Australian Banks Update

Submitted by Craig Strzelecki on 4 May, 2007 - 18:22

Sharemarket analyst UBS has provided an Australian Banks Update. Sector Update post WBC result: 1H07: CBA-ANZ-SGB-WBC have reported. NAB-MBL to go: FY2007 f'casts are intact (+14% EPSg seen minor upgrades). Results drivers have been strong credit growth, better than expected margins and solid wealth management growth. BDD has been low, although 90 day overdues are drifting up. Share prices have predicted outcomes. Sector Overweight Maintained. Valuations reasonable: The analyst needed more upgrades especially given strong share price performance of banks in April. EPSg of 14% (07E) and 10% (08E). PE's are 14x 08E cum dividend, with PE rels now close to decade lows of 79%. Some potential upside risk to 2H07E and 08E. Rotation out is shaping up as the largest sector risk. The anlayst prefers ANZ, CBA and WBC (all Buy 1): ANZ: (1) Considered cheap at 7% sector discount (2) retail banking div'n +15% p.a (3) Insto div'n an issue. CBA: (1) Cheap at a 1% sector premium, with ex WM PE a standout (2) Improving customer lead indicators (2) business bank & WM upside (3) retail register. WBC: (1) Volume growth recovery is driving EPS recovery (2) TSR catch-up after long lag (3) back to front book adj done. Other ratings include: MBL interesting - Buy 2. NAB on track but less attractive (Neutral 1) NAB: (1) Earnings momentum on track (2) capital flexibility (3) valuation less attractive at 6% prem. We expect a good result from NAB, with hopefully a little more upside from its glaring cost gap. MBL should beat consensus, given FUM and dealflow.

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