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Earnings review: where to now for AMP, CBA and NAB share prices?

With earnings season now wrapped up, we take a look at how some of Australia’s biggest financial companies performed and where they could be heading next.

With the ghost of the Hayne Royal Commission still looming large over Australia’s financial sector, below we take a look at the key results from some of Australia’s largest and most important financial institutions.

Overall, the August earnings season proved to be a difficult one for the likes of AMP Ltd (ASX: AMP), the Commonwealth Bank of Australia (ASX: CBA) and the National Australia Bank Ltd (ASX: NAB).

AMP made possibly the boldest revelation: a now-finalised A$650m capital raise, CBA saw costs associated with the Royal Commission surge, and NAB reported quietly impressive Q3 results.

Considering this, the share price action we witnessed in the last 30-days was decisively mixed: NAB's share price rose 1.18%, CBA shares dropped 3% and AMP saw its share price slide 9%.

The 'new' AMP: a $650m capital raise in focus

Par for the course it would seem at this point, when AMP Ltd (ASX: AMP) reported its half-year results in August, it revealed a staggering A$2.3bn loss.

Even so, there was much to like about AMP's 1H19 results: the now A$3.0bn AMP Life deal has been salvaged (in a revised form at least) and the wealth manager looks to have taken strong steps to strengthen its future prospects, aiming to streamline the organisation and make it less reliant on its wealth management arm going forward.

In the follow-up to the 1H19 release, AMP’s share price climbed as high as A$1.90 per share; before falling in the weeks that followed. AMP currently trades at A$1.66 per share – around 9% lower than it did a month ago.

Mind you, Morgan Stanley wasn’t impressed with these results: hitting the wealth manager with an underweight rating and a price target of A$1.50 per share.

Bell Potter was even more bearish on AMP’s future prospects: rating the stock a sell and putting a price target of just A$1.32 on the troubled finance company. The broker noted that AMP’s planned capital raise would have a dilutive impact on current shareholders and that AMP’s previous attempts at cost cutting measures ultimately proved ineffectual.

Click here to read out in-depth breakdown of AMP’s half-year results now.

CBA share price flat: costs hit $2.2bn

The Commonwealth Bank of Australia (ASX: CBA) acutely felt the impact of the Royal Commission when it released its FY19 results last month, reporting cash profits below analyst expectations and seeing remediation costs swell.

Though CBA’s top-line figures remained strong – coming in at A$24.34bn and speaking to the bank’s market leading position in Australia, its earnings fared poorly.

As we previously reported:

‘CBA reported a full-year cash profits of A$8.49 billion, 4.3% below the A$8.88 billion average analyst estimate, according to Bloomberg Data.’

Worse still, as remediation and compliance costs continued to rise, CBA saw its operational expenses climb 2.5%. In this instance, the company paid out A$2.2bn in customer remediation costs in FY19.

Following these results, a number of analysts appear to have taken a bearish stance on the biggest of the big four banks.

Macquarie Wealth Management slapped CBA with an underperform rating and a 12-month price target of A$72.00 per share. The broker expects margin and fee pressures to eat into revenue in FY20-21.

Morgan Stanley appeared even more negative, citing a lack of buybacks and worrisome exposures as key issues. The broker subsequently put an underweight rating on the bank, and a price target of just A$66.50 on CBA's shares.

Such a view implies potential share price downside of around 15% at CBA’s current levels.

To read our full coverage of CBA’s FY19 results, click here now.

NAB third quarter trading update at a glance

The National Australia Bank Ltd (ASX: NAB) has been a quiet performer in FY19, seeing its share price rise 15.6% since January.

Though NAB faced intense scrutiny from the Royal Commission: the appointment of a new CEO and solid top-line growth, driven primarily from an uptick in small business lending, both rank as key positives for the bank.

Here, as part of the Q3 update, the bank reported unaudited net profits of A$1.70bn and A$1.65bn in cash earnings.

Importantly however, it was noted that customer remediation costs may continue to grow, with the company commenting that ‘additional provisions are expected to be recognised in 2H19.’

Ultimately, analysts at UBS seemed unconvinced by these results. In response, they retained their sell rating and put a 12-month price target of A$23.00 per share on NAB.

Morgan Stanley viewed the Q3 update in the less pessimistic light. The investment bank currently has an equal-weight rating and a price target of A$26.40 per share on National Australia Bank Ltd.

Even with those two views considered, according to the Wall Street journal: six analysts rate NAB a buy, five a hold and only one a sell.

Click here now to read our complete coverage of NAB’s Q3 trading update.

The information 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 Bank S.A. 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 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. See full non-independent research disclaimer.

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