Monday 28 September 2020 7 reasons why I’m not scared of a stock-shocking October

The month of October has seen The Panic of 1907, the Great Depression’s Stock Market Crash of 1929, Black Monday 1987, and the GFC Crash. Today I outline 7 reasons why I’m not expecting a stock-shocking October 2020. While I’m not breaking my neck to buy stocks now, should I gamble and buy ahead of the US poll?

In his article today, Paul Rickard suggests two local and two overseas tech stocks that could be added to your portfolio on the next market dip.

Sincerely,

Peter Switzer

Inside this Issue 02 7 reasons why I’m not scared of a possible stock-shocking October I’m not scared of an October big stock sell off by Peter Switzer 05 4 top tech stocks to buy in a dip 4 value tech stocks by Paul Rickard 09 2 second-tier banks that stand out Buy the Aussie banks 7 reasons why I’m not by James Dunn 12 Buy, Hold, Sell – What the Brokers Say scared of a possible 10 upgrades, 3 downgrades stock-shocking October by Rudi Filapek-Vandyck by Peter Switzer 14 My “HOT” Stock 02 WBC by Maureen Jordan

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before Switzer Super Report is published by Switzer Financial Group Pty Ltd AFSL No. 286 531 acting, consider the appropriateness of the information, having regard to the Level 4, 10 Spring Street, , NSW, 2000 individual's objectives, financial situation and needs and, if necessary, seek T: 1300 794 893 F: (02) 9222 1456 appropriate professional advice. 7 reasons why I’m not scared of a possible stock-shocking October by Peter Switzer

September has virtually gone and there has been no Global Stock Markets stock market crash! So far, so good. But October has had some real doozies when it comes to crashes.

This month of October has had The Panic of 1907, the Great Depression’s Stock Market Crash of 1929, Black Monday 1987, and the GFC Crash, which fell 22% from September 2008 to November and kept falling all the way to March 2009. That was a 45% leg down!

The fact that stocks fell so much, even across the usual great months of November to February, was because of the exact reason I don’t expect this to happen this year. Source: CNBC

S&P 500 Index This chart looks at 37 markets but most experts will tell you the key driver of these markets is what’s happening on Wall Street. You know the old saying: “When Wall Street sneezes, the world catches a cold.”

And in 2020 with the US election looming on November 3 and the world hoping the Yanks tell us ASAP that they have a vaccine and it will be available More on that in a moment. by the start of 2021, Wall Street will set the tone for stocks here and abroad, especially after early The following chart shows you what’s generally the November. case for stocks on an annual basis. The period May to October is historically challenging for stock players Why are stocks so crash vulnerable in September but November to April tends to be a rewarding time to and October for the US? believe in the returns of the stock market. Market experts around this time of the year talk about However, election years can be a problem. 2008 was the October effect, which Investopedia says “refers to the year Barack Obama defeated George W. Bush. the psychological anticipation that financial declines So the upcoming poll, Donald Trump versus Joe and stock market crashes are more likely to occur Biden, could be a cause for concern, especially with during this month than any other month.” the former not promising to lose graciously if that happens to be his fate! Interestingly, September has more down-market experiences on a monthly basis but the biggies are in

Monday 28 September 2020 02 October. were planning to sell. But whatever the reason, equities are usually on sale in September.” In case you missed it, for the US market, September this year has brought nearly an 8% slide for the Personally, I like this reason for a September sell off. S&P500. But you might have missed August’s Big mutual funds in the US cash in their holdings to showing, where the Index was up over 7%, which pocket tax losses typically sell losing positions before was the best for the month since 1984. year end, and this trend is another possible explanation for the market’s poor performance during “This represents the first August on record that saw September. two separate six-day win streaks,” LPL Research explained. “But what follows a strong August tends to According to Investopedia, the interesting issue is be a weak September. Since 1950, September has that: “October has historically heralded the end of been the worst month of the year for stocks on more bear markets than the beginning. The fact that it average. And when August is a particularly strong is viewed negatively may actually make it one of the month, September is an especially bad month for better buying opportunities for contrarians. Slides in stocks.” (Business Insider) 1987, 1990, 2001, and 2002 turned around in October and began long-term rallies. In particular, And election years actually add to the drama. Black Monday 1987 was one of the great buying opportunities of the last 50 years.” “What caught our attention was both September and October have a negative return during election years, with October the worst month of the year,” LPL’s chief market strategist, Ryan Detrick underlined.

