Profit climbing another $500 million to $7.7 billion by FY26
ANZ Group Holdings, one of Australia's most widely held shares, stands at a crossroads familiar to large institutions navigating the tension between scale and margin: growth is forecast, yet the pressures of competition and rising costs quietly erode the foundation beneath. UBS, after reviewing the bank's first-half results, sees a path from $7 billion in profit today to $7.7 billion by 2026 — a trajectory that, if realised, would reward the 1.2 million Australians counting on ANZ's dividends. The story is not one of triumph or crisis, but of a large institution carefully managing its footing on shifting ground.
- ANZ's net interest margin compressed by 9 basis points to 1.56%, a quiet but consequential erosion that signals intensifying pressure from deposit costs and lending competition.
- A $2 billion share buyback announcement offered investors a measure of reassurance, even as underlying cost pressures and rising loan arrears cast a shadow over the near-term outlook.
- UBS responded by lifting its FY24 profit forecast by 6% while trimming FY25 and FY26 estimates, reflecting a careful recalibration rather than a confident endorsement of the road ahead.
- The acquisition of Suncorp's banking operations is ANZ's strategic bet — a move to expand scale and geographic reach in Queensland as the competitive landscape tightens around it.
- With the stock trading at under 11 times FY26 forecast earnings, income-focused investors are being asked to weigh a modest valuation against the real possibility that costs outpace the optimistic profit trajectory.
ANZ Group Holdings recently posted a first-half net profit of $3.5 billion — down just 1% from the prior half — a result that UBS described as broadly in line with market expectations. Beneath the headline, however, the picture was more nuanced. The bank's loan book outperformed and non-interest income provided support, but the net interest margin compressed by 9 basis points to 1.56%, a meaningful headwind that signals the squeeze between what ANZ earns on loans and what it must pay depositors. Management's announcement of a $2 billion share buyback was welcomed, though it could not fully offset concern about the margin trend.
UBS revised its forecasts in response, lifting its full-year FY24 profit estimate by around 6% to $7 billion — equivalent to earnings per share of $2.29 — while modestly trimming its FY25 and FY26 outlooks due to anticipated cost pressures. At current prices, the stock trades at roughly 12 times FY24 earnings, a valuation that appears reasonable for a major Australian bank.
The outlook beyond FY24 remains cautiously optimistic. UBS forecasts profit rising to $7.2 billion in FY25 and $7.7 billion by FY26, with earnings per share reaching $2.58 — implying the stock trades at under 11 times forward earnings by that point. For the 1.2 million Australians who hold ANZ shares, many of them dividend-dependent, these numbers carry real weight.
Central to the bank's growth strategy is its acquisition of Suncorp's banking operations, a deal intended to deepen ANZ's presence in Queensland and broaden its competitive base. Whether the bank can maintain operational discipline while absorbing that acquisition — and navigating rising arrears and lending competition — will ultimately determine whether these forecasts prove prescient or merely hopeful.
ANZ Group Holdings released its first-half results recently, and the numbers tell a story that matters to the roughly 1.2 million Australians who own the bank's shares, many of them counting on dividends to supplement their income. The first-half net profit came in at $3.5 billion, down just 1% from the previous half—a result that UBS, the Swiss investment bank, deemed largely in line with what the market expected. But the details underneath that headline reveal both strength and strain.
The bank benefited from stronger non-interest income and a loan book that performed better than anticipated. Management also announced a $2 billion on-market share buyback, which UBS called a welcome move. Yet there was a visible crack in the foundation: the net interest margin—the spread between what ANZ earns on loans and what it pays on deposits—compressed by 9 basis points to 1.56%. That's the kind of erosion that keeps bank executives awake at night, and UBS flagged it as a meaningful headwind.
After digesting these results, UBS revised its forecasts. The broker lifted its full-year FY24 profit estimate by around 6%, but trimmed its FY25 and FY26 outlooks by 0.1% and 0.6% respectively, citing higher cost pressures ahead. For FY24, UBS now expects ANZ to deliver $7 billion in net profit, translating to earnings per share of $2.29. At current prices, that values the stock at roughly 12 times FY24 earnings—a reasonable multiple for a major Australian bank.
Looking ahead to FY25, the picture brightens. Despite headwinds from rising loan arrears and intensifying competition in lending, UBS forecasts profit will jump by more than $200 million to $7.2 billion. That would mean earnings per share climbing to $2.42. If that forecast holds, the current share price sits at under 12 times FY25's estimated earnings—a modest discount that suggests some value remains for income-focused investors.
By FY26, UBS sees profit climbing another $500 million to $7.7 billion, with earnings per share reaching $2.58. Even with the broker's warning about higher-than-expected costs materializing in that year, the trajectory remains upward. At those profit levels, ANZ would trade at under 11 times FY26 earnings—a valuation that, on paper at least, looks attractive for a dividend stock.
Underpinning this outlook is ANZ's acquisition of Suncorp Group's banking operations, a deal designed to boost the bank's scale and geographic reach, particularly in Queensland. That strategic move could help ANZ sustain profitability growth even as the competitive landscape tightens and interest rate uncertainty persists. The forecasts assume the bank can navigate these challenges while maintaining operational discipline. Whether it does will determine whether these numbers become reality or remain wishful thinking.
Citações Notáveis
The $2 billion on-market share buyback was a welcome positive— UBS
The net interest margin compression was a negative overhang on the result— UBS
A Conversa do Hearth Outra perspectiva sobre a história
Why does the net interest margin compression matter so much if the bank still grew non-interest income?
Because the margin is the core engine of a bank's profitability. When it shrinks, you're earning less on every dollar you lend. Non-interest income can offset that, but it's often more volatile and harder to sustain.
So UBS downgraded FY25 and FY26 but still expects profit to grow. How does that work?
They're saying the profit will grow, but not as much as they thought before. Higher costs—wages, technology, compliance—are eating into what would otherwise be a bigger gain.
Is the Suncorp acquisition a gamble or a smart move?
It's both. It gives ANZ more customers and geographic spread, which reduces risk. But integration is messy and expensive, and it happens right when competition is fierce.
If ANZ trades at under 11 times FY26 earnings, why isn't everyone buying it?
Because forecasts aren't guarantees. Interest rates could stay higher longer. Loan defaults could spike. The market is pricing in some skepticism about whether ANZ actually delivers those numbers.
What would make an income investor nervous about this stock?
The margin compression is real and structural. It's not going away. And if costs keep rising faster than revenue, those profit forecasts will get cut again.
So the dividend is safe?
Probably, in the near term. But if profits don't grow as expected, dividends will eventually follow them down. That's the risk.