ANZ top pick from sell-side analysts

ANZ has emerged as the major bank most in favour with banking sector analysts after the latest round of interim and quarterly reports.

Among the group of analysts who supply their recommendations to FinAnalysis, ANZ has improved its average rating from 2.6 two months ago and 2.3 a month ago to the current average rating of 2.2 (the scale is: 1 is a strong buy, 2 is a buy, 3 is a hold and 4 is a sell).

Two of the brokers have ANZ as a strong buy. NAB has one broker recommending it as a strong buy, while Commonwealth and Westpac have no strong buy recommendations.

Commonwealth's average rating, at 3, is unchanged over the past two months. NAB's average has come in from 3 to 2.5 over the same period and Westpac's rating has come in from 3.3 to 3.

FinAnalysis also shows ANZ trading on the highest forward price to earnings multiple. Based on analysts' forecasts of full year 2010 earnings, ANZ is trading on a PE of 14.9 times. Westpac and CBA are both trading at 14.4 times their expected 2010 earnings and NAB is trading at 13.2 times.

In a report issued on March 1, Citi's banking analyst Craig Williams said he favoured ANZ and Westpac on a 12-month view.

Williams said NAB stood out as the least expensive of the major banks but its bid for Axa brought execution risk into the equation.

Williams retains a buy on ANZ because of its "positive near-term recovery story" and he likes Westpac because he sees more benefits to emerge from the St George acquisition.

Macquarie Research has an outperform recommendation on Westpac.  A note issued after the bank's first quarter trading update highlighted the very strong improvement in asset quality.

UBS also noted Westpac's improvement in asset quality but was more impressed by Commonwealth's return on equity of 19 per cent.

All analysts have noted that it will be hard for the big banks to achieve high ROEs as they come to terms with new capital and liquidity rules.