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Bargain hunters back on Wall Street

AFTER one of the worst ever weeks on Wall Street, US stocks surged higher on Monday as the Dow Jones Industrial Index rose more than 4.46 per cent. The Dow closed up 368.05 at 8,603.86, after dropping 1,369.70 last week, its biggest ever weekly decline.

Investors, however, will be wary of making or sticking by any major moves until it’s clearer how the US Government will retaliate for the September 11 terrorist attacks, analysts said.

The outlook remains very uncertain, with volatility the only certainty in the market going forward. Monday’s rebound will not mean the market has overcome its uncertainty – it is more the result of investors deciding to take advantage of stocks at discounted prices.

In Australia, the Banking Index is at levels not seen for some time. At last week’s closing prices, NAB is 30 per cent lower than June 30, CBA is 26.2 per cent lower than June 30, while ANZ & WBC are down 16 per cent from June 30 2001.

The current Price Earnings multiples of the major banks are at levels considered cheap by most commentators. The sector has been oversold and smart investors can purchase very good blue chip companies with three dividends due in the next 12 months.

NAB, ANZ, Westpac and BankWest are banks that offer three fully-franked dividends over the next 12 months. These companies are all delivering low multiples, good dividends and significant upside for long-term investors.

National Australia Bank has had a huge drop in share price recently, with the exposure to Homeside in the US being the most uncertain parameter. NAB is due to pay out a dividend in the vicinity of 65 cents per share in the next two to three months, and barring any unforeseen dramas, NAB at $24-$25 is very good long-term buying.

Westpac suffers from a perceived lack of overall strategy, but management are convinced that they can deliver double digit EPS growth and sustainable ROE from a domestic-based business. Considering recent events, this reliance on domestic business has been a blessing in disguise. Westpac is due to pay a dividend November/December in the range of 28 cents per share.

ANZ is due to pay its dividend around the same time, and the expected level is 33 cents per share.

BankWest is a company that offers three dividends over the next 12 months, and is currently trading at comparatively low multiples. The forecast price earnings ratio is at 10 times, a very low level for BankWest historically.

The takeover premium that was built in to the share price dropped significantly recently when St George withdrew from merger negotiations. The share price has fallen from an all-time high of $4.50 this year to $3.56 currently.

The $3.50 level is a long-term support level for BankWest and, regardless of the merger negotiations falling through, the company will always be a target for bank industry rationalisation.

Operationally the bank is performing in line with the general sector with a NPAT of $54.1 million and a 6.5 cents fully franked dividend being declared for the four months to June 30 2001. The stock goes ex dividend on October 8 2001.

In the recent result, the bank announced a surge of 13.4 per cent in housing lending and a growth of 9.3 per cent in interstate business lending.

These growth areas, coupled with a manageable exposure to bad debts, suggests significant earnings growth potential into the 2002 financial year.

On analysts’ forecasts, BankWest has a target of 28 per cent earnings per share growth for 2002. This is at the upper end of expectations, but whichever way you look at it BankWest is cheap on fundamentals.





Peter Hayes

Investment Manager

Authorised Representative

ABN AMRO Morgans Limited

Phone: 9261 0836

Fax: 9261 0889

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