The banks got an overhaul this week from the brokers following the release of David Murray’s Financial System Inquiry report. However their opinions were quite different with Credit Suisse believing it would be the regionals that would be the winners from the report and Macquarie believing the opposite.
Credit Suisse upgraded Bendigo and Adelaide Bank (BEN) to Outperform from Neutral. Following the Murray Financial System Inquiry Credit Suisse considers the regional banks are the winners, with a clearer path to advanced accreditation, greater regulatory capital neutrality and a margin and profitability opportunity to follow the majors on product re-pricing. (see downgrade)
Credit Suisse upgraded Commonwealth Bank (CBA) to Neutral from Underperform. Despite its overall view on the big banks, Credit Suisse believes CBA has an advantage in organic capital generation from its franchise. Credit Suisse expects some form of share issuance; DRP or placement will be forthcoming.
Morgan Stanley upgraded Qantas to Overweight from Equal-weight. Morgan Stanley considers Qantas has shown capacity discipline over the last six months. The broker concedes, with yield recovery and fuel upside, it may have underestimated the company’s rebound potential. With few foreseeable hurdles over the near term, the broker moved to Overweight from Equal-weight, retaining an attractive sector view.
In the not-so-good books
Credit Suisse downgraded ANZ to Neutral from Outperform. Following the Murray financial system review Credit Suisse considers the major banks are the immediate losers. ANZ will need to raise equity to address what the broker suspects is a substantial tier 1 capital requirement. Credit Suisse remains supportive of the bank’s business strategy and would look to review the rating if ANZ were to quickly address its capital position.
Macquarie downgraded Bank of Queensland to Underperform from Neutral and Bendigo and Adelaide Bank to Neutral from Outperform. Macquarie believes, contrary to Credit Suisse, that the regional banks and business banks appear to be the losers in the Murray Financial System Inquiry. Capital targets are in the same quartile measure as the major banks and this is viewed as a constraint. In Macquarie’s analysis, the regional banks would need to raise $300-800 million, diluting by 9-12%.
Credit Suisse downgraded Coca Cola Amatil to Underperform from Neutral. The company provided a subdued trading update, prompting Credit Suisse to nudge its forecasts to the lower end of guidance. Australia is yet to realise improvements in the company’s grocery accounts while Indonesian profitability is being affected by competition and rising costs.
Macquarie downgraded Myer Holdings (MYR) to Underperform from Outperform. Sephora, a large, global, vertically integrated player with a strong brand, low costs and a well-developed online offering has just opened a store in Pitt St Mall, right between the Myer and David Jones’ Sydney CBD flagship stores. Cosmetics are critical to Myer’s comparable sales numbers, particularly at the Sydney CBD store, the broker notes. Sephora’s entry will “comprehensively” impact, the broker warns.
The above was compiled from reports on FNArena, which tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.