ANZ.NZX - Anyone holding?

[Snoopy]

I start from the 'Average Across Five Scenarios' 'Gross Dividend: NZ Investor Perspective'. That figure comes out at $1.524 per share. And this is one key to the valuation.

The other key figure is a bit more subjective, and you as an investor need to answer the question.

"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"

You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.

Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.

So my answer to the question I posed is 6.5%:

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.524 / 0.065 = $A23.44 or in NZ dollar terms

$A23.44 / 0.95 = $NZ24.67

Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'.

I start from the 'Average Across Five Scenarios' 'Gross Dividend: Aussie Investor Perspective'. That figure comes out at $1.984 per share. And this is one key to the valuation.

The other key figure is a bit more subjective, and you as an investor need to answer the question.

"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"

You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.

Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.

So my answer to the question I posed is 6.5%. From an Australian perspective though, I get a slightly different answer. The New Zealand Official cash rate is 1.75%. The Australian Official Cash Rate is 1.5%. To reflect this difference, I am reducing the yield I require from ANZ by the difference in those two figures, 0.25%. This means the new yield I am happy with is 6.25%

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.984 / 0.0625 = $A31.74 or in NZ dollar terms

$A31.74 / 0.95 = $NZ33.41

Current share price on the NZX when I started this exercise was $NZ30.90, which is 7.5% below my 'comfortable valuation'. This result, and giving the share price some room to breathe, tells me that ANZ is 'hold' at these prices.

From an investor perspective, I like to buy at below fair value. So what if I was in the market to buy some more ANZ? For a quasi-utility type investment this means a 20% discount to fair value, a price of $NZ26.73 for ANZ.NZX shares.

SNOOPY