Commonwealth Bank of Australia (CBA)
HOLD

FY22 Results

 10 Aug 2022
Sector: Financials

Need to know

  • Cash earnings +2% ahead of the market, dividend $3.85, 5cps ahead.
  • Earnings beat was driven by stronger volumes, cost performance, and provision writebacks
  • Margins softer than peers, but should improve through 2023

Investment implications

FY22 Cash earnings: $9.6bn vs market $9.5bn. Pre-provision cash earnings $13.2bn, vs $13.4bn expected.

FY22 Dividend: $3.85 vs market $3.80. 68% payout ratio vs 70-80% guidance range.

Overall a neutral result, with minimum changes expected to FY23E market estimates. The result is hard to fault, cash earnings slightly ahead of market expectations driven primarily by a large bad debt provision release. Pre-provision earnings are ~1.5% below market, stronger volumes, and lower costs working to offset a lower Net Interest Margins (NIM) which slipped 5bps in the half to 1.87%.

Margins should improve: Most of the focus around this result will be on the mildly disappointing NIM which fell from 1.96% to 1.87% in the 2H. In contrast, the NAB 3Q result earlier this week pointed to flat margins. Funding costs and continued competition in mortgages dragged on the margin. CBA expects margins to improve medium term as cash rates move higher, and fixed mortgages mature.

CBA Outlook: CBA sees Australia well placed economically, with low unemployment, strong mining investment, and less challenging inflation and fiscal backdrop vs other countries. CBA expects a ‘short sharp’ cycle (in Australia) with recessions in the US and UK.

Investment View: Hold Rated CBA continues to execute strongly across all parts of the bank. We don’t see the result as a catalyst to materially change the market’s view on CBA.

Market earnings forecasts for FY23E are unlikely to change on the back of this result, which currently imply +3% pre-provision profit earnings growth, and cash EPS and DPS up by +5%, benefiting from FY22 share buyback, and further bad debt provision unwind. We rate CBA HOLD.

Figure 1: Margins: NZ seeing improved margins in 2H22. This should flow through to core AUS business in 2023.

Figure 1: Margins: NZ seeing improved margins in 2H22. This should flow through to core AUS business in 2023.

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

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Stock overview

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Company overview

Commonwealth Bank is Australia’s largest retail bank.

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