Commonwealth Bank (ASX: CBA) has reported its first-half results for FY20. We take a look at the company’s headline figures, key commentary and guidance outlook, plus review the share market’s reaction across the trading day.
Australia’s largest bank has reported a 1% increase in revenue for the half to $12.47bn and a 34% rise in statutory net profit to $6.16bn. Cash net profit declined 4.3% to $4.48bn.
The company has declared an interim dividend of $2.00 per share, consistent with last year’s payment, with the ex-dividend date set as 19th February, 2020, and the record date being the 20th February, 2020.
The market was pleased with CBA’s results, as the stock’s gains continued throughout the trading session. Having opened at $86.20 per share, CBA stock posted a daily gain of 4.1% to close at $88.18, as the company moves closer towards its all-time high.
The statutory net profit after tax (NPAT) result of $6.16bn includes a one-off adjustment for the proceeds from the sale of Colonial First State Global Asset Management (CFSGAM), which contributed $1.69bn towards the bottom line. As such, underlying cash NPAT was down 4.3% to $4.48bn, with cash return on equity (ROE) of 12.7%
Operating income of $12.42bn is in line with the prior corresponding period from 1H19, however, Commonwealth Bank has expanded its group net interest margin (NIM) by 1 basis point from the last half to reach 2.11%. This was actually weighed down by earnings lost from the lower cash rate.
The company’s operating expenses have increased 2.6% due to IT and compliance costs, as well as wage inflation. CBA achieved cost savings of $222m through “business simplification” initiatives, while remediation remains under assessment after $630m was refunded to customers during the half.
Amid a low interest rate environment, with “relatively low credit growth”, CBA has recorded “strong” volume growth in home lending and deposits. This includes $53bn in new lending to home buyers and $19bn in new lending for businesses. Loan impairment expenses have increased 2 basis points relative to gross loans and acceptances, reaching 17 basis points. Included in this figure is a 3 basis point allowance attributed to a $100m provision relating to drought and bushfire conditions.
CBA’s Common Equity Tier 1 (CET1) capital ratio stands at 11.7%, up 100 basis points and well above APRA’s requirements of 10.5%
While declaring an unchanged interim dividend of $2.00 per share, the company has also cited that there is “flexibility for future capital management initiatives” on account of “strong surplus capital” and its current franking position.
CBA expects that its net interest margins (NIM) will be under pressure in 2H20 due to the lower interest cash rate. It is forecasting an impact of 5 basis points in the second half versus the half that has just concluded, and 4 basis points across FY20 relative to FY19. Another impact of 4 basis points is expected in FY21 versus FY20.
The company has flagged concerns relating to the global economic outlook, as well as the impact of drought and bushfire conditions. Nonetheless, Commonwealth Bank has spoken positively about the long-term “fundamentals” of the Australian economy, with employment and a “rebound in housing” proving key indicators.
Management have expressed that their focus will be investing in the company’s core businesses, as well as innovation and growth, while also focusing on execution.
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