Quick Bites | Charting Australian banks

Australian banks have been performing well – not only in absolute terms but also relative to the ASX 200 Index. In fact, the sector provided the largest contribution of any sector to the Index during February. Materials were at the other end of the scale as the largest detractor for the month.

Source: Source: Morgan Stanley 

Indeed, over the last 12 months, banks have likewise strongly outperformed the market, rising by over 20%.

Source: Morgan Stanley 

Trading multiples and useful ratios for the banking sector 

Below we show a range of interesting metrics for the banks: price-to-earnings (PE) ratios, dividend yields, return on assets, and price-to-book value. What becomes quickly apparent is the variation within the sector. Quite clearly, the Commonwealth Bank of Australia (CBA) is rated highest amongst the banks, trading on the highest PE, on the lowest dividend yield, enjoying the highest return on assets (amongst the Big 4), and noteworthy, trading on by far the highest multiple of book value. On several metrics, banks do look a little stretched compared with their long-term averages; and yet, with interest rates expected to fall later in the year, the sector offers a still attractive dividend yield of around 5% (plus franking credits).

The following tables are all sourced from Morgan Stanley.

Source: Morgan Stanley 

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