CBA And The Premium Gone

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Aug 30 2017

In this week's Weekly Insights (published in two separate parts this week):

-CBA And The Premium Gone
-September S&P Index Rebalancing
-Rudi On BoardRoomRadio

-Investing: The USD Did It!
-Energy Sector - August Report Card
-2016 - L'Année Extraordinaire
-All-Weather Model Portfolio
-Rudi On TV
-Rudi On Tour

[Note the non-highlighted items appear in part two on the website on Thursday]

CBA And The Premium Gone

By Rudi Filapek-Vandyck, Editor FNArena

Banking sector analysts have been talking about CommBank ((CBA)) losing its premium over the other major banks in Australia for at least two years now, but it appears the latest scandal outed by Austrac has rapidly pulled CBA shares ex-premium. This week the shares are revisiting the mid-$70s having touched $88 in May and $84 earlier in the month.

This still is without federal Labor getting its much feared/maligned Royal Commission through parliament, which we all know is the goal whenever PM Turnbull and Co lose one more seat.

I didn't think I would write this sentence anytime soon, but CommBank is now the cheapest of the Big Four in Australia; offering a higher dividend yield than ANZ Bank ((ANZ)), a larger discount to consensus price target than both ANZ Bank and National Australia Bank ((NAB)), plus the highest Price-Earnings (PE) multiple of all four.

I wouldn't necessarily roll out that sentence about how quickly the mighty have fallen, but I could.

Another observation to point out is that present relative ranking for the sector is completely the reverse of post-2009 practice; ANZ Bank and National are now arguably the premium stocks in the sector, with CommBank and Westpac the laggards. Oh how times have changed, they certainly have.

Consider the following key metrics, grabbed from Stock Analysis on the FNArena website:

-CommBank - discount to consensus target: -5.2% - implied div yield: 5.7% - PE multiple 13.3x
-Westpac - discount to consensus target: -7.2% - implied div yield: 6.0% - PE multiple 12.9x
-National Australia Bank - discount to consensus target: -3.5% - implied div yield: 6.4% - PE multiple 12.4x
-ANZ Bank - discount to consensus target: -4.8% - implied div yield: 5.6% - PE multiple 12.5x

Rumours around the traps have it that internally, CommBank is preparing for a potential mega-fine on the back of, what was it again?, 53000+ breaches under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and 2.5 years of failures to report suspicious transactions.

This story is far from over, particularly with APRA now planning to look into the bank's governance.

September S&P Index Rebalancing

Coming Friday, 1st September, Standard & Poor's will announce various changes to key share market indices in Australia. Usually, these changes are met with a yawn around the traps, but this time might be different with some of the speculated changes potentially of high impact for stocks including a2 Milk ((A2M)), Charter Hall ((CHC)), nib Holdings ((NHF)) and WH Soul Pattinson & Co ((SOL)).

Announced changes on September 1 will only come into effect on September 15, leaving fund managers and other index followers with plenty of time to adjust and reshuffle.

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