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Is Commonwealth Bank of Australia innovating for growth?

Team Veye | 13 Feb 2020 ASX - CBA
Is Commonwealth Bank of Australia innovating for growth?

Commonwealth Bank of Australia (ASX: CBA)

Commonwealth Bank of Australia (ASX: CBA) on 12 February 2020 provided the 2020 Half Year Results for the half-year ended 31 December 2019.

(Graphic Source – Company Reports)

1H20 financial highlights

  • Statutory net profit after tax (NPAT)4 of $6,161m, up 34% including $1,688m from the gain on sale of CFSGAM 
  • Cash NPAT of $4,477m, down 4.3% 
  • Cash return on equity (ROE) of 12.7% 
  • Operating income of $12,416m, flat on 1H19, up 3.5% sequentially
  • Group net interest margin (NIM) of 2.11%, up 1 basis point (bpt) on 2H19 
  • Operating expenses of $5,429m, up 2.6% 
  • Loan impairment expense of 17 bpts of average GLAA5 (14 bpts ex. drought/bushfire provision), up 2 bpts 
  • Deposit funding of 71%, up 2% 
  • Common Equity Tier 1 (CET1) capital ratio of 11.7% (APRA), 17.5% (internationally comparable) 
  • Interim dividend per share of $2.00

 

(Chart source: TradingView)

Dividend

  • The Group’s core franchise strength continues to support consistent returns to shareholders.
  • The Board declared an interim dividend of $2.00 per share, fully franked, unchanged on the 1H19 interim dividend. 
  • The interim payout ratio was 79% of cash NPAT. 
  • We are targeting a gradual return to our full-year payout ratio range of 70-80%. (Data Source – Company Reports)

 

Veye’s Take

CBA’s strong operational performance underpinned a very solid result. Bank’s home lending was up 4%, business lending up 3% over the period, and a very strong deposit result, up 9%. Its profit was down 4% to $4.5 billion. This was largely due to $83 million of insurance provisions for claims relating to the bushfires and a $100 million loan impairment overlay for drought and bushfires. Bank has a strong balance sheet, particularly Common Equity Tier 1 [capital ratio] at 11.7%, which is well above APRA’s unquestionably strong 10.5%. CBA has also continued to invest in innovation and growth. The recent retracement in the stock reversed from above moving averages and has the potential to move higher. The stock has strong support at $87.70. We gave a “Buy” recommendation on “Commonwealth Bank of Australia” at the price of $70.130 on 9th April 19. Veye maintains a "Hold" on “Commonwealth Bank of Australia” at the current price of $88.18

Disclaimer

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