It will take longer for the benefits of ASX/S&P 200 Index’s 15% gain in the last 12 months to filter through to investment bank Macquarie Group and share register Computershare as business and investor confidence still remain fragile, says Morgan Stanley analyst Arvid Streimann.
Since the beginning of September 2008, the month of the Lehman Brothers bankruptcy, the S&P/ASX 200 Index has fallen as low as 3145.50, on June 3, 2009, to as high as 5220.987, on May 14 this year. Investors, as a result, on average, are not bullish despite gains over the last year (see Clifford Bennett's Riding high in a Grand Bull Market). Streimann says the stock market is only in the early stages of a recovery. The dearth of share sales as well as takeovers is evidence that business and investor confidence is low, Morgan Stanley reckons. Any recovery in corporate deal making will take longer and will be slower than the past.
In such an environment the ASX is a 'buy', according to Streimann. It is his top pick among Australia’s so-called diversified financial stocks. The ASX’s dividend per share is leveraged to revenue that will increase as investor confidence and trading volumes increases. The analyst says the company’s balance sheet is “pristine”. It is the cheapest stock "versus peers since the global financial crises", says Streimann.
Fund manager Perpetual has immediately benefited from the index’s rise since June last year. The company’s assets under management have risen along with investor inflow into its funds as stocks have gained, says Morgan Stanley. But a pick-up in investor activity has yet to be cemented. Still, Streimann thinks Perpetual management are cutting costs while an improvement in earnings supports a higher stock trading multiple for the company’s shares.
Macquarie, like Perpetual, is not a buy or a sell, says Streimann. Macquarie’s largely fixed cost base will help it if and when equity capital markets and merger and acquisition activity picks up. If deal-making does stage a comeback, the company’s profit margins then balloon on every deal. Stock market volatility in the last four weeks may threaten any expectations of such an investment banking pick up. Macquarie, says Streimann, is “expensive” relative to its peers Goldman Sachs, JPMorgan, Credit Suisse and Deutsche Bank.
Computershare is a sell, says Streimann. He says investors have “already priced in” an improvement in the company’s business. The stock is up 37% in the last 12 months. Some of Computershare’s businesses are “low” growth or “negative” growth, says the Morgan Stanley analyst. He thinks its margins are narrowing.
At 1033 AEST ASX shares fell 45 cents, or 1.3%, to $33.70. The stock has gained 13% in the last 12 months.
At 1034 AEST Perpetual shares dropped 40 cents, or 1.1%, to $36.07. The stock is up 59% in the last year.
Macquarie shares slid 85 cents, or 2%, to $40.81. The stock has risen 52% in the last 12 months.
Computershare slipped 9 cents, or 0.9%, to $10.27.
At 1037 AEST the ASX/S&P200 Index was down 61.703, or 1.3%, to 4772.30.