Could the CBA share price be worth looking at after falling 8%?
The post Down 8%: Is the CBA (ASX:CBA) share price a buy? appeared first on The Motley Fool Australia. –
The Commonwealth Bank of Australia (ASX: CBA) share price has dropped around 8% since 11 August 2021. Does that mean that the big four ASX bank is now a buy?
On 11 August 2021, the country’s biggest bank reported its FY21 result.
There were a number of interesting things announced and revealed in that report.
It said that statutory net profit after tax (NPAT) grew by 19.7% to $8.84 billion and cash NPAT increased 19.8% to $8.65 billion.
The bank explained that NPAT increased due to improved economic conditions and outlook resulting in a lower impairment expense and a strong operational performance.
A noticeable part of the profitability improvement came from a reduction of the loan impairment expense, which fell by 78%, compared to FY20, to $554 million. This loan impairment expense decrease reflected an improvement in economic conditions and outlook. However, it has maintained a “strong” provision coverage ratio of 1.63%, reflecting the economic uncertainty from the continuing impacts of COVID-19.
It was the concerns about bad debts that caused CBA to register such as a large loan impairment expense in FY20, which may also have been a big factor on the CBA share price.
Despite all of the impacts of the COVID-19 pandemic, CBA continued to see growth in key areas. Business lending grew by $11 billion, which was more than 3x the system. Home lending and household deposits both increased by $31 billion, which represented 1.2x system growth.
However, the bank said that its net interest margin (NIM) was 2.03% in FY21. This represented a reduction of 4 basis points. The bank explained that group NIM declined due to higher liquid assets and the ongoing impact of a low interest rate environment.
Could shareholder returns boost the CBA share price?
Well, on the day of the result, CBA shares did climb 1.5%.
Its profit wasn’t the only thing that the bank revealed. It declared a full year dividend of $3.50 per share. That represented a 17% increase on FY20.
CBA also said that its common equity tier 1 (CET) capital ratio was 13.1%, an increase of 150 basis points. This was above APRA’s ‘unquestionably strong’ benchmark of 10.5%.
The bank also announced the intention to conduct an off-market buy-back of up to $6 billion of CBA ordinary shares.
There is no CBA share price decided yet for the buy-back, it will be conducted through an off-market tender process which will open on 30 August 2021.
CBA Chair Catherine Livingstone said:
CBA’s strong capital position and our progress on executing our strategy mean that we are well placed to continue to support our customers and manage ongoing uncertainties, while also returning a portion of surplus capital to shareholders. After careful consideration, your board has determined that the buy-back is the most efficient and value-enhancing strategy to distribute CBA’s surplus capital and franking credits.
Is the CBA share price a buy?
Numerous brokers still rate CBA shares as a sell, despite the recent decline.
For example, Morgan Stanley rates CBA as a sell with a price target of $90. It doesn’t believe market’s high price for CBA is good value with its limited growth outlook.
The brokers at Macquarie Group Ltd (ASX: MQG) also believe that CBA is a sell, with an even lower price target of $88.50. Macquarie thinks that CBA’s revenue growth isn’t strong enough for the valuation and margins could continue to be challenged.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.