Commonwealth Bank of Australia (CBA)
HOLD

Resilience on show

 9 Aug 2023
Sector: Financials

FY23 RESULT

Need To Know

  • Earnings 1% ahead of market. Credit quality is well in check.
  • FY23 dividend well ahead $2.50 vs $2.35 expected. New $1bn buyback
  • A resilient result given the operating environment. Limited forward-looking comments on outlook or margins.

Investment Implications

FY23 Cash and pre-provision earnings 1% higher than Market. 

Net income $27.2bn, +0.5% vs market

Pre-provision earnings $15.6bn, +0.7% vs market

Cash Earnings $10.1bn +0.6% vs market

Cash EPS $6.20 vs $5.89 +2.3% vs market

Margins 2.05% 2H23 vs 2.10% 1H23 – better than feared.

Dividend bonus + $1bn share-buyback

DPS $4.50 vs $4.35 +3.4% vs market. Implies an 80% payout in 2H23, 70-80% target.

$1bn share buyback (no start date announced)

Credit quality remains resilient. No signs of deterioration in housing

Bad debts $1.1bn +16% vs market, being driven by increase in the collective provision.

Overall picture of credit quality is one of resilience. Arrears have bounced off cycle lows, but actual credit losses remain benign across housing and commercial.

Organic capital generation of 0.40% 2H.

CET1 12.5% vs 12.2% 1H23. Post proforma $1bn buyback 12.2%. This compares to APRA minimum of 10.25%, and practical minimum of 10.25%.

Outlook – CBA gives little away.

Unlike 1H23 Results, CBA has provided very little in terms of margin outlook or cost outlook. Margins in the 2H23 were less bad than feared. Market is expecting 5-8bps of further NIM compression in FY24.

Investment View

FY23 results are show of resilience, backed by a better-than-expected dividend outcome. We expect little change to FY24E market earnings estimates.

Results adds to the relative defensive appeal of CBA, where its market position and strong execution continue to position CBA as the dependable performer. 

CBA is not cheap, but the prospects of a more benign Australian economic outcome across FY24, opens the door to ongoing capital management (~$2bn pa, implying a ~2% reduction in shares on issue).  Something which is not currently factored into market estimates. 

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Stock Overview

Share Price

Company Overview

CBA is a financial services provider with a presence in Australia, and New Zealand. It offers personal and business banking services, investment services, insurance, and more.

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