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.
