ANZ.AX — ANZ Group Holdings Equity Research Report

⚠ Disclaimer: I am a student. This report is purely hypothetical and for personal use only. It does not constitute financial advice, a recommendation, or an offer to buy or sell securities.

Company overview

ANZ Group Holdings Limited

Major Bank · Australia · New Zealand · Institutional · Pacific

HOLD · A$36.65

Share Price

A$36.65

52w: $26.22 – $41.00

Market Cap

A$110B

~3,000M shares

ROE

9.3%

Below sector avg 9.35%

CET1 Ratio

12.2%

Above APRA minimum

Div Yield (gross)

~5.5%

fully franked

01Executive Summary

ANZ is Australia's fourth-largest bank by market capitalisation, with A$1.3 trillion in total assets and A$824 billion in loans. The bank has undergone significant strategic change — divesting non-core assets (wealth management, life insurance, Asian minorities) to sharpen its focus on Australian retail/commercial banking, institutional markets, and New Zealand. FY25 (Sep 2025) delivered revenue of A$22.3 billion, PPOP of A$12.6 billion, and net income of A$5.9 billion — solid but uninspiring, with ROE of 9.3% sitting marginally below the sector average.

I've adapted the valuation framework for a bank — you can't use enterprise DCF for financial institutions because debt is the raw material, not just financing. Instead, I've applied: (1) DDM at the levered Cost of Equity, (2) Economic Profit analysis (ROE vs Cost of Equity), (3) P/B multiples benchmarking against the Big 4 peers, and (4) the Savings Account Test. My blended fair value estimate is approximately A$34.50 per share, which implies the stock is trading about 6% above fair value at A$36.65. Combined with a below-peer ROE and ongoing Suncorp Bank integration execution risk, I'm rating HOLD.

Investment thesis: ANZ is a well-capitalised, dividend-paying bank trading at a moderate premium to book value. The 5.5% gross franked yield is attractive for income investors. However, ROE of 9.3% barely exceeds the cost of equity (~10%), meaning the bank is treading water on value creation. Until the Suncorp Bank integration delivers meaningful synergies and lifts ROE toward 10.5%+, the stock lacks a compelling catalyst for re-rating.

02Business Overview

ANZ operates across three core divisions. Australia Retail & Commercial is the bread and butter — home loans, business lending, deposits, and cards. Institutional covers corporate and government banking, markets, and transaction banking across 30+ countries. New Zealand runs as a near-autonomous operation through ANZ Bank New Zealand, the country's largest bank. The 2024 acquisition of Suncorp Bank added ~A$50 billion in loans, heavily weighted to Queensland mortgages, and is expected to deliver A$260M in pre-tax synergies by FY27.

NII (FY25)

A$17.96B

80% of total revenue

PPOP

A$12.6B

Pre-provision earnings power

Cost-to-Income

41.6%

Improving from 43.8% (FY24)

03Historical Financial Summary

A$M	FY2021	FY2022	FY2023	FY2024	FY2025
NII	14,162	14,874	16,581	16,069	17,961
Non-Interest Income	3,624	4,040	3,621	4,295	4,357
Total Revenue	17,786	18,914	20,202	20,364	22,318
Provision for Losses	(567)	232	245	406	441
Operating Expenses	6,616	7,044	7,565	7,907	9,277
Net Income	6,180	7,139	7,126	6,570	5,932
EPS (diluted)	A$2.04	A$2.34	A$2.27	A$2.15	A$1.96
Book Value / Share	A$22.40	A$22.07	A$23.16	A$23.49	A$23.87
Loans (gross)	629K	671K	706K	801K	828K
Deposits	735K	772K	801K	872K	937K
Common Equity	63,665	65,907	69,495	69,857	71,128

The FY25 numbers show revenue growth of 9.6% — mostly driven by the Suncorp Bank consolidation inflating the loan book. But expenses jumped 17% as integration costs flowed through, compressing the bottom line. Net income fell 9.7% to A$5.9 billion despite higher revenue — a pattern that reflects the short-term pain of the Suncorp integration. The question is whether the promised A$260M in synergies will materialise by FY27.

04Valuation I — Dividend Discount Model

For banks, the DDM is the textbook valuation approach. Banks can't retain all their earnings — regulators require them to maintain capital ratios, so excess capital gets returned via dividends and buybacks. I've used a two-stage DDM: 5 years of explicit dividend forecasts, then a terminal value using the Gordon Growth Model.