This is why I’m not breaking my neck to buy stocks now. But it does make me ask: “Should I gamble and buy ahead of the US poll?

From the chart above, you can see that it’s interesting to note that our market (in red) does well after the tax month of June, while the US market (in blue) does well in October, after its tax month of September. It’s why I think the tax cause bumping into a major problem like a sub-prime problem caused the GFC crash. That’s a good question that I will address before I sign off. But ahead of that, let’s try and ask why Also, the extended crash in the US with the GFC was September and October have a worrying history? made worse because of the election and stimulus was delayed until Obama was fully into the White Given we’ve got through September without a crash, House. that should be seen as a good sign. This US election could bring problems, especially “September is historically the worst month of the year when you throw in a ‘little’ challenge such as the for stocks on average since 1950,” says W.E. Coronavirus! Messamore of ccn.com. “There are many theories why. One goes that money managers back from The courageous investor will be buying in October vacation in the summer exit all the positions they hoping a Biden win won’t bring a Trump problem.

Monday 28 September 2020 03 The LA Times last week had this worrying headline: says it’s safe to buy. But you will miss the first kick “What if Trump loses but won’t concede? How a up. This could be quite big, if vaccine news is very constitutional crisis could play out.” positive.

The story went: “As President Trump, backed by his To sum up, I like the fact that AMP Capital’s Shane army of attorneys, has laid groundwork to undermine Oliver agrees with me about stocks going forward. an election result that does not cast him as victor, This is what he predicted recently: “On balance the Republican lawmakers found themselves in the positives dominate in our view. Shares remain astonishing position Thursday of having to reassure vulnerable to short term setbacks given uncertainties Americans there would be a peaceful transition of around coronavirus, the speed of economic recovery, power should he lose.” the US election and US/China tensions. But the positives should keep any pull back to being a Only in America! correction and on a 6 to 12 month view shares are expected to see reasonable returns.” I think stocks will head up in 2021 and here are my reasons: Important: This content has been prepared without taking account of the objectives, financial situation or 1. The world has been doing OK with second needs of any particular individual. It does not wave COVID-19 infections but I wish it was constitute formal advice. Consider the better. appropriateness of the information in regard to your 2. Vaccine stories are promising and could circumstances. alleviate concerns over second wave infections. 3. The monetary and fiscal stimuli from governments worldwide is extraordinary! 4. A big global economic recovery is expected in 2021. 5. China is starting to grow quickly. 6. Interest rates are unbelievably low and are tipped to be lower for longer and so stocks look attractive. 7. If you took out the hyped tech stocks and those helped by the lockdown and the working from home trend, there are a lot of companies that will be attractive when a vaccine permits the normalisation of economies.

Any fight over the White House would KO stocks, short term. On the other hand, a Trump victory would be cheered by Wall Street, though a Biden victory could be even better received as the Democrats are promising a bigger stimulus package, which the US economy really needs.

If good news trumps bad news from November on, then I expect stocks to be very rewarding, rolling across the festive period into 2021. That means October, for the courageous contrarian, might be a good time to buy. For the less courageous, you might have to wait for November and buy when the trend

