PM Capital Australian portfolio manager Uday Cheruvu said that while the fund manager avoided buying the big four when Westpac and NAB were around the $40 mark at the end of the 2015 financial year, many market commentators are now underestimating the sustainability of their profits and dividends.
“We are very comfortable owning them at current prices and hold ANZ, Westpac, NAB and investment bank Macquarie Bank,” said Mr Cheruvu.
Financial markets both internationally and domestically, he said, will continue to experience low growth, low yield and high volatility in the foreseeable future.
“In this environment, solid businesses offering high single digit net returns are attractive additions to a portfolio and the major Australian banks currently meet this criteria,” said Mr Cheruvu.
“With the cash rate at 1.75 per cent businesses that can offer predictable returns off around nine per cent after franking credits are taken into account are attractive propositions in our view.”
Mr Cheruvu said the current prices already factor in another round of regulator mandated capital raising.
“We don’t expect the regulator to act on this front until late 2018, by which time we believe the businesses will be in even better shape,” he said.
He noted that the chief executive of ANZ has inherited some challenges, particularly relating to Asian exposure but said he is impressed by his approach to date and believes the market has marked the business down more than warranted.
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