Investors mull banks as earnings approach

03.Investors mull banks as earnings approach

Stuart Condie

(Australian Associated Press)

Is now a good time to buy shares in Australia’s big four banks? It depends who you talk to.

Global markets’ rough start to 2016 means Commonwealth Bank, ANZ, National Australia Bank and Westpac are all trading some way below their highs of early last year, prompting many casual investors to wonder whether they represent good value.

Fat Prophets chief executive Angus Geddes points out that a healthy reporting season for a quartet that raked in $30 billion in 2015 full year earnings could push the stock back up.

“The banks are probably not going to generate too many surprises but I don’t think earnings are going to deteriorate either and, given the retracement in a lot of the share price for the banks, if anything reporting season could be quite well received,” Mr Geddes said.

Commonwealth will report its first-half earnings on February 10, when Bell Potter analyst TS Lim is expecting a five per cent increase in first half cash profit to $4.77 billion, compared to $4.62 billion for the prior corresponding period.

Last year’s capital raising and worries over the Chinese economy have all hit valuations over the past year or so.

At 1410 AEDT on Tuesday, CBA was trading at $79.23, down about 18 per cent on the all-time high of $96.42 it hit in March 2015.

ANZ and NAB were both down about 30 per cent over roughly the same period, and Westpac down about 20 per cent.

However, Motley Fool research analyst Scott Phillips suggests holding off on bank stocks for a while, pointing out that the three big drivers of growth over the past three decades may have run their course.

Mr Phillips said banks, and their dividend-loving shareholders, have benefited from lower interest rates, a big rise in the number of second household incomes and skyrocketing house prices.

“That can’t keep happening… rates aren’t going to keep falling and house prices can’t maintain double digit growth when wages are going up at three to five per cent,” Mr Phillips said.

“It’s been a wonderful time to be a banking investor but now is not the time to be investing in banks.”

Given the challenges ahead, Mr Phillips said the banks’ share prices are still 10-15 per cent above what he would consider being good value.

“There’s a point at which they become attractive but the risk of contagion or economic shock like they had from US house prices, you can’t rule that out,” he said.

“But even without that, future profit growth isn’t going to be anything like the past because those sort of tailwinds can’t be repeated.”


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