CBA blows ’em away

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Commonwealth Bank is out with its annual profit result and has everyone buzzing. Here is BBY:

CBA had so much expected of it in this result and it largely delivered:

1.  Income growth was 7% from FY12 to FY13 but a more modest 2.5% from 1H13 to 2H13;

2.  This was achieved through an increase in NIM of 4 bps from FY12 to FY13, average interest earning assets which increased by 4% and markets income which increased by 59% over the same period;

3.  Expense growth was 4% from FY12 to FY13;

4.  New impaired loans continued to fall from $1547M in 1H13 to $1469M in 2H13;

5.  The bad debt charge was only $466M in 2H13 and the collective provision was unchanged from 31/12/12 to 30/6/13. The amount of impaired assets fell from $4.7B at 30/6/12 to $4.3B at 30/6/13 while the coverage of impaired loans fell from 46% at 30/6/12 to 40% at 30/6/13;

6.  CET 1 ratio was a reasonably healthy 8.2%;

7.  The final dividend was $2. There was no special and that’s not a surprise because their capital position is weaker than WBC. The dividend payout ratio is up from FY12 and is a respectable 75% of undiluted cash EPS; and

8.  EPS growth was 8% from FY12 to FY13.

What more could you ask for at a time of continued low credit growth?

Summary: while we maintain the BUY recommendation, some enthusiasm may be lost for the stock for a short time when it trades ex-dividend. Nevertheless, our EPS forecast of $4.88 on an undiluted cash basis for FY14 looks too low in light of the $2.49 2H13 EPS. An upgrade is needed.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.