Star stockbroker Charlie Aitken has been rather outspoken in recent months when telling clients to sell bank stocks, but now Bell Potter has upgraded Commonwealth Bank to a ‘buy’ from ‘hold’.
Bell Potter’s TS Lim joins just two other analysts, BBY’s Brett Le Mesurier and Macquarie Bank’s Michael Wiblin who hold ‘buy’ recommendations on Australia’s largest bank.
Mr Lim has attached a 12-month target price of $83.00, revised down from $86.00, with the current price sitting at $75.81.
“CBA’s recent share price volatility has prompted us to revisit the relationship between its dividend yield and interest rates. We believe the differentials allow us to assess the bank’s true risk premium,” Mr Lim said.
CBA shareholders had a torrid month in September, with the stock plunging 7.4 per cent, as offshore investors pulled liquidity out of the market due to the Australian dollar dropping close to 6 per cent.
The rest of the big four were not spared. Westpac slumped 8.3 per cent, NA B shed 7.6 per cent and ANZ slid 7.5 per cent in September. Big four banks correction
With all of the big four banks entering correction, down 10 per cent from their recent peaks, CBA stands out as the bank to upgrade because it has better risk fundamentals than its peers, Mr Lim said.
“Assuming the cash rate increases by 0.5 per cent to 3.0 per cent in the next year and using a conservative 2.6 per cent yield margin, CBA’s normalised post GFC yield should then be 5.6 per cent -i.e. 3.0 per cent plus 2.6 per cent,” Mr Lim said.
“Based on our $4.22 per share forecast dividend in 2015, CBA’s notional share price should be around $75.50 a share. Comparison with the current share price suggests the bottom may be at hand,” Mr Lim said.
It’s not just CBA that is getting some analyst love.
Bank of America Merrill Lynch analyst Nicole Mehalski has upgraded Bank of Queensland to “buy” saying the recent underperformance provides a buying opportunity.
“We continue to prefer the regional banks over the major banks against the current regulatory backdrop,” Ms Mehalski wrote. “Bank of Queensland has underperformed Bendigo & Adelaide by 12 per cent since March, providing a buying opportunity.”
Ms Mehalski says regional banks are likely to be net beneficiaries of regulatory reform. “With senior debt bail-in captive to global deliberations,we suspect the financial systems inquiry will focus on mortgage risk-weights and D-SIB to drive higher capital adequacy.”
She estimates a 20 basis point mortgage repricing would boost Bendigo and Bank of Quensland’s return on equity by about 1 per cent point.
Mr Aitken, who famously told clients that the five-year bear market was over in 2012, reckons there could be a correction on the US equities market.
“What will be the catalyst for this correction? My answer is consensus US earnings downgrades driven by the strong US dollar. When EPS downgrades come through in multi-nationals, large cap tech, and US oil majors in particular, which have heavy equity benchmark index weights, I think it will be the trigger for a multi-year profit taking correction,” Aitken wrote on Thursday.
“I am again backing my market instincts on this and positioning for the now long-overdue Wall St correction as the Fed ends QE and starts the process of cash rate normalisation. In terms of value I reiterate the only clear value I can see is the US Dollar, volatility and Chinese equities.”