DDM Assumption	Value
Risk-free rate (10Y AU Govt)	4.20%
Equity risk premium	5.50%
Beta (levered)	1.05
Cost of Equity	9.98%
Current DPS	A$1.66
Payout ratio (target)	65–70%
Terminal growth rate	3.0%
DDM Fair Value	A$32.70

At a 10% cost of equity and 3% terminal growth, the DDM spits out roughly A$32.70. That's about 11% below the current price — suggesting the market is pricing in either a lower cost of equity or higher growth than my base case assumes. A reasonable interpretation: the market is banking on Suncorp synergies lifting dividends faster than I've modelled.

05Valuation II — Economic Profit (ROE vs Cost of Equity)

This is the framework that matters most for banks. If ROE exceeds the Cost of Equity, the bank creates value and deserves to trade above book value. If ROE equals CoE, it should trade at 1.0x book. If ROE is below CoE, the bank is destroying value and should trade below book.

Metric	FY2022	FY2023	FY2024	FY2025
Common Equity (A$M)	65,907	69,495	69,857	71,128
ROE	10.8%	10.2%	9.4%	9.3%
Cost of Equity	10.0%	10.0%	10.0%	10.0%
ROE – CoE Spread	+0.8pp	+0.2pp	-0.6pp	-0.7pp
Economic Profit (A$M)	+527	+139	(419)	(498)

This is the concerning part of the ANZ story. ROE has been declining — from 10.8% in FY22 to 9.3% in FY25 — and has now fallen below the cost of equity. In FY24 and FY25, ANZ was technically destroying shareholder value. The Suncorp integration is partly to blame (one-off costs depressing returns), but even on a normalised basis, ANZ's ROE trails CBA (13.5%) and NAB (11.4%) by a wide margin. For the stock to justify trading above 1.0x book, management needs to push ROE back above 10% — and soon.

The implied fair P/B multiple from the Residual Income framework is: P/B = 1 + (ROE − CoE) / (CoE − g). At current ROE of 9.3%, CoE of 10%, and g of 3%, this implies a fair P/B of ~0.90x, or A$21.50. That's clearly too punitive as a standalone — it doesn't credit the cyclical recovery potential. But it underscores the fundamental challenge: ANZ needs to earn its cost of equity.

06Valuation III — Big 4 Multiples Benchmarking

Bank	P/B	P/TBV	P/E	ROE	Div Yield
CBA	3.4x	3.7x	25.2x	13.5%	3.2%
Westpac (WBC)	1.6x	1.8x	15.8x	9.8%	4.8%
NAB	2.0x	2.2x	16.5x	11.4%	4.5%
Peer Median (ex-CBA)	1.8x	2.0x	16.2x	10.6%	4.7%
ANZ (current)	1.54x	1.67x	18.7x	9.3%	5.5%

ANZ trades at a meaningful discount to NAB and CBA on P/B — and that discount is warranted given the lower ROE. The P/E looks optically high at 18.7x, but that's inflated by the FY25 earnings dip from Suncorp integration costs. On normalised earnings (~A$2.20 EPS), the effective P/E is closer to 16.5x — in line with WBC and NAB. Applying the peer median P/B of 1.8x to ANZ's book value of A$23.87 yields a target of A$42.97 — but that assumes ANZ earns a peer-average ROE of 10.6%, which it currently doesn't. A justified P/B of 1.45–1.55x (reflecting the ROE discount) gives A$34.60–$37.00.

07The Savings Account Test

For a bank, the savings account analogy works slightly differently. You can't use traditional FCF/EV because a bank's "free cash flow" is erratic (driven by deposit/loan volume changes, not operations). Instead, I use earnings yield — net profit divided by market capitalisation — as the "interest rate" on your equity investment.

Market Cap (your "deposit")

A$110B

What you'd pay to own all the equity

Net Profit (your "interest")

A$5.93B

FY25 cash earnings

Earnings Yield ("rate")

5.4%

Your implied return from earnings

	ANZ "Rate"	Benchmark	Verdict
vs. 10Y AU Govt Bond	5.4%	4.2%	+1.2pp premium ✓
vs. Term Deposit (~4.5%)	5.4%	~4.5%	+0.9pp — thin premium ⚠
vs. My risk threshold for a major bank	5.4%	~6–7%	Below threshold ✗

At 5.4%, ANZ's earnings yield barely exceeds a term deposit — and for a cyclical business exposed to credit losses, housing market risk, and regulatory change, that premium feels insufficient. The dividend yield of ~5.5% (gross, franked) is more attractive on an after-tax basis thanks to franking credits, but the underlying earnings power supporting that dividend is under pressure. This is a business where you're not being compensated generously for the risk.

