Courtesy of The Australian:
Stay Underweight the bank sector says CLSA’s top-rated banking analyst, Brian Johnson.
While the sector has come back to a more attractive valuation around 11.4 times FY16 EPS, Mr Johnson says the sector faces a more challenging structural environment than it has done for a while and the majors will most likely have to raise more capital in the next year or so.
He notes that banks have materially underperformed since April due to $18 billion of capital raisings, lacklustre earnings, and a deteriorating macro environment, with China faltering, and the US dollar rising along with bond yields.
Fears that the Australian “housing bubble” could collapse amid higher borrowing rates, restrictions on investor lending volumes, tightening credit standards, rising unemployment, slowing immigration have also weighed, and Mr Johnson maintains that banks are “overearning” by about 10% thanks to sub-cycle loan losses and low quality tax items.
The one bright spot he sees is the confirmation of a very favourable industry structure which has allowed the bank oligopoly to again use pricing power to significantly raise housing rates.
Johnson is a class act. He upgraded NAB to Buy, stays Underweight ANZ, and has a Sell on CBA. I have a ‘short’ on ’em all!
