Australia | Aug 21 2006
By Terry Hughes
With all the June year end retail banks having already announced their results, opinions on the banking sector’s outlook seem to be neutral to positive. In the eyes of ABN Amro, profit quality has been questionable, and outlook statements have been "more subdued than expected." In addition, the broker feels that Commonwealth Bank’s (CBA) result highlighted that the banks are in for increased earnings pressure.
However, the broker is of the view that the combination of 8%+ earnings growth and dividend yields of 5% should be enough to provide some share price support relative to the rest of the market. As such, ABN Amro maintains its Neutral call on the sector.
At GSJB Were, our sources tell us that the analysts are more upbeat on the sector, saying that the results provided additional earnings certainty "which remains high relative to non-bank industrials." As a result, the broker is happy to retain its Overweight call on the sector.
The broker’s preferred trading idea (in place for months now) is a switch out of Commonwealth Bank and into Westpac (WBC), although its top three short term preferences are St George (SGB), National Australia Bank (NAB) and ANZ (ANZ), while long term it is National Australia Bank, St George and ANZ.
As for ABN, NAB is its top banking sector pick, with ANZ second and St George in third spot.
Credit Suisse too published an update on the sector. The broker is Underweight Financial Services, but this is a result of its Underweight stance on Insurers and Fund Managers. CS is Marketweight Banks with a preference for Macquarie Bank (MBL) above all the rest. Promina (PMN) is the preferred insurer.
According to the FN Arena database, St George and Westpac enjoy the top recommendations in the sector, both with three Buys and seven Holds, with NAB third with three Buys, six Holds and one Sell, ANZ fourth with two Buys and eight Holds and Commonwealth in last spot with one Buy, five Holds and four Sells.