With CBA reaching all-time highs, is now a dangerous time to buy CBA? CBA has pushed past $100 per share for the first time in history. CBA has delivered a solid 18.50% per year to investors. Should I Buy CBA Shares?
CBA 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.
In 2021, CBA has been reaching all-time highs