Big four shares fall as Morgan Stanley flags overvaluation
Make us a preferred source
Make us a preferred source on Google
The news: The financials sector lowered on the ASX after Morgan Stanley analysts flagged that Australia's big four banks are overvalued after outperforming the market in July.
The numbers: NAB (-3.6%), Commonwealth Bank (-3%) Westpac (-2.9%), ANZ (-1.9%) were down by 2:30pm AEST, as the financials sector lost 2.61%.
Morgan Stanley said the average major bank price-to-earnings multiple is currently at record highs, at around 18x, with 12.9x at ANZ, 24.1x at CBA, 17x at NAB and 15.5x at Westpac.
In July, the average major bank total shareholder return was 6.7%, compared to 4.2% across the ASX 200. Among the majors, Westpac returned 9.4%, CBA 7.9%, NAB 6.5% and ANZ 2.9%.
The context: Morgan Stanley analysts said they hold a "negative stance on majors".
They noted that while they underestimated the banks' re-rating potential this year, share prices already reflected the benefits of rate cuts, a soft landing and less competition.
Therefore, current trading multiples were not supported by the banks' growth and return profiles despite their healthy balance sheets and capital management initiatives, they said.
The source: Morgan Stanley research
