Bank stocks still overpriced after ordinary results
Bull runs are by nature quixotic and the current one in bank stocks has no visible means of support. A very predictable earnings season has added little to the story.
The just-wrapped bank reporting season was, well, predictable. Bank analysts were pretty spot on with their forecasts — yet that hasn’t dragged share prices back to those analysts' price targets based on fundamentals.
There is a very broad consensus that the Australian banks are overpriced. Over the last six months the S&P/ASX 300 Banks index is up nearly 20%, not far shy of a six-month high set in March, despite a flagging couple of weeks in early April.
But with earnings at or near consensus, as far as analysts are concerned, there is no reason for the continued strength. The economy is slowing, costs are a challenge, revenue is flat and margins remain under pressure. The most positive story is credit quality, and hence bad debt write-offs, continue to be very low.
KPMG’s head of banking and capital markets, Steve Jackson, says the year ending 31 March was “very much a year of two halves, with a record first half profit performance and a softer second half. Profits have come off from the highs of 1H23, but income is broadly flat, the pace of margin erosion has slowed and operating expenses have reduced modestly compared to 2H23.”
