Banking on better days

Could Commonwealth Bank shares be heading for a turning point? With all the volatility in shares this year one can lose sight of how far some of Australia’s biggest and best companies have fallen. At yesterday’s low of $72.58 a share, Commonwealth Bank was down 15.5 per cent in six weeks, and it was 25 per cent off the record high of $96.69. So here’s the call: as long as it remains above last year’s low of $70.15, CBA will make a new record high above $96.69, probably this year. The fall this year has mainly been due to macro risk weighing on the overall market, but the global doom and gloom scenarios are far from certain.

CBA’s charge for bad & doubtful debts rose 28 per cent in the past year, which was about 8 per cent more than expected, and net interest margins were weaker than expected despite out-of-cycle rate hikes last year. But underlying profit came in above consensus and the dividend and payout ratio guidance were maintained, much to the relief of investors. Meanwhile CBA’s after-tax dividend yield rose above 8 per cent, and its forward PE ratio dipped below 13 times, just below the long-term average. Fund managers will be asking where else can you get such a good risk-adjusted return these days?

And something very interesting happened on the charts yesterday. CBA bounced off the weekly uptrend line drawn from the 2009 low. In terms of the “Elliot Wave” theory, the picture could not be more bullish.