Banks

ANZ, NAB and Westpac have all reported. Which bank should you buy right now?

Thu 09 May 24, 1:34pm (AEST)
which bank to buy, ANZ, NAB, WBC
Source: Shutterstock

Key Points

  • Regardless of whether you love them or hate them, Aussie banks have been a reliable and attractive investment proposition for decades
  • ANZ, NAB, and Westpac have each reported their first half 2024 results within the last week
  • We review the results and bring you the latest broker views on which is the best to buy right now

Aussie banks. As a nation we love to hate them, despite their respective advertising campaigns each trying to convince us they’re actually our BFFs!

But, regardless of how you feel about Aussie banks – you have to admit, as investors we can’t get enough! If the big banks are going to milk zillions in profits out of everyday Aussies, then we might as well get a piece of the action too.

It’s our way of getting one back, a case of if you can’t beat ‘em – buy ‘em!

For many Aussie investors, it’s not a case of which bank to buy, as so many already have all four of the so called Big Four of ANZ Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB), and Westpac Banking Corporation (ASX: WBC) in their portfolio.

But, should you be one of those rare Aussie investors who doesn’t yet have the full set, and you’re wondering which one is the best to add to your collection right now, then this article is for you.

ANZ, NAB, and Westpac have each just released their first half 2024 results (these three have a FY end in September compared to CBA’s more conventional June). I’m going to break down the key metrics of each result, but more importantly, show you what the big brokers thought, as well as provide their latest ratings and price target changes.

(Note all consensus numbers provided below are courtesy of StreetAccount by Factset. ✅ Denotes a beat of consensus metric, ❌ denotes a miss, and 🟰 denotes in-line).

ANZ has plenty on its plate

Key metrics

  • Cash profit: $3.55 billion vs consensus $3.54 billion ✅

  • H1 Dividend: $0.83 vs consensus $0.80 (Ex-div 14-May) ✅

  • Net interest margin (NIM): 1.63% vs consensus 1.62% ✅

  • Capital ratio (CET1): 13.5% vs consensus 13.4% ✅

  • Total credit impairment charges: (A$70 million) vs consensus (A$285.5 million) ✅

  • Return on Equity (ROE): 10.1% vs consensus 10.0% ✅

  • Goodies: $2 billion on on-market share buyback

Broker views

Citi

Rating: SELL | Price Target: $24.50⬇️ vs $26.00

  • “ANZ core earnings are still declining, with investors unsure of the strategic merit of the current strategy as well as missing key disclosures. This makes it difficult to identify the earnings trough despite improved operating conditions.”

  • Broker drops ANZ down to third in terms of order of preference among the Big 4

Jarden

Rating: NEUTRAL | Price Target: $29.00⬆️ vs $28.80

  • Notes strong overall performance, upgrades earnings forecasts based on benign credit conditions, expected moderation in competitive environment

JP Morgan

Rating: NEUTRAL | Price Target: $27.00⬆️ vs $26.60

  • Benign credit environment note enough to shift focus from higher operating costs and lower operating income – sees further cost pressures ahead

Macquarie

Rating: UNDERPERFORM | Price Target: $26.50⬇️ vs $27.00

  • Broker notes H1 result was “slightly ahead of expectations underpinned by strong markets income”

  • The cost of running the bank was higher than expected, “We found it challenging to reconcile key moving parts in this half”

  • “Balance sheet settings remain supportive”

Morgan Stanley

Rating: EQUAL-WEIGHT⬇️ vs OVERWEIGHT | Price Target: $27.70⬇️ vs $27.90

  • “We downgrade to EW given ANZ has a range of strategic priorities to juggle, EPS upgrades will be hard to come by, and trading multiples are fair.”

UBS

Rating: NEUTRAL | Price Target: $30.00

  • Broker notes stronger non-interest income, better than expected impairments, but worse than expected NIM hurt margins

  • Cites increased buyback as a positive

  • Suncorp banking division integration is a major focus going forward

NAB means business

Key metrics

  • Cash profit: $3.55 billion vs consensus $3.54 billion ✅

  • H1 Dividend: $0.84 vs consensus $0.84 (Ex-div 7-May) 🟰

  • NIM: 1.72% vs consensus 1.69% ✅

  • Capital ratio (CET1): 12.2% vs consensus 12.2% 🟰

  • Total credit impairment charges: (A$363 million) vs consensus (A$411 million) ✅

  • ROE: 11.7% vs consensus 11.6% ✅

  • Goodies: $1.5 billion increase to existing on-market share buyback

Broker views

Goldman Sachs

Rating: BUY | Price Target: $34.04⬆️ vs $33.89

  • Broker notes “asset quality remains strong with management highlighting credit losses appear to be deviating vs. history for the better and the bank is well provisioned.”

  • NAB continues to manage costs effectively…which we think leaves it well positioned for an environment of elevated inflationary pressure.”

