UBS: CBA result squeezed by NIM

Jonathon Mott at UBS:

(1) Cash NPAT from continuing operations $4,477m (Cons $4,382m); (2) Cash Basic EPS continuing 253cps (Cons 248cps); (3) Interim dividend held flat at 200cps.

(1) Net interest income +3% to $9,293m (2% above Cons); (2) This was driven by a strong NIM +1bp to 2.11% (Cons 2.08%) given the timing benefit of repricing its mortgage book post rate cuts and lower basis risk; (3) Volume growth was 1.1%. Growth in the mortgage book was offset by reductions in business and unsecured consumer loans; (4) Non interest income +4% to $3,126m (1% above Cons). This was driven by a strong contribution from Trading income which grew 19% seq; (5) Total revenue +3% to $12,419m (1% above Cons); (6) Costs down 9% to $5,429m (in line with Cons) as remediation charges fell sharply as anticipated; (7) Pre-provision profit $6,990m (3% above Cons); (8) Credit Impairment Charge (BDD) 17bps or $649m (Cons 16bps); (9) NPLs 85bps (Cons 94bps); (10) CET1 11.70% (Cons 11.23%) was stronger than anticipated given a reduction in RWA.

Our valuation and price target of $70 (Gordon Growth + Franking) remain unchanged.

The impact of the RBA’s cash rate reductions will negatively impact Group NIM by 5bps in 2H20E (vs 1H20), and another 4bps in FY21E. This does not take into account competition and other factors (this is broadly in line with our expectations).

Solid result given the NIM and Trading outcomes. CBA continues to operationally outperform peers. However, the soft guidance for NIM will likely prevent this from flowing through to consensus upgrades in forward periods.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)