Morgan Stanley downgrades NAB, reorders banking picks
Make us a preferred source
Make us a preferred source on Google
The news: Morgan Stanley has reordered its order of preference for Australia's big four banks and downgraded National Australia Bank.
The numbers: Morgan Stanley updated its order of preference to:
- ANZ — retained 'equal weight' rating but increased its price target by 7.5% to $29.30
- NAB — downgraded from 'overweight' to 'equal weight' and decreased its price target by 7% to $34.80
- Westpac — left its 'underweight' rating and $27.30 price target unchanged
- Commonwealth Bank — retained its 'underweight' rating but increased its price target by 1% to $128
Shares in each of the major lenders were up between 1.2% and 1.4% at 11:30am AEDT. The financial sector was up 1.2% as the ASX 200 added 0.8%.
The context: Morgan Stanley analysts said NAB faces higher execution risk due to recent management changes, margin pressure from competition in business banking, continued sub-system growth in mortgages, and a reduced likelihood of further capital management following completion of its on-market buyback.
They also reiterated their overall negative stance on the major banks, anticipating a further de-rating later in the year.
What they said: "In our view, current share prices still factor in meaningful upgrades to consensus [earnings per share] and dividend forecasts from the combination of a stable regulatory backdrop, a robust economic recovery, a benign competitive environment, a low risk profile, and further capital management initiatives," the analysts said.
"However, recent trends on margins and capital fell short of expectations and there remains very little margin for error on key operating metrics."
The source: Morgan Stanley research