Savings account verdict: ANZ's "interest rate" of 5.4% is the thinnest across all five companies I've analysed. For context: BHP offers 6.5%, SOL offers ~7.5% on an NAV basis, and even a term deposit gives you 4.5% risk-free. The frank credits improve the after-tax picture, but the pre-tax earnings yield doesn't clear my risk hurdle for a cyclical bank. This isn't a "bad" stock — it's a "fairly priced" one with limited margin of safety.

08Valuation Summary — Football Field

Methodology	Low	Mid	High	Weight
DDM (CoE 9.5–10.5%)	A$29.00	A$32.70	A$38.50	35%
Economic Profit / Residual Income	A$21.50	A$28.00	A$35.00	15%
P/B Multiples (justified)	A$34.60	A$37.00	A$43.00	30%
Analyst Consensus (14 analysts)	A$30.00	A$37.29	A$45.00	20%
Blended Fair Value	A$29.50	A$34.50	A$40.00	100%

09Red Flags Analysis — Allen / Plato Framework

Banks are structurally different from industrial companies — high leverage is the business model, not a red flag. I've adapted Allen's framework accordingly, with bank-specific thresholds where relevant.

Red Flag Category	Assessment	Flag?	Detail
1. Negative operating cash flow	CLEAR	—	Operating CF of A$26.1B in FY25. Banks have volatile operating CF due to trading book movements, but underlying cash generation is strong.
2. Earnings vs cash flow divergence	CLEAR	—	Operating CF of A$26.1B vs net income of A$5.9B — cash flow comfortably exceeds reported earnings. No red flag.
3. Excessive debt / capital adequacy	CLEAR	—	CET1 of 12.2% — well above APRA's 10.25% minimum. ANZ is strongly capitalised with meaningful buffers.
4. Insider selling	CLEAR	—	No material insider selling identified in public filings. CEO and executives hold significant equity stakes via performance rights.
5. Executive remuneration	WATCH	⚠	ANZ faced a remuneration strike in 2023 (38% vote against rem report). While subsequent reports have passed, the prior strike signals shareholder discomfort with pay-for-performance alignment.
6. Governance	WATCH	⚠	AUSTRAC anti-money laundering investigation and A$900M+ penalty (2024) flagged governance weaknesses in compliance and risk management. New CEO Nuno Matos (from HSBC) appointed — governance improvement expected but unproven.
7. Related party transactions	CLEAR	—	No material related party transactions outside normal banking operations.
8. Auditor quality	CLEAR	—	Big 4 auditor. No adverse opinions. Clean audit history.
9. Aggressive growth expectations	CLEAR	—	Consensus expects low single-digit EPS growth. Suncorp synergies are well-telegraphed at A$260M pre-tax. No "blue sky" priced in.
10. High beta / crash sensitivity	CLEAR	—	Beta of ~1.05 — essentially market-neutral. Major banks are defensive by nature with regulated capital buffers.
11. Non-standard metrics	WATCH	⚠	ANZ emphasises "cash profit" (excludes hedging and acquisition amortisation) over statutory net income. Cash profit was A$6.74B vs statutory A$5.93B in FY25 — a meaningful A$810M gap that warrants scrutiny.
12. Overstated receivables / loan quality	CLEAR	—	Provision coverage is adequate. Loan loss provisions of A$441M represent 0.05% of gross loans — low but consistent with benign credit conditions. Watch for any deterioration in housing or commercial property.

Total Red Flags

Zero hard flags triggered

Watch Items

Rem strike, AUSTRAC, cash profit metrics

Allen Verdict

CLEAN

Well below 8-flag danger zone

Allen framework summary: ANZ triggers zero hard flags and three watch items. The AUSTRAC penalty is the most concerning — a A$900M+ fine for anti-money laundering failures reflects genuine governance shortcomings. However, the bank has since appointed a new CEO (Nuno Matos) and overhauled its compliance function. The remuneration strike and cash profit emphasis are secondary concerns. On the critical metrics — capital adequacy, cash generation, auditor quality, and insider behaviour — ANZ clears comfortably.

10Scenario Analysis

Bear Case

A$25.00

Housing downturn drives credit losses higher. NIM compresses as RBA cuts rates. Suncorp synergies disappoint. ROE drops below 8%. P/B contracts to 1.0x book.

Base Case

A$34.50

Suncorp delivers partial synergies. NIM stabilises. ROE recovers to ~9.5%. Dividend maintained. P/B holds at 1.4–1.5x book.

Bull Case

A$44.00

Suncorp integration outperforms. ROE reaches 11%+. Strong mortgage growth. Institutional division earnings surge. P/B re-rates toward NAB's 2.0x.