Monday 28 September 2020 04 4 top tech stocks to buy in a dip by Paul Rickard

Despite the inevitable pullback in September, tech in cloud accounting software in Australasia. Talk to (information technology) remains the best performing any small business owner or their accountant, the sector this year on the ASX and on most global chances are that they will sing the praises of . It exchanges. In , it is up 22.4%, while in the went to the cloud first and left established USA, the sector has returned 24.5%. competitors, including MYOB and global player Intuit (QuickBooks), in their wake. With 914,000 There are good reasons why tech has performed so subscribers in Australia (up 26% on the previous well and should continue to do so. Firstly, it is one of year), it is now the largest player. the few sectors where there is genuine growth – that is, companies are growing earnings because It has been expanding offshore, with 613,000 consumers and businesses are spending more. subscribers in the UK and 241,000 in North America. Secondly, the COVID-19 pandemic has accelerated Overall, it grew subscribers in FY20 by 467,000 to tech dependent changes in the way we consume – 2.285m. online shopping, cashless payments, cloud computing, work from home, demand for personal In the year to 31 March 2020, revenue grew by 30% gadgets, home entertainment etc. While these trends (29% in constant currency) to NZ$718.2m, ARPU were in place before Covid, they have been given (average revenue per user per month) was up 2% to added impetus by the pandemic, and growth in NZ$29.93 and EBITDA was NZ$64.6m higher at demand that might have taken several years to NZ$137.7m. Somewhat surprisingly for an IT “high achieve, has been crunched into a few months. flyer”, Xero actually made a profit, recording a Finally, the major tech companies boast maiden contribution NZ$4.8m. extraordinarily strong balance sheets and are spinning off cash. The things I like about Xero are that its core product, accounting software, is incredibly sticky – typically The question, as always, is the price. There is no accountants (and their clients) do not like change, doubt that the market got way ahead of itself and tech and churn is relatively low. It is cloud based which stocks rallied too hard. That is normal behaviour for makes the business very scalable. You might be markets – they go too far up and down. However, the forgiven for thinking that this wouldn’t be much of a trend remains in place and as the reasons are still competitive advantage in 2020, yet remarkably, 80% valid, dips are a buying opportunity. of the accounting software in English speaking markets outside Australasia doesn’t sit in the cloud. Here are 4 top tech stocks to consider buying in the dip. Two are local and two are overseas, but that fact Finally, Xero has a great history of innovation and it is shouldn’t rule them out. Arguably, they are too big using this to drive its small business platform. This is not to be in your portfolio and investing overseas the provision of services in addition to accounting really is quite easy. such as bill paying, e-invoicing, access to capital, data leveraging applications etc. Ultimately, Xero is 1. Xero (ASX: XRO) trying to build an eco-system around the accounting software that allows it to grow ARPU. A New Zealand company by origin, Xero is the leader

Monday 28 September 2020 05 Xero (XRO): Last 12 months power consumed). It is well capitalised for growth, with additional data centres in Sydney, and Perth under development. For FY21, it has guided to revenue of $242m to 250m (growth of 21% to 25% on FY20), and underlying EBITDA of $125m to $130m (up 20% to 24% on FY20).

NEXTDC (NXT): Last 12 months

Source: Nabtrade

The question then for investors is “the price”, and on that front guidance from the broker analysts is relevant. Their consensus target price is $81.17, 16.9% below Friday’s close of $9.63. Range is low of $60 from Ord Minnett to a high of $100 from Morgan Stanley. Source: Nabtrade

2. NEXTDC (NXT) The major brokers are positive on the stock (6 buy recommendations, 1 neutral recommendation). NEXTDC (ASX: NXT) is involved in the development According to FNArena, the consensus target price is and operation of independent tier III and tier IV data $12.67 (about 1.4% higher than Friday’s close of centres in Australia. It focuses on providing scalable, $12.46). The range is a low of $10.25 from Citi to a on-demand services to support outsourced data high of $14.15 from UBS. centre infrastructure and cloud connectivity for enterprises of all sizes. 3. Apple Inc (NASDAQ: AAPL)

It grew data centre services revenue by 18% in FY20 The second largest company in the world by market to $200.8m, and over the last 6 years, revenue has capitalisation (Saudi Aramco is the biggest), Apple grown at a CAGR (compound annual growth rate) of shares have already pulled back by around 19% from 28%. Underlying EBITDA grew by 23% in FY20 to their peak on 2 September of US$137.98. Admittedly, $104.6m. the peak was somewhat artificial, driven by a surge relating to a stock split – one share became 4 new shares, and high expectations about a forthcoming product launch.

