Uprise in Household Wealth and Loan Commitments to Amplify Growth Prospects in Banking and Diversified Financial Services Sector

This report is an updated version of the report published on the 7^th of July 2022 at 3:55 PM GMT.

Macro Factors Supporting the Banking and Diversified Financial Services Sector

Rising inflation and quantitative tightening stance may affect loan offtake and may increases loan loss assets:

Rise in household wealth, recovery in home loan commitments and favourable capex estimates are sector drivers:

Investment theme and stocks under discussion (CBA, PNI)

After understanding the sector, let us now look at three companies listed on the ASX. The price potential of the companies under discussion has been analysed based on the ‘Price/Book Value’ multiple method.

1. ASX: CBA (Commonwealth Bank of Australia)

(Recommendation: Buy, Potential Upside: Low Double-Digit, Mcap: AUD 156.54 Bn)

CBA provides banking, financial and related services. It got listed on ASX on 12 September 1991.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 17.68% as of 07 July 2022. Moreover, the stock might trade at a slight premium to its peers, considering the efficient balance sheet settings and rising earnings, etc. For valuation, peers such as Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), and Australia and New Zealand Banking Group Ltd (ASX: ANZ) have been considered.  Considering the expected upside in valuation, rising earnings, reduced costs, decent outlook, and current trading levels, a ‘Buy’ recommendation is given on the stock at the current market price of AUD 91.810, as of 07 July 2022, 11:15 AM (GMT+10), Sydney, Eastern Australia. Further, the stock delivered an annualized dividend yield of 4.07%.

CBA Daily Technical Chart (Source: REFINITIV)

2. ASX: PNI (Pinnacle Investment Management Group Limited)

(Recommendation: Buy, Potential Upside: Low Double-Digit, Mcap: AUD 1.51 Bn)

PNI is an investment management company which offers investors access to asset managers through its global network of affiliated investment partners.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 19.46% as of 07 July 2022. Moreover, the stock might trade at a slight discount to its peers, considering the macroeconomic uncertainties and other material business risks, etc. For valuation, peers such as EQT Holdings Ltd (ASX: EQT), Hub24 Ltd (ASX: HUB), Platinum Asset Management Ltd (ASX: PTM), and others have been considered.  Considering the expected upside in valuation, growing revenue and earnings, rising FUM, decent outlook, current trading levels, a ‘Buy’ recommendation is given on the stock at the current market price of AUD 7.770, as of 07 July 2022, 11:15 AM (GMT+10), Sydney, Eastern Australia. Further, the stock delivered an annualized dividend yield of 4.53%.

PNI Daily Technical Chart (Source: REFINITIV)

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investin 

Note: All the recommendations and the calculations are based on the closing price of 26 May 2022. The financial information has been retrieved from the respective company’s website and REFINITIV.  

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.