Two Blue-chip Banking Sector Stocks that look Expensive

Commonwealth Bank of Australia

CBA Details
Low operating Income growth in September Quarter: Commonwealth Bank of Australia (ASX: CBA) was up 3.3% on November 10, 2016 and recently completed 25 years since its listing on the Australian Securities Exchange in September 1991. The group conducted its AGM on November 09, 2016. According to the bank, close to a million households in Australia are direct beneficiaries of the bank shares in addition to the millions that hold an interest through their super-annuation funds and were the major beneficiaries of the dividends paid by the bank in the last financial year; which amounted to more than $7 billion. According to the full year 2016 results, the bank recorded a modest rise in profits with a 2 percent increase in the statutory NPAT while cash NPAT was up 3 percent compared to the previous year. The bank also doled out a final dividend of $2.22 per share, taking the full year dividend to $4.20 per share, unchanged from last year. The bank remained positive on the outlook of the Australian economy although they did mention that income growth within the country remains subdued.

 

Bank’s Strength in terms of various factors (Source: Company Reports)
 
In the September quarter updates, the bank reported for unaudited cash earnings for three months to be close to $2.4 billion. Further, operating income growth was below prior corresponding period’s result owing to factors including low interest rate and higher insurance claims. The group net interest margin was also lower although the bank managed the expenses well. Impaired assets grew by 3%. We believe that the stock is ‘Expensive’ at the current price of $ 73.26

 
CBA Daily Chart (Source: Thomson Reuters) 

Westpac Banking Corporation

WBC Details 
Flat cash earnings in FY16: Westpac Banking Corporation (ASX: WBC) is trading ex-dividend on November 14, 2016. The bank with a 13 million strong customer base provides a wide range of banking and financial services to retail, business and institutional customers, and recently announced its full year FY16 results. The core earnings were up 3% while cash earnings were flat. Revenues were up 3% on the back of net interest income, however, the bank reported a 7% decline in net profits due to market headwinds and impairment charges. According to Chief Executive Officer, Brian Hartzer, the bank expanded its customer base by 3% with growth in home loans rising by 8% and deposits by 7%. Lending also showed an uptick with a 6% increase while customer deposits rose by 9%. The bank highlights that the outlook for Australia remains positive with GDP expected to rise in 2017 with an upsurge in household spending, rising exports and ongoing investment in infrastructure by the Australian Government. However, the slowdown in China and the uncertainty in Europe continue to throw up some challenges at the global level. As the bank approaches its 200^th year anniversary next year, the bank is said to remain in a strong position to overcome a volatile global environment.

 

Dividends (Source: Company Reports)
 
The group will conduct its AGM on December 09, 2016. WBC stock has fallen 10.12% this year to date (as at November 09, 2016) owing to market volatility. Despite this and at the back of future potential, the stock looks ‘Expensive’ at the current price of $ 30.96

 
WBC Daily Chart (Source: Thomson Reuters)

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