Now trading around US$112, it has been quite a pullback. Even so, the shares are still up 27% over the last 3 months, 52.9% this calendar year and 104% over the last 12 months. So on these numbers alone, it seems right to be cautious.

Apple (APPL): Last 12 months

NEXTDC has been improving operating metrics (revenue per square metre and revenue per unit of

Monday 28 September 2020 06 Microsoft Office, LinkedIn and Microsoft Dynamics, The Intelligent Cloud segment includes server products and cloud services (Azure); and The More Personal Computing segment encompasses products and services geared towards the interests of end users, developers, and IT professionals such as Windows, Surface and Xbox.

In the fourth quarter of FY20 (Microsoft’s balance date is 30 June), revenue grew by 13% to $38bn and operating income by 8% to $13.4bn. Earnings per Source: Nabtrade share of US$1.46 beat the analysts’ forecast of $1.34. For the full year, revenue grew by 14% to Apple grew product revenue by 10% and services US$143.0bn and operating income by 23% to revenue by 15% in the third quarter (ending 30 June), $53.0bn. Full year EPS was $5.76 per share. All to report an EPS (earnings per share) of 65c for the segments performed strongly, with Intelligent Cloud quarter. This beat analysts’ expectations by 25.6% being the star with revenue growth of 24%. and was up 18.3% on the corresponding quarter in FY19. For the current and final quarter for FY20, Microsoft (MSFT) – Last 12 months which ends on 30 September, analysts are forecasting EPS to increase to 71c per share.

Earnings per share of $3.24 per share for FY20 puts Apple on a high, but not overly demanding price earnings (PE) multiple of 34.6 times. Looking ahead to FY21, the analysts have Apple trading on a multiple of 29.2 times forecast earnings.

According to CNN Business, of the 40 investment analysts who follow the stock, 23 have buy recommendations, 13 have hold and 4 have sell recommendations. The median consensus 12-month Source: Nabtrade price target is US$125, with a low of US$80 per share and a high of US$160. Of the 31 investment analysts who follow the stock, 28 have buy recommendations, 3 have hold and Apple has almost US$200bn in cash and marketable there are 0 sell recommendations. The median securities, partially offset by US101bn in term debt. consensus 12 month price target is US$233, with a Operating activities alone generated about US$60bn low of US$208 per share and a high of US$260. in cash for the nine months to 30 June, most of which was applied to an ongoing stock buyback Microsoft will report its first quarter earnings for FY21 programme. on October 22. The analysts expect earnings per share of $1.54 and sales of $35.8bn. For FY21, 4. Microsoft (NASDAQ: MSFT) analyst forecast earnings of $6.46 per share, placing Microsoft on a forecast multiple of 32.2 times. For Currently the third biggest company by market FY22, the forecast is 28.3 times. capitalization, Microsoft operates through three business segments: Productivity and Business Important: This content has been prepared without Processes; Intelligent Cloud; and More Personal taking account of the objectives, financial situation or Computing. The Productivity and Business Processes needs of any particular individual. It does not segment comprises products and services such as constitute formal advice. Consider the

Monday 28 September 2020 07 appropriateness of the information in regard to your circumstances.

