Bank earnings don't justify share price premium
Australia's banks are solid, with the economy resilient, bad debts under control and margin pressure easing. But investors are increasingly asking how these unexciting fundamentals support over-valued shares.
Coming into this bank profit season, there was one glaring question: are the banks too expensive? They’ve been on a six-month tear and almost every analyst has the sector as a sell. Sound, stable and blue chip but significantly over-valued.
Halfway through the profit reports, with Westpac reporting today, the subtext of coverage is what can be found to support the view that investors should sell banks.
Westpac this morning delivered an ordinary result — down on consensus, weak on margins — but it offered an increased share buyback and special dividend to pacify shareholders. Shares were up strongly.
Neither National Australia Bank nor Macquarie Group last week jolted consensus, and all three banks have shown the second half of the March year was much more congenial than the first half. In part that’s because 2023 was so strong (especially for Macquarie), hitting the comparison, and in part because savage, margin-crunching mortgage competition eased in the latter part of calendar 2024.
