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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 14 August 2015

CBA's walloping record profit

Record $9 billion profit

The Commonwealth Bank of Australia (CBA) reported to the market a rip-snorting record profit of more than $9 billion this week, from revenues from $45.3 billion. 

Here's a quickfire 60 second look through some of the key numbers in four short parts!

Part 1 - Group performance: highlishts reel

Statutory post-tax net profit (NPAT) came in at staggering $9.603 billion for the full year ended 30 June 2015, which is the biggest profit on record and represented a 5 per cent year-on-year increase (FY2014: $8.631 billion).

Earnings per share (EPS) on a cash basis improved by 5 cents to 560.8 cents (PY: 535.9 cents), while Return on Equity (ROE) on a cash basis was a very solid indeed 18.2 per cent (in 2011 this figure had soared as high as 19.5 per cent, but has been paring back since!).

The group announced another juicy fully franked dividend of $2.22/share taking the full year dividend to $4.20/share, another increase of 5 per cent on the prior year.

Scanning through the consolidated income statement you can see that cash NPAT was also a record group performance of $9.137 billion, which represented yet another 5 per cent increase.

Part 2 - Impairments

Folk who are interested in property markets rather than share markets may be interested to take a look through CBA's reported impairments data.

Loan impairment expense as a percentage of gross loans and acceptances ticked up a little in H2 2015 though not dramatically.

However, the driver thereof was not a pick up in home loan arrears, with personal loan and credit card arrears faring considerably worse than mortgage debt. Indeed, 30+ day home loan arrears remained stone dead flat at just 1.25 per cent over the year.

Meanwhile, 90+ day home loan arrears was also broadly unchanged over the year at 1.52 per cent (from 1.50 per cent). 

Given some of the mess that is known to be playing out in a number of harder hit resources regions and thousands of mining positions continuing to be cut, this in turn suggests that capital city mortgage books remain in remarkably good shape.

This is consistent with what the Reserve Bank of Australia (RBA) has reported on numerous occasions, which is that the us of mortgage offsets and buffers are at record high levels and that average home loan repayments are up to two full years ahead of schedule. 

Commercial troublesome and impaired assets fell by 15 per cent from the prior year, with gross impaired assets also decreasing by 15 per cent.

Part 3 - Liquidity and capital ratios

CBA reported Liquidity of $132 billion which represents a Liquidity Coverage Ratio (LCR) of 120 per cent, approximately $22 billion above the current regulatory requirements.

The group's capital position also "remained strong" with a Basel III Common Equity Tier 1 ratio (a real mouthful better known in industry parlance "CET1") of 12.7 per cent on an internationally comparable basis. 

CBA disclosed the below international peer comparison in its release to the market.

The group also took the opportunity to announce a $5 billion capital raising in which will take the form of an entitlement offer in order to further bolster its balance shee.

It was reported by CBA that the raising would push the group's capital ratio into the top quartile on international peers, which is what was recommended by the Financial System Inquiry.

Part 4 - Final dividend and share price 

With the group's Return on Equity (ROE) appearing likely to slow a little further over time and with the more stringent capital requirements now to take effect - not to mention significant pressure on lenders from the market regulator APRA to slow investment property lending - there is likely to be some downward thrust on the share price.

There may yet be a requirement for CBA to tap the market again for capital, perhaps via the group's Dividend Reinvestment Plan (DRP) for another few billion, but that remains to be seen a this juncture.

The present capital raising was announced as one share for every 23 existing shares at $71.50, which represents a tempting 13 per cent discount to the last traded price before the trading halt of $82.12 (a prevailing price which is already some way below the 52 week high of $96.69).

Not that long term shareholders will be too concerned - with another $4.20 in fully franked dividends coming long term holders have long since recouped their entire investment via the steadily increasing dividend stream.

CBA has been a river of gold for long term holders. 


This blog does not represent financial advice. Always seek professional advice before making investments.