Monday 28 September 2020 08 2 second-tier banks that stand out by James Dunn

As would only be expected in a recession, there is a Hence the government’s lending reforms announced lot going wrong for Australia’s major banks, and the last week, in which it was determined to make it marked-down share prices reflect that. easier for consumers and small business owners to get bank loans. To do so, it effectively scrapped the The economic damage resulting from the COVID-19 “responsible lending” laws introduced after the GFC. pandemic has had a major impact on the banks, and Quite simply, the government is prepared to prioritise on investors’ view of them. Who would have access to credit, so that more individuals can buy believed, prior to COVID, that the Australian their own homes, and more businesses can spend Prudential Regulation Authority (APRA) would tell the more money to stimulate the economic recovery that banks (which paid out more than 80% of their profits the nation needs. as dividends over the past five years) to “materially reduce” their dividends? It’s good news for the banks, but they no longer have it all their own way, with non-bank lenders booming It could have been a lot worse. APRA’s European and wholly digital neobanks emerging. Neobanks equivalents actually ordered banks to stop paying have very low overheads and rely on technology dividends altogether during the crisis, and that platforms to make them faster, cheaper, and more actually tells us that Australia’s banking system accessible than a traditional bank. entered the Coronavirus crisis in a much stronger position than Europe’s. APRA’s instructions to Many investors won’t want to go past the big four banks to limit their dividend payout to no more than banks, for brand name strength, and I get that. Even 50% of profits would be considered “soft-touch” in with the dividends having to be pruned, the big four Europe. still offer, on analysts’ consensus expectations, dividend yields of 3.8%–4.6% for FY21, or But Australian investors have had to get used to the grossed-up, 5.4%–6.3%. Many investors, particularly end of what many had (erroneously) viewed as an self-managed super funds (SMSFs), will still see that ever-increasing dividend stream from the banks, with level of yield as core income-generating portfolio pruning its final dividend by holdings. Notwithstanding the disappointment that 57%, ANZ and both cutting these grossed-up yields have come down from interim dividends by 70%, and confirming high-single-digit (even double-digit) yields that such that it would not pay an interim dividend at all, and investors enjoyed until relatively recently. In this saying it would reassess dividend payments at its context, it was especially eye-opening in November full-year results in November. last year when ANZ bit the bullet and only partially franked its final dividend to 70%, saying that the The banks have been hammered, but the paradox move reflected a declining share of there is that both the prudential regulator and the Australian-business earnings in its overall profit pool. government fully understand that Australia will need the sector to be in as strong a shape as possible, to Three of the big four banks – ANZ, National Australia help firstly to stabilise a weak economy, and then, to Bank and Westpac – look to be reasonable buying on foster recovery on the way out of COVID. a total-return basis, with their yields augmented by analyst expectations for share price gains in the

Monday 28 September 2020 09 10%–20% range. CBA trades much closer to fair COVID-19 restrictions came into place). Suncorp said value, in this respect. this was simply the way that its business was evolving. It said that over-the-counter transactions Of the others, ANZ looks to offer the best value from were down almost 60% since June 2016, and a total-return basis, although it is no longer a fully two-thirds of new accounts are now opened online. franked dividend payer. With a forecast nominal yield Investors want to see this ability to focus on customer of 4.6% in FY21 (September) grossing-up to 6.2%, needs and match the digital players for convenience. and FN Arena’s analyst consensus valuation almost Suncorp is a strong alternative to the major banks. 20% above the current share price, that’s where I’d be looking in the big banks, with leverage to an 2. MyState (MYS, $3.74) improving economy. Market capitalisation: $344 million Three-year total return: 2.8% a year But investors shouldn’t ignore some of the value in Analysts’ consensus estimated yield FY21: 6.8%, the second-tier banks – and two in particular stand fully franked (grossed-up, 9.7%) out. Analysts’ consensus valuation: $4.30 (Thomson Reuters) 1. Suncorp (SUN, $8.59) Market capitalisation: $11 billion Tasmanian-based bank MyState announced in Five-year total return: –2% a year August the closure of all of its branches outside its Analysts’ consensus estimated yield FY21: 5.1%, home state, to prioritise the digital and mortgage fully franked (grossed-up, 7.3%) broker business channels. MyState had four Central Analysts’ consensus valuation: $10.26 (Thomson Queensland branches as a legacy of its takeover of Reuters), $10.48 (FN Arena) The Rock Building Society in 2011, but the same forces that are at play with all banks (digital Suncorp would prefer to be thought of as a bank with convenience and declining in-person transactions) an insurance arm attached, not the other way around. made the decision for the bank, with the pandemic The owner of Suncorp Bank also owns a swag of having only accelerated them. MyState is a quiet insurance brands – including AAMI, GIO and Bingle – success story in Australian financial services. More and as a result, it took a natural-hazard hit of $820m than 60% of the home loan book is now outside from the bushfires and other disasters in its FY20 Tasmania, with the home loan portfolio growing by result. Outside that, total cash earnings fell by 33% to 5.1% to $5.1bn in FY20, while deposits increased by $749m, while the banking and wealth division 7.6%, to $3.9bn. reported a net profit of $242m, down 33.5%, hurt by higher provisions. MyState reported a net profit of $30.1m for the 12 months to June, down 3%, and took an impairment The total FY20 dividend was almost halved, at 36 charge of $4.9m (half of that a COVID-19 overlay and cents, on a dividend payout ratio of 60.7%, less than half an increase in the general reserve). Without the FY19’s 81.2% payout. Suncorp estimated that the charge, earnings would have been up 12.9%. The effect of COVID-19 on its FY 2020 results to be group did not declare a dividend for the June half, around $140 million, while it benefited from an and has reset its target dividend payout ratio from estimated $140 million reduction in motor claims, 70%–90% of earnings to 60%–80%. MYS has had its given the reduction in car usage. difficulties in recent years, but it is a well-run business (it includes the TPT Wealth division) that is nicely All things considered, it was actually a fairly strong positioned for the recovery out of COVID-19. result, and analysts like the look of the company’s prospects coming out of COVID-19. Suncorp closed Important: This content has been prepared without branches representing 17% of its physical network taking account of the objectives, financial situation or across Queensland, and Victoria in needs of any particular individual. It does not FY20, as it moves its business more online (most of constitute formal advice. Consider the the closed branches had been shut since April when appropriateness of the information in regard to your

