Given recent peer disclosures on the sensitivity of deposit earnings to higher rates, Citi has now incorporated a higher long term return on equity forecast into its ANZ Bank valuation given its deposit base.
The broker had previously incorporated a higher risk free rate, but has now incorporated a higher ROE (11%) to reflect the impact of higher rates.
The result is no change to earnings forecasts but a target price increase to $29.25 from $27.00. Neutral retained.
Sector: Banks.
Target price is $29.25.Current Price is $27.64. Difference: $1.61 – (brackets indicate current price is over target). If ANZ meets the Citi target it will return approximately 6% (excluding dividends, fees and charges – negative figures indicate an expected loss).
