On the 11th of August Commonwealth Bank of Australia ASX: CBA released their FY21 results. The highlights show a strong return of profits with NPAT up 19.7% to $8.843 Billion. CBA Earnings Report FY21
Their strong capital position has also allowed CBA to issue a strong dividend and execute an off-market buy-back. CBA has returned $12.2 Billion to shareholders in FY21.
CBA: A World-Class Homegrown Bank
Commonwealth Bank of Australia (CBA) is an Australian multinational bank, operating across Australia, New Zealand, the United Kingdom, the United States, China, Japan, Singapore, Hong Kong, Indonesia and South Africa.
CBA, also known as CommBank, is one of the “big four” Australian banks. CBA provides a range of integrated financial services including retail, business and institutional banking, funds management, superannuation, life insurance, general insurance and broking services.
CBA is the best-capitalised bank in the world.
Common Equity Tier 1 (CET1) is a component of Tier 1 capital that is mostly common stock held by a bank or other financial institution. It is a capital measure introduced in 2014 as a precautionary means to protect the economy from a financial crisis.Source, Investopedia
CBA originally floated at $2.30 per share in 1994.
CBA Earnings Reports Share Price
Commonwealth Bank CBA, has delivered excellent returns for investors over the past decade, averaging 9.18% yearly returns (excluding dividends). After accounting for reinvested dividends returns have been 18.50% per year.
CBA has far outperformed the average market return of 11.9% in the past decade. But past performance is not a guarantee of future returns.
Following their FY21 results, CBA’s shares have retreated approximately -3%
CBA Earnings Report: FY21 Results
CBA Earnings Report Summary:
- Operating Income of $24,153m, up 1.7%
- Statutory NPAT of $8,843, (PCP: $8,653m) up 19.7%
- Net Interest margin of 2.03%, down 4bpts
- Loan Impairment expense of 554m, down 78%
- EPS of 488.5 cents, up 20%
In the CBA Earnings Report, we saw excellent returns of profits with Net profit after tax (NPAT) up 19.7%, due to improved economic conditions and outlook resulting in a lower loan impairment expense and strong operational performance.
Loan impairment expenses have decreased reflecting an improvement in economic conditions and outlook.
“The Bank performed well in the year to 30 June 2021, with disciplined execution delivering strong outcomes, despite the impacts of the pandemic”FY21 Results
CBA Earnings Report: Well Capitalised
CBA is arguably the world’s best-capitalized bank. Following on from FY21 CBA has continued its divestment program of non-core businesses to build a better, simpler bank.
Since the divestment program began in 2018 it has generated $6.2 billion in excess capital.
CBA’s strong results and divestments have left them with a very impressive balance sheet. The group has a Common Equity Tier 1 capital ratio of 13.1%, well in excess
of the APRA’s ‘unquestionably strong’ benchmark of 10.5%.
This has allowed the group to continue to pay strong dividends and announce an off-market buy-back. Returning excess capital to shareholders.
We can see that CBA has held solid operating incomes, which were largely unaffected by the COVID recession. During the recession, CBA released a massive $2.5 Billion in loan impairment expenses, which has improved to only $554 Million in FY20.
CBA’s NPAT attributable to shareholders on a statutory basis in FY21 has been a record result of $10.181 Billion. This has largely been driven by a number of key divestments.
Balance Sheet CBA Earnings Report
We can see that CBA has had strong growth of their interest-earning assets. Across the board has increased loans by 7.5% from FY20 to FY21. As of June 2021, CBA holds $1.092 Trillion in interest-earning assets.
We can see that Home Loans, as expected are the largest part of their portfolio. CBA holds $579.8 Billion in home loans on their books. This equates to just over 53%.
We can see that CBA is a clear winner across the board. Commbank is the countries largest contributor to home lending and household deposits. CBA commends 25.3% of home loans, with the next big bank at 21.5%.
CBA also holds 27.4% of the credit card market share and 15.6% of business lending. All metrics have seen strong growth from FY20 as CBA continues to win market share from the other banks.
On the 11th of August CBA released their FY21 Full-year results and announced the final dividend, as well as an off-market share buyback.
- Cash NPAT up 19.8%
- Strong balance sheet and surplus capital
- Final dividend $2.00 – full year dividend $3.50
- $6bn off-market share buy-back
The final dividend of $2.00 per share is fully-franked and brings the full year 2021 payment to a net of $3.50. Over the period CBA returned $6.2 Billion to shareholders via dividends.
The Ex-Dividend date is 17th of August 2021 with a payment date of 29th September.
The final dividend payout ratio was 71% of the Bank’s cash earnings, or ~75% after normalizing for long-run loan loss rates.
The Bank will continue to target a full-year payout ratio of 70-80% of cash NPAT and an interim payout ratio of ~70% of cash NPAT. In considering the sustainability of dividends, the Board will continue to take into account a number of factors, including long-term average loss rates.
Full the full CBA dividend report here: Commonwealth Bank Dividend Report
CBA Share Buy-Back
In calibrating the size of the buy-back, the Board considered:
• The capital generated from strategic divestments.
• The level of future organic capital generation and expected divestment proceeds.
• The size of franking credit surplus and future ability to fully frank dividends and hybrid distributions.
The Buy-Back will be conducted through a tender process, which provides Eligible Shareholders with an opportunity to sell some or all of their Shares to CBA:
- At a discount of between 10% and 14% (inclusive, and at 1% intervals) to the Market Price
- As a Final Price Application, which is an election to sell your Shares at the Buy-Back Price
What is the Capital Component of the Buy-Back Price? $21.66
What is the Dividend Component of the Buy-Back Price? The Dividend Component will be equal to the Buy-Back Price less the Capital Component of $21.66. The Dividend Component is expected to be fully franked.
|Buy-Back Ex-entitlement Date||17 August 2021|
|Buy-Back Record Date||18 August 2021|
|Buy-Back Period opens||30 August 2021|
|Buy-Back Period closes||1 October 2021|
|Buy-Back Date||4 October 2021|
Learn about Share Buy-Backs here: Ultimate Share Buy-Back Guide
The General Economic Recovery
CBA’s results are largely linked to the recovery of the overall Australian economy. We have seen a fast “V-shaped recovery” across the board.
- Number of employed people and hours worked in June both above pre-COVID-19 levels
- Various federal and state government stimulus programmes continue.
- National dwelling values 12.4% above the previous peak achieved in April 2020
- All geographies up over the quarter and prior year. Regional growth strong.
Gross Domestic Product
- GDP and GDP per capita up 1.1% and 0.8% respectively for the year to 31 March 2021
- The household saving ratio of 11.6% remains well above the 1Q20 savings ratio of 7.9%.
CBA Earnings Report: Prophet’s Take
CBA has delivered strong results on the back of the economic recovery. The group has managed to grow profits, revenues.
With continued strong results and a number of key divestments, CBA has an exceptionally strong balance sheet, leaving them as the best-capitalised bank in the world.
CBA is returning excess capital to shareholders via strong dividends and share buy-backs. CBA’s Earnings Report was a strong one in our opinion.