Commonwealth Bank of is under Algo Engine sell conditions and we’ll get insight into the earnings picture when the company reports their FY19 results on Wednesday 7th August.
We remain concerned about the declining profitability in retail banking.
With the stock trading on a 5% dividend yield, we expect to see buying support develop closer to the $75 price range.
Commonwealth Bank of Australia reported 3Q19 cash earnings of A$2.2bn,
being below market consensus by 10%.
Analysts have downgraded FY19 earnings by 6%, (which incorporates the $500m post tax remediation charge), while FY20 and FY21 estimates are also lowered on weaker revenue numbers.
CBA currently trades 13x earnings on a 5.8% yield. A key risk for the business is an adverse turn in the credit cycle, which is not reflected in the current share price.
CBA has been under Algo Engine sell conditions following the lower high formation over the past 3 years.
Commonwealth Bank of Australia is under Algo Engine sell conditions and we see resistance building within the $75 – $76 price range.
When we look across the other bank names we see similar resistance building and view the recent rebound in price as a selling opportunity.
CBA reported their 1H19 earnings today and the number was slightly below market consensus. The miss was attributable to greater-than-expected margin pressure in their home loan book and costs in insurance.
Revenue came in at $12.4bn and pre-provision cash earnings at 7.1bn.
CBA is under Algo Engine sell conditions. The only one of the 4 majors, currently displaying a buy signal and held in our ASX model portfolio is ANZ.
CBA goes ex-div on the 14th of Feb $2.01 which places the stock on a 5.9 yield.
Commonwealth Bank will release half year earnings on Wednesday.
The figures are likely to be overshadowed by today’s release of the final report from the Royal Commission.
Consensus estimates suggest CBA will deliver an adjusted net profit of $4.8bn, a slight decline from last year’s $4.9bn.
Our Algo Engine still has CBA under “sell conditions”.
The post below is from the 12th of Jan. CBA has since sold-off and is now trading $5 lower at $68.
Our Algo Engine has highlighted a number of lower high sell signals in CBA over the past 2 years. The most recent signal occurred in November last year when CBA was trading at $73.
Following the last signal, CBA made a low at $67 and has now rallied back to trading at the $73 resistance level again.
We remain cautious as we now start to see the short-term indicators turn lower.
Above chart is from 12th Jan.
Above chart is from 1 Feb.
Commonwealth Bank of Australia is under Algo Engine sell conditions.
The group’s cash profit increased 5% to $2.3bn, profits were boosted by one-off items, including asset sales.
Risks are now to the downside and we remain on the short side of CBA after price running into resistance at $82.
Since posting an intraday low of $65.60 on October 26th, shares of CBA have risen over 5% and reached $69.90 in early trade today.
Investors have cause to be pensive as the banking giant will hold its AGM in Brisbane today and round 7 of the bank Royal Commission will start on November 19th.
We see technical price resistance in the $70.25 area and initial support at $67.30.
Commonwealth Bank
Our Algo Engine triggered sell signals across the domestic banking names back in June.
Since then, on average, the group has sold off approximately 15% and on a 2-year basis, the sector is now down more than 30%.
ANZ announced this week, that its 2H18 cash earnings will be adversely impacted by $711m of after-tax charges related to legal costs and customer remediation from the Royal Commission.
ANZ releases their full-year NPAT on October 31st.
A second sector risk yet to play-out, is the potential for deteriorating credit quality. This risk has been exacerbated over recent years by “add backs”, where short term earnings are improved through lowering the provisions for bad loans.
Looking ahead, CBA chief Matt Comyn will face the royal commission on Thursday morning, followed by WBC’s Brian Hartzer Thursday afternoon and ANZ’s Shayne Elliott on Friday.
It’s a long held belief among investors that rising interest rates are good for Australian banks in terms of enhancing their earnings.
But this is not necessarily true in the current financial environment.
Banks make money on widening interest rate and credit spreads; simply, the difference between their cost of money and the return on the loans they make to their customers.
For example, last week the ANZ and CBA increased their variable rate mortgages by 16 and 15 basis points, respectfully.
The banks have cited the sustained rise in wholesale funding costs as the reason for lifting rates even though the RBA has kept official lending rates unchanged.
On a valuation basis, we’re cautious of how the repricing of variable rate mortgages will offset the headwinds of higher funding and materially add to earnings growth or an expansion of loan creation.
Further, it’s likely that the local banks will face increased regulatory expenses from the royal commission, including tighter underwriting standards and disclosures of fees.
On balance, we see scope for the share prices of the domestic banks to test the lows posted in June before sustaining any protracted rally higher.
CBA
ANZ
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