Australian earnings preview – Commonwealth Bank of Australia

Australia

Half-year earnings preview:

The Commonwealth Bank of Australia (CBA) is Australia’s largest bank and provides a variety of financial services including retail, business, and institutional banking, funds management, insurance, investment, and broking services. It reports its half-year numbers next Wednesday the 10th of February.

The banking industry was particularly hard hit by the impact of the coronavirus last year. To minimize the risks associated with the economic slowdown banks froze payments on personal, home, and business loans.

It was also forced to made large COVID-19 provisions for bad debts and slashed dividends in line with the APRA’s recommendations that the banks should “cap dividends at 50% of earnings”. This resulted in the dividend payments for CBA shareholders falling from 431c pre-Covid, to 298c last year.  

In recent months, encouraged by the sharp drop in the number of bank customers on repayment deferrals APRA dropped their dividend restrictions. As a result of this, banks are expected to return to paying a more attractive dividend of approximately 70% -75% of earnings (down from a pre-Covid high of 80-90%).

Learn how to trade shares here

As a guide, if CBA were to declare dividends at 70-75% of earnings this will imply a dividend of around 310c for FY21, increasing to 370c in FY22, putting CBA on a prospective yield of 3.7% and then 4.4% for FY22. In the second half of the year, there appears a reasonable prospect of the bank undertaking a share buyback and exploring other “capital initiatives” to return cash to shareholders.

Partially offsetting the brighter outlook outlined above demand for credit remains subdued and very low-interest rates are likely to keep margins under pressure. This will be mostly offset by lower funding costs.

As the chart below illustrates, CBA has spent the past 11 months slowly but surely reclaiming most of the losses it experienced during the 6-week COVID-19 crash. Trendline resistance near $90.00 coming from the all-time high of $96.19 from 2015 is expected to cap the current rally in the initial instance.  

On the downside, dips are likely to find buyers ahead of horizontal near term support near $82.00, before a band of medium-term support between $78.00 and $76.00.

Australian earnings preview – Commonwealth Bank of Australia

Source Tradingview. The figures stated areas of the 4th of February 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.