CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

CBA share price to hit $65, says UBS ahead of full-year report

We examine how UBS analysts view the Commonwealth Bank of Australia heading into the bank’s full-year results.

Analysts remain Underweight CBA

With the Commonwealth Bank of Australia (CBA) set to report its full-year (FY20) results in two days, we unpack one key investment bank’s thoughts on the bank.

Overall, the sell-side has grown increasingly bearish on the biggest of the big four banks over the last month, with the consensus rating shifting from a Hold rating one month ago, to its current rating of Underweight, according to the Wall Street Journal.

On a more granular level, only 2 analysts have Buy ratings on CBA, against 5 Hold ratings, 1 Underweight Rating and 6 Sell ratings, also according to the Wall Street Journal.

Of those analysts, UBS sits somewhere in the middle, assigning Commonwealth a Neutral rating and price target of $65.00 per share – implying some downside from current price levels.

As with Citibank’s analysis of the sector, UBS analysts, in a recent note on the banks, have paid special attention to the Australian Prudential Regulation Authority’s (APRA) recent regulatory guidance around expectations concerning authorised deposit taking institutions (ADIs) and their capital management strategies.

Here it was noted that ADIs should ‘seek to retain at least half of their earnings when making decisions on capital distributions (and utilise dividend reinvestment plans and other initiatives to offset the diminution in capital from capital distributions where possible).’

ADIs are also expected to regularly conduct stress tests and continue to support Australian households and business through ongoing lending.

How this regulatory guidance may influence the banks has proven to be a divisive point among analysts, with Citi analysts expecting the biggest of the big four banks to pay a final dividend of 50 cents per share, bringing CBA’s total payout to 250 cents per share. By comparison, UBS expects Commonwealth to pay a final dividend of 95 cents per share – equating to a 50% payout, by the investment bank’s calculations. Though ahead of consensus, USB argues that a dividend of that magnitude is supported by the bank’s strong capital position and recent asset sales.

Even so, more broadly commenting on the sector and investor expectations, it was noted that:

‘We believe all shareholders must recognise that bank dividends are not an annuity, especially during the depths of a recession with 11% of mortgages and 17% of SME loans on deferral, and with 25% of the population returning to lockdown.’

CBA share price: Other bits and pieces to consider

Overall, UBS expects CBA to report core earnings of $13,394 million, against cash earnings per share (EPS) of 432 cents.

Elsewhere, investors will likely be eager to see updated figures on the bank’s loan deferrals – given the recent lockdowns in Melbourne, one of Australia’s key states – both in terms of economic activity and from a property market perspective.

Overall, of the approximately 240,000 loan deferral requests CBA reported in April – 25,000 were personal loans, 70,700 were business loans (of balances totalling $15.2 billion) and 144,000 were home loans (of balances totalling $50 billion).

Cautiously, UBS warned that ‘CBA could experience an uptick in impairment charges in FY21E as government stimulus and loan deferrals come to an end.’

Want to take a position in CBA, long or short?

Create an IG trading account or log in to your existing account to get started now.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Act on share opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.