Monday 28 September 2020 10 circumstances.

Monday 28 September 2020 11 Buy, Hold, Sell – What the Brokers Say by Rudi Filapek-Vandyck

The week ending Friday 25 September delivered 10 is expected in FY21 before a return to profitability in ratings upgrades by stockbroking analysts for FY22. Clearly, a pandemic is not the ideal time to be individual ASX-listed stocks. Nine of those ten were leveraged to leisure air travel. Additionally, the upgraded to a direct Buy and five upgrades related to intensity of competition is considered to be on the stocks in the gold sector. The gold sector upgrades increase. resulted from broker Macquarie upgrading earnings forecast across the entire gold sector, driven by an In the good books increase in its commodity price forecasts. That same review of the gold sector resulted in two of the three (BKW) was upgraded to downgrades to ratings across all sectors for the week. Add from Hold by Morgans B/H/S: 4/0/0

Despite the revision upwards to commodity forecasts The FY20 result for Brickworks was better than for Panoramic Resources and West African feared by Morgans, with building products Australia Resources, recent share price strength prompted the (BPA) delivering a materially higher second half broker to downgrade ratings for both companies. Led performance and the Property division also beating by higher unemployment, lower occupancy, the broker’s forecast. The analyst points out while challenged leasing environment and delayed work risks remain to activity in NSW and VIC, outlook from home risks, Property Group received the comments in regard to BPA were cautiously only rating downgrade for the week outside of the optimistic. Property is expected to remain resilient gold sector. and building products North America (BP NA) should benefit from rationalisation efforts and recent led the table for the largest percentage rise in acquisitions, according to the broker. The analyst forecast earnings after brokers reflected upon the expects the Industrial Property Trust tailwinds, asset FY20 result and concluded recent earnings heavy balance sheet and dividend yield will provide momentum is likely to continue. Fonterra investors ongoing valuation support until a cyclical Shareholders’ Fund also had a significant recovery in the operational business occurs. percentage rise in earnings expectations after the Valuation upside is considered likely from a further fund achieved the top end of guidance in FY20 compression in cap rates and stronger than expected and appears to have stabilised its earnings and recovery in BPA and BPNA over FY21-23. Morgans repaired its balance sheet. upgrades BPA forecasts (from a low base) and increases Property estimates over FY21-23. This has Despite receiving favourable increases to price been largely offset by material downgrades to targets, Brickworks received brickbats for a material Investment earnings. The rating is upgraded to Add percentage reduction in earnings forecasts. The from Hold and the target price is increased to $19.98 target prices can depend upon where the prevailing from $18.24. share price sits. The earnings concerns arose as prospects in some parts of the portfolio, including the Investments segment, were seen as mixed. also appeared on the table for largest percentage earnings downgrades for the week. An operating loss

