The following changes have been made to the Blackmore Capital Blended Australian Equity Portfolio.
Reduced Commonwealth Aust Bank (CBA)
CBA has been our “best of a bad bunch” bank since early 2019 when the position was established as the sole major bank exposure in the portfolio for some time. Its relative virtues are its franchises in retail deposits and mortgages, which maintain its sector leading return on equity (12.5% vs sector c10.0%) and consequently sector higher price to earnings ratio (16.5x vs c12.0x).
At this stage these relative strengths have been more fully reflected in CBA’s valuation compared to the other banks. Its year to date return of 16.6% (vs NAB 9.7%, ANZ 5.2% and Westpac 2.6%) has resulted in its price to book ratio trading at a 41% premium to the sector versus a longer term average of 27%.
Increased National Australia Bank (NAB) Following this performance, we have reduced the holding in CBA and reinvested part of the funds raised into the existing holding in NAB, which we believe is well positioned in SME and retail banking. NAB has recently been under the stewardship of a competent executive chairman and has a just-commenced CEO with experience in reforming Royal Bank of Scotland in the UK, another banking market plagued by mis-selling remediation.
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