Commonwealth Bank record result
About the author:
- Author name:
- By Nick Harris
- Job title:
- Senior Analyst
- Date posted:
- 14 August 2014, 10:56 AM
- Sectors Covered:
- Telecommunications, Technology
Summary
- CBA's result was ahead of both CIMB and consensus expectations
- Cash NPAT for FY14 of $8.680bn was up 12% yoy
- CBA declared a final dividend of A$2.18, taking the full year dividend to $4.01 or up 10% yoy
- Cash ROE improved 50 bps to 18.7% which, as usual, is well ahead of peers
We have CBA's CFO, David Craig presenting to Morgans on Wednesday 20 August. Contact your Morgans adviser for details following his presentation.
Highlights from the CBA result
- Despite taking a disciplined approach to lending, CBA surprised by growing its home loan lending just above systems. More specifically it grew at 6.7% versus the average for the year of 6.2%. Business lending also grew slightly faster than system.
- CBA delivered impressive growth in the higher margin areas of personal lending. For example its credit card grew at 4x system.
- The end result of this that CBA's NIM (Net Interest Margin or the difference between its borrowing and lending costs) expanded 1bps over the year to 2.14%. This was ahead of expectations for a decline in NIM.
- CBA's Wealth Management division (which accounted for 9% of NPAT) delivered the biggest profit uplift with 15% yoy growth. However CBA's Retail Bank (the biggest earnings driver at 40% of group NPAT) delivered an impressive 12% growth.
Outlook
- CBA commented that the domestic foundations are strong, that the confidence remains fragile and that improvements in the economy in FY15 are likely to be gradual. At the bottom of this email we have included CBA's key economic forecasts for FY15 and FY16.
- We (Morgans) think FY15 expectations will drift higher as a result of this week's profit announcement.
- On face value CBA looks expensive on an FY15 PE of 15.5x. However if FY15 growth ends up at 11% (as seen in FY14) then CBA would be trading on a PE of ~14x which is, in our view, undemanding for a top quality bank.
- At the start of FY14 expectations were for CBA's FY14 earnings to grow at just 3%. Expectations increased throughout the year to an expectation of 8% growth (last week) but this latest result showed 11% growth. We think something similar could happen in FY15 which means CBA isn't expensive.
More information
Morgans clients can login to view more detailed research on Commonwealth Bank of Australia, including further analysis on these latest results.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
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