11Key Risks

Integration risk: The Suncorp Bank acquisition is ANZ's largest deal in decades. Integration costs are running through the P&L now, but the real risk is whether the A$260M synergy target is achievable without customer attrition or system failures.

Suncorp Bank integration execution riskHigh

Australian housing market correctionHigh

NIM compression from RBA rate cutsMedium

AUSTRAC / regulatory enforcement riskMedium

Credit quality deteriorationMedium

New CEO execution / cultural changeMedium

Plain-English summary

ANZ Bank (ANZ.AX) — The Short Version

No jargon. No formulas. Just what you need to know.

HOLD · A$36.65

Share Price

A$36.65

What you'd pay today

What I think it's worth

~A$34.50

Slightly overvalued (~6%)

Dividend (annual)

~5.5%

Paid twice a year, franked

Risk Level

Low

0 red flags, 3 watches

01What does ANZ actually do?

ANZ is one of Australia's "Big Four" banks — alongside CBA, Westpac, and NAB. They take deposits from millions of Australians, lend that money out as home loans, business loans, and credit cards, and make profit on the difference between what they charge borrowers and what they pay depositors. They're also a major bank in New Zealand and have a large institutional division serving governments and big corporates across Asia-Pacific. Recently, they bought Suncorp Bank (Queensland-focused) — a big deal that added about A$50 billion in loans to their books.

02Why should I care?

ANZ pays a 5.5% dividend yield with franking credits — that's one of the highest among the Big Four. For income-focused investors, that's attractive. The bank is also well-capitalised (meaning it has a big safety buffer), and major Australian banks have never cut their dividends to zero, even during the GFC. The downside? ANZ is the least profitable of the Big Four. For every $100 of shareholder equity, it generates only $9.30 in profit — compared to $13.50 for CBA and $11.40 for NAB. That matters because it means ANZ has less room to grow its dividend or reinvest in the business.

03The numbers that matter

Total loans

A$828B

Mostly home loans

Total deposits

A$937B

Funding base

Profit

A$5.9B

Down 10% from prior year

Revenue grew 10% thanks to the Suncorp acquisition, but expenses jumped even faster (17%) as integration costs hit. Profit fell 10% to A$5.9 billion. The bank's capital buffer (CET1 ratio) sits at 12.2% — comfortably above regulatory minimums, so there's no solvency concern. The real issue is profitability, not safety.

04What I think it's worth

I used several methods — dividing up future dividends, comparing ANZ to the other Big Four banks, and checking whether the bank earns enough profit to justify its share price. Most methods point to a fair value around A$34.50 — about 6% below today's price of A$36.65. That doesn't make it a terrible stock, but it does mean you're paying a small premium for a bank that's currently underperforming its peers on profitability.

05The savings account test

If you think of ANZ as a savings account: you're putting in A$110 billion (the total value of all shares) and getting A$5.9 billion in annual "interest" (profit). That's a rate of 5.4%. A term deposit currently pays about 4.5% with zero risk. So you're only getting an extra 0.9% for taking on the risk of owning a bank — housing could crash, interest rates could move against them, or bad loans could spike. That premium feels thin. For comparison, BHP offers 6.5% and comes with a stronger growth story.

06Are there warning signs?

Zero hard red flags, three minor watches. The bank was fined A$900M+ in 2024 for anti-money laundering failures — that's a genuine governance failure, though a new CEO has since been appointed. Shareholders voted against executive pay in 2023 (a "remuneration strike"), and the bank uses adjusted profit measures that flatter the numbers. But the fundamentals are solid: strong capital position, no auditor concerns, stable loan book, and low bad debts. ANZ isn't a dangerous stock — it's just an average one.

Best case

A$44

Suncorp integration delivers big savings. Profitability catches up to NAB. Share price re-rates higher.

Most likely

A$34.50

Steady dividends. Marginal improvement in profitability. Stock trades sideways. You clip the dividend.

Worst case

A$25

Housing downturn. Bad loans spike. Integration fails. Dividend gets cut. Bank survives — but shareholders lose money.

07Bottom line

ANZ is a safe, boring bank that pays a decent dividend. If you're an income investor who wants a franked 5.5% yield from a too-big-to-fail institution, it does the job. But at today's price, you're paying a slight premium for a bank that earns less on its equity than its peers and is in the middle of a messy integration. I'd wait for either a pullback to ~A$32 (where the valuation math works better) or evidence that the Suncorp synergies are actually flowing through. HOLD — not because it's bad, but because it's not cheap enough to be compelling.