The Wrap: Banking, Housing And Wagering

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Weekly Broker Wrap: banking; housing; and wagering.

-Housing credit growth moderates further in June, pressure on banks
-Declines in house prices remain orderly, for the present
-New wagering entrants enhance visibility but conversion rates low
 

By Eva Brocklehurst

Banking

Citi suggests the new CEOs at both Commonwealth Bank ((CBA)) and Bendigo and Adelaide Bank ((BEN)) may struggle to meet expectations in their first reporting season. In particular, if CBA misses consensus estimates this may put an end to the rally in Australian bank stocks.

A spike in the BBSW-OIS spread and ongoing competition in the front book are expected to weigh on second half revenue growth for both of these banks. Citi also expects a continuation of weak revenue trends for CBA that were evident at the disappointing third quarter update.

Macquarie notes housing credit growth has moderated further in June, to around 4.7% from 5.2%, and this is the lowest rate of growth since 2013. Major banks continue to shed market share and grew at less than 0.8x system.

Nevertheless, while accepting the current landscape is challenging the broker continues to envisage relative value in banks. Westpac ((WBC)) and National Australia Bank ((NAB)) grew ahead of system in the month in housing while ANZ Bank ((ANZ)) and CBA lost share. The broker suggests deposit pricing remains broadly stable throughout the second half of FY18 and regionals remain competitive in deposits.

Banking system credit growth is tracking in line with Credit Suisse projections, which reflect softer housing credit growth and consistent with a view that the peak has been reached in housing. The broker welcomes the return to business credit growth.

Based on APRA data, the broker believes Westpac has the strongest lending balance growth among the major banks while CBA has the softest. Both Bendelaide and Suncorp ((SUN)) lagged the banking system in lending growth in June. Suncorp's strongest lending was in corporate and core deposits.

Housing

Private credit growth in June rose just 0.3% month on month and after May's 0.2% was the equal weaker since 2012, UBS notes. This was dragged down by record low investor housing input. Meanwhile, dwelling price declines accelerated in July to a five-year low.

UBS notes new housing remains surprisingly resilient, supported by a booming population and migration. However, the tightening credit scenario is more negative for prices and the broker envisages prices will be down more than -5% over the next year and the Reserve Bank will maintain a steady hand on the official interest rate tiller until 2020.

House price declines accelerated in July falling -0.6% to be -2.4% below a year ago. Macquarie observes the declines have been greatest in Sydney and Melbourne and among more expensive properties. These also experienced the greatest increases in price previously.

While some may point to the acceleration in house price declines as evidence of credit restrictions, the broker suggests this is only part of the story and notes loan approvals are typically taking much longer now. Macquarie believes the current correction is orderly but warns that fears of a sharper descent may become fulfilling if housing demand falls more significantly.

Morgan Stanley's model suggests both prices and housing approvals are likely to fall further, given a subdued outlook for credit and supply. Moreover, prices are still elevated and households indebted.

The broker does not expect the market to form a trough in the immediate future, and remains alert for any sharp tightening in credit or weakening in the broader economy that may accelerate declines and spark negative feedback between the housing market and the consumer.

Industry analyst and economic forecaster BIS Oxford Economics believed changes to the age profile of the population in Australia over the next decade is likely to mean a shift in the type of demand for dwellings.

Over the past 15 years there has been rapid population growth amongst the 20-34 age bracket. Natural population movement into this age group has been supported by net overseas migration which has also been concentrated in this cohort.

This has supported a boom in apartment construction and, the report suggests, as this generation now moves into the family-forming stage, many will look to purchase a dwelling, most likely larger ones such as detached houses or townhouses.

This situation is likely to support a decade-long boom in demand for new houses and land in the housing estates on the outskirts of Australia's major cities and affordable regional centres. Hence, BIS Oxford Economics suggests pressure will also be maintained on house prices in established areas.

Wagering

UBS has survey 1005 Australian wagering customers, operating active accounts across 18 local and international wagering operators. Sportsbet remains a dominant brand in Australian digital. Results for Tabcorp ((TAH)) were ahead of expectations highlighted by the integrating of Tatts and its multi-channel distribution.

While promotions and attractive odds are two of the top three drivers of bet placement, only 15% of customers have any idea of what the odds should be. This provides an opportunity for bookmakers to absorb the POCT (point of consumption tax) through a collective increase in pricing, especially given more than 50% of punters have no predetermined betting amount.

Finally, the threat of turnover moving offshore remains low, with less than 2% of active accounts allocated to those bookmakers based offshore. Post the recent consolidation, the top three betting operators now have two thirds of all active accounts, the survey shows.

New entrants may have created high brand awareness but as conversion to active accounts is low this could show some signs of advertising fatigue and a lack of motivation to change, UBS adds.

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