Australian Banking Sector Update

Submitted by Share Trading on 3 April, 2008 - 12:39

Here is an Australian banking sector update from stockmarket analyst, Macquarie Research Equities. They rank their stock preferences in order from Wetpac (WBC), National Australia Bank (NAB), ANZ (ANZ), St George Bank (SGB) and Commonwealth Bank (CBA).

Banking Sector: Sector Strategy

Yesterday saw the banking sector rally, as optimism on the state of credit rose, after the U.S. released positive data on Construction and Manufacturing. In today’s note Macquarie Research Equities (MRE) review the Bank Sector specifically looking at the impact that tighter monetary conditions, improving market share and earnings revisions will have on the industry.

MRE highlight that the market has now priced in the earnings risks that are associated from constrained global liquidity and tighter monetary conditions in the domestic market. This has presented opportunities to find value but it is unlikely that significant gains will be made in the next 6 months. MRE have downgraded earnings in line with the market, making provisions for additional expenses from risk impairment.

The strategy for the medium to long term may be based on accumulating positions in the banks when P/E ratios are in the 10 – 12 times range. On the upside, traders should keep a close eye on structural improvement and market share gains while on the downside risks include impairment costs, the need to raise capital and additional margin pressure.

Westpac remains the top pick in the sector with the current recommendations in the sector:
1. WBC: Outperform, TP A$25.71: Healthy balance sheet remains attractive.
2. NAB: Neutral, TP A$35.10: Large capital overhang already discounted.
3. ANZ: Neutral, TP A$24.87: Consensus earnings risks high.
4. SGB: Neutral, TP A$30.71: Liquidity risks partially discounted.
5. CBA: Underperform, TP A$45.93: Earnings uncertainty supports de-rating.