JP Morgan

Rating: OVERWEIGHT | Price Target: $34.30⬆️ vs $33.70

  • Broker notes very strong performance in business banking, but also solid margins performance

Macquarie

Rating: UNDERPERFORM | Price Target: $32.50

  • “NAB is trading at a ~8-14% premium to ANZ and WBC but a ~24% discount to CBA.”

  • “While operationally performing well, trading at ~16x P/E, we believe an in-line result with declining earnings is not enough to sustain current valuations.”

Morgan Stanley

Rating: EQUAL-WEIGHT | Price Target: $31.50⬆️ vs $30.60

  • Broker notes results were “in line” with expectations, but cites strong performance from business banking division

  • Broker upgrades FY24, FY25, and FY26 earnings forecasts due to improved margin expectations, and factoring in increase in buyback, but even so,  the stock remains fully valued at current share price

UBS

Rating: SELL | Price Target: $30.00⬆️ vs $28.00

  • Broker describes H1 result as “in line”, and sees the buyback as a “positive”, but also questions whether these are enough to sustain the upward trend in the company’s share price.

Westpac: “Peer-leading” performance

Key metrics

  • Cash profit: $3.34 billion vs consensus $3.31 billion ✅

  • Dividend: $0.75 vs consensus $0.71 (Ex-div 9-May) ✅

  • NIM: 1.89% vs consensus 1.89% 🟰

  • Capital ratio (CET1): 12.55% vs consensus 12.3% ✅

  • Total credit impairment charges: (A$362 million) vs consensus (A$410 million) ✅

  • ROE: 9.3% vs consensus 9.4% ❌

  • Goodies: $0.15 special dividend, $1 billion increase to existing on-market share buyback

Broker views

Citi

Rating: SELL | Price Target: $22.25

  • Broker believes Westpac has managed its NIM “better than its peers”

  • Loan growth is expected to be “resilient”, but costs will head higher. These indicate a “more resilient core earnings outlook” than Westpac’s peers.

  • Capital management (increased buy back and special dividend) also “peer-leading”

  • “All up, a solid result”

Barrenjoey

Rating: OVERWEIGHT | Price Target: $27.00⬆️ vs $26.00

  • Broker notes Westpac’s strong capital position and excess franking credits, auger well for further capital management initiatives

  • Growth options are limited and NIM stabilisation may revert as hedges roll off

Goldman Sachs

Rating: NEUTRAL | Price Target: $24.10⬆️ vs $23.71

  • Broker notes “Strong capital position”

  • WBC’s technology simplification plan is a large-scale transformation program that “comes with a significant degree of execution risk”

  • Broker notes Westpac’s 12-mo forward PER of 14.5x (14.0x ex-dividend adjusted) is one standard deviation above its 15-year historic average of 12.7x, and therefore broker’s rating cannot be better than neutral

Jefferies

Rating: UNDERPERFORM | Price Target: $20.00⬆️ vs $18.50

  • NIM improvement was a positive surprise, loan growth also beat broker’s forecast

JP Morgan

Rating: NEUTRAL | Price Target: $25.00⬆️ vs $24.30

  • Broker suggests further capital management initiatives are in store given Westpac’s strong capital position

  • Major IT upgrade brings with it substantial execution risks, and this creates uncertainty with respect to costs and profitability

Morgan Stanley

Rating: UNDERWEIGHT | Price Target: $24.40⬆️ vs $23.00

  • “WBC's operating trends and capital management initiatives point to better franchise performance and a more encouraging outlook for earnings and dividends. However, we think this is already reflected in the share price.”

Which bank to buy right now?

To answer this question, let’s investigate the broker consensus for each bank, that is, what is each bank’s consensus rating and average price target?

To work out a consensus rating, I like to assign a value of 0 to any rating better equivalent to a HOLD/NEUTRAL, a +1 to any rating better, and a -1 to any ratings worse. If the average rating is +0.5 or greater, I call the consensus rating a BUY, and if the average rating is -0.5 or worse, I call it a sell.

Average price targets are a little easier, but I also like to look at the median price targets to reduce the impact of potential outliers in the sample data. Finally, to get a better understanding of the potential of an investment based upon a broker consensus price target, it’s important to compare a target to the current price of the stock in question.

With these factors in mind, the broker consensus data for ANZ, NAB, and WBC are displayed in the table below. Each is rated at a HOLD, but NAB’s rating value of 0.0 is superior to ANZ and WBC’s skew to the SELL-side. NAB is also the least overvalued bank of the three, currently trading at 3.6% above the consensus average price target and 3.5% above the consensus median price target.

H1 FY2024 pre and post results broker consensus table
H1 FY2024 pre and post results broker consensus table. Note: “+/- Potential” column is calculated using the bank’s relevant consensus price target compared to its price at the time of writing: ANZ $28.97, NAB $33.69, WBC $26.39.

 

Written By

Carl Capolingua

Content Editor

Carl has over 30-years investing experience, helping investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.

Get the latest news and insights direct to your inbox

Subscribe free