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CBA share price: Why the bank just hit a 52-week high

We examine the highlights of the bank’s third quarter trading update.

We examine the highlights of the bank’s third quarter trading update. Source: Bloomberg
  • The CBA share price hit a 52-week off the back of its Q3
  • The bank reported good lending and earnings growth
  • JP Morgan raised their rating on the bank following the Q3
  • You can trade bank stocks with IG now. Create an account here.

The Commonwealth Bank of Australia (ticker: CBA) share price rose, if just slighlty, following the release of its Q3 trading update on Thursday, 13 May.

It proved to be another strong quarter for the bank, with CBA reporting solid growth across its core loan book as well as robust cash NPAT growth.

The stock finished out yesterday’s session just up in response, closing at $95.98 per share – marking a 52-week high for the company.

The CBA share price continued to rise on Friday, opening at $97.25 per share. Around those price levels, the stock is up approximately 30% over the last six months, as investors have turned bullish on Australia’s banking sector.

Q3 Results at a Glance

Profits: From an earnings perspective, for the quarter ending March 31, CBA reported unaudited statutory profits (NPAT) of approximately $2.4 billion.

Cash NPAT was the same, coming in at approximately $2.4 billion, implying an increase of 24% from the first-half quarterly average. Management noted that this performance was driven primarily by lower loan impairment expenses as well as a strong operational performance.

Costs: On an ex-remediation basis, expenses were up 1% in the quarter. Including remediation costs, they were up 2%.

Like many other Australian banks, lower impairment charges boosted earnings, as improving economic conditions has ‘resulted in a reduction in collective provisioning levels.’

In saying that, the bank remains cautious, saying:

‘Nevertheless, provision coverage remains strong and continues to reflect a cautious approach to managing risks as the economic recovery from COVID-19 continues.'

Loans: Seemingly a hallmark of CBA’s results, the retail-focused bank posted yet another quarter of strong lending growth. On a year-on-year basis business lending was up 8.1%, household deposits gained 13.9% and home lending was up 5.3%.

At the close of the quarter, CBA’s capital ratio (CET1) stood at 12.7%, firmly above the regulatory threshold.

Commenting on where the bank is heading next, Commonwealth’s CEO, Matt Comyn said:

'We have made good progress on our strategic agenda and looking ahead, we will continue to focus on differentiating our proposition through remained products and services to build tomorrow's bank today for our customers.'

No commentary around CBA’s final dividend was provided.

Is the CBA share price expensive?

Valuation: Many have argued – relative to its peers, both global and local – that the CBA share price is expensive. To be sure, the bank trades on a steeper earnings multiple than its local counterparts, roughly at 21x trailing earnings, according to Yahoo Finance.

Analysts from JP Morgan are keenly aware of that fact, but note that a catalyst behind a derating remains unclear. Here, the investment bank said:

'CBA has invested continuously and effectively in its business, which has seen it grow revenue faster than peers.'

'We think CBA's business is the envy of its peers with its strong scale and technology advantages.'

JP analysts raised their rating on the biggest of the big four from Underweight to Neutral in the wake of the Q3.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. 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.

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