Australia’s largest Bank by market capitalisation Commonwealth Bank of Australia (ASX:CBA) released its first quarter trading update today showing cash earnings of $2.4bn.
In an announcement to the ASX on Thursday morning CBA said that cash earnings were $2.4bn for the first three months of FY16. Overall income growth was similar to FY15 with “stable” underlying group net interest margins according to Commonwealth Bank. Trading income was slightly lower due to a “slightly negative Derivative Valuation adjustment.”
Bad debts were only 0.13% of its assets during Q1, below market expectations.
CBA states that household deposits growth remained strong and home lending continued to trend in line with recent growth rates. The Wealth management division achieved net flows of $0.9bn and suffered a 2% decline in Funds under Administration (FUA). The decline was due to the recent volatility in investment markets, however it was partially offset by favourable exchange rate movements.
Furthermore Commonwealth Bank stated that credit quality remained sound with consumer portfolios “in line with seasonal expectations.”
CBA’s results were largely in line with market expectations and show that its underlying business remains robust in the current volatile market environment. More than 60% of its funding is coming from deposits resulting in a strong funding position. The Bank also completed a $5.1bn capital raising earlier this year which has strengthened its capital position.
CBA’s operations are market-leading however its valuation incorporates a degree of future earnings growth as investors were willing to pay a significant premium for the stock. Whilst its dividend payout is still attractive, the stock price will likely continue to fluctuate in the current trading range.
CBA is down ~11.5% year to date and around 7% in the past 12 months. Blue-chip stocks have run out of favour this year as investors fear that companies like CBA will struggle to increase profit margins and dividends going forward.
Author: Simon Herrmann
Nov 05, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.