Monday 28 September 2020 12 table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

QUBE HOLDINGS LIMITED (QUB) was upgraded to Buy from Accumulate by Ord Minnett B/H/S: 2/3/1

Ord Minnett has upgraded its recommendation on Qube Holdings to Buy from Accumulate with a target price of $3.03. The broker considers Qube to be a likely beneficiary from a bumper soft commodity harvest forecast for the East Coast in FY21. The Moorebank monetising process is expected to deliver The above was compiled from reports on FNArena. a return to Qube by the end of 2020. Qube has The FNArena database tabulates the views of seven acquired Agrigrain, a logistics and storage operation major Australian and international stockbrokers: Citi, in NSW which services 800 growers in regional NSW. Credit Suisse, Macquarie, Morgan Stanley, Morgans, The broker believes Agrigrain is likely to integrate Ord Minnett and UBS. Important: This content has with Qube’s broader Agri footprint in NSW. been prepared without taking account of the objectives, financial situation or needs of any LIMITED (TWE) was particular individual. It does not constitute formal upgraded to Outperform from Neutral by Credit advice. Consider the appropriateness of the Suisse B/H/S: 2/4/0 information in regard to your circumstances.

Credit Suisse upgrades to Outperform from Neutral given the recent weakness in the share price amid observations that signal the Penfolds brand equity among consumers is unaffected by the anti-dumping investigation in China. The broker expects further improvement in shipments into the mid-autumn festival/Golden Week as well as some pent-up demand from weddings as celebrations were likely moved to the upcoming holiday season from Chinese New Year. Target is $12.30.

In the not-so-good books

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The

Monday 28 September 2020 13 My “HOT” Stock by Maureen Jordan

In the event the housing market holds up better than Westpac. expected and current provisioning proves suffice, after years of holding a negative view on the banks, “The fine was provisioned for and at least to some Michael Wayne, Managing Director, Medallion degree already factored into the price. In any case Financial Group, says his view has shifted somewhat. the reality is a $1.3bn fine barely registers for a business that size. As it stands, it is essentially “For the first time in at least five years, our view on trading at its cheapest level in almost 30 years, with the banks is starting to shift from outright negative to current valuations sitting below book value. As such neutral,” Michael said. on a 1 to 2-year view, we feel this is a decent opportunity to pick up a high-quality bank at what we Michael says that ANZ, NAB and Westpac offer feel is close to the bottom of the cycle,” he added. reasonable value, although he urges caution as he maintains that the structural headwinds aren’t going And how will the Federal Government’s recently to disappear completely any time soon. announced initiative to water down the responsible lending laws affect Michael’s view? “In a market where pockets of companies are very expensive, we feel the banks offer a pocket of value, “This will ensure less onerous credit rules and help given the considerable share price declines in recent encourage the flow of loans and boost the economic years. recovery from the COVID-19 induced recession. The banks facing less roadblocks will be able to more “A 25% to 30% positive repricing is a possibility as easily write loans, boost credit and in our view the outlook improves,” he says. hopefully kickstart bank earnings growth and ultimately boost share prices given the vast amount of And which of the big banks does he prefer? negativity factored into the current prices,” he said.

“CBA has historically always traded on a premium to And his thoughts on the potential lift in Westpac’s its peers, which to some extent is justified, given its share price? early investment in technology and ability to maintain a dividend during this tough period. “We don’t necessarily assume the prices will recover to the heady days of five years ago, however, even a “However, as it stands, we feel ANZ, NAB and bounce towards $25 would deliver a decent return in Westpac are more attractive on a relative basis, given a fairly low risk business,” he said. they’re essentially trading at their cheapest level in almost 30 years, with current valuations sitting below Westpac (WBC) book value.”

At this point, Michael says that despite the recent $1.3bn civil penalty for breaches of anti-money laundering laws (the largest fine in Australian corporate history), he has a slight preference for

Monday 28 September 2020 14 Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

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