Reporting season: CBA prepares to unveil $4bn first half profit

Earnings season heats up this week as Commonwealth Bank hands down its half-year numbers.

CBA chief executive Matt Comyn. The nation’s largest lender is due to hand down its half-year result on Wednesday. Picture: Adam Yip

Earnings season heats up this week as Commonwealth Bank hands down its half-year numbers, with analysts and investors set to focus on capital management plans, margin trends, and the outlook for loan deferrals.

The nation’s largest lender is on Wednesday expected to hand down a cash profit of just under $4bn for the six months through December, a 10 per cent decline year-on-year, according to consensus estimates.

Its interim dividend is broadly expected to sit around the $1.45 per share mark, while the prospect of any planned buybacks is the big question mark. CBA is the first major lender to report since the prudential regulator scrapped its dividend restrictions late last year.

The bank’s result headlines a busy week for investors, with results due from Boral, Suncorp, Insurance Australia Group, AGL Energy, Transurban, AMP, ASX and Telstra, among others.

Morgan Stanley banking analyst Richard Wiles is forecasting first half cash profit of $4.1bn, a lift of about 40 per cent on the prior half, and pre-provision profit of $6.64bn.

“We expect positive commentary on franchise performance, an emphasis on balance sheet strength, a conservative approach to capital management and provisioning, and no full-year earnings guidance,” Mr Wiles told clients.

He expects revenue to be down around 0.5 per cent year-on-year, but up 2 per cent half-on-half, to $11.95bn.

“CBA’s solid mortgage growth is well appreciated, so we think underlying margin trends, business loan growth and the composition of other banking income will be the key drivers of upgrades/downgrades to fiscal 2021 revenue estimates,” he said.

Morgan Stanley expects CBA to announce a dividend of $1.55 per share, but is not tipping a share buyback announcement.

“More importantly, we believe CBA should consider using its surplus capital to support a higher medium-term payout ratio rather than undertaking buybacks,” Mr Wiles said.

Over at Goldman Sachs, analysts are tipping CBA’s payout ratios to move higher, with upside risk on the pace of its acceleration.

“We have CBA’s payout ratio steadily moving back towards our assessment of sustainable levels (around 75 per cent) by fiscal 2022.

“However, with significant surplus capital and franking credits, we concede CBA may accelerate this move through the course of fiscal 2021, placing upside risk to our 60 per cent first-half payout ratio forecast,” Goldman Sachs told clients.

The analysts told clients it was likely too early in the cycle to see further capital management announcements.

Citi’s banking analyst Brendan Sproules, meanwhile, is tipping cash earnings of $4bn and a bad and doubtful debt expense of 22 basis points in the second quarter. This compares to consensus estimates of a 28 basis point expense.

He has forecast a higher-than-consensus dividend of $1.65 per share on expectations CBA will beat estimates on its bad and doubtful debts.

Alongside updates on margins and capital management initiatives, Ord Minnett analysts told clients they would be watching for any commentary on the outlook for CBA’s loan deferral book and an update on the bank’s strategic review, including outstanding divestments.

Ord Minnett is tipping cash net profit of $3.9bn, a net interest margin of 1.99 per cent, and a dividend of $1.50c per share.