings and Revenue Growth

ANZ Group Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming ANZ Group Holdings's revenue will grow by 3.5% annually over the next 3 years.
Analysts assume that profit margins will increase from 27.1% today to 33.6% in 3 years time.
Analysts expect earnings to reach A$8.1 billion (and earnings per share of A$2.72) by about April 2029, up from A$5.9 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as A$9.1 billion.
In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 17.3x on those 2029 earnings, down from 19.8x today. This future PE is greater than the current PE for the NZ Banks industry at 16.3x.
Analysts expect the number of shares outstanding to grow by 0.4% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

Regulatory expectations and community scrutiny on the banking sector in Australia, as inferred from the company’s acknowledgements, could lead to increased compliance costs impacting net margins.
The reliance on technology platforms such as ANZ Plus and Transactive, with significant investments, carries execution risk and could potentially delay cost-efficiency benefits from migrating customers and maintaining earnings.
Intense competition within the retail banking space and pressure on maintaining net interest margins, particularly given the rise of broker-sourced loans, might impact revenue growth.
Macroeconomic uncertainties, including interest rate changes and credit provisions, might unfavorably affect earnings given the bank's substantial lending and deposit operations.
Integration and synergy realization from the Suncorp Bank acquisition may take longer than anticipated, potentially affecting anticipated cost synergies and revenue growth projections.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of A$37.07 for ANZ Group Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$43.0, and the most bearish reporting a price target of just A$32.65.
In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be A$24.1 billion, earnings will come to A$8.1 billion, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 7.8%.
Given the current share price of A$38.84, the analyst price target of A$37.07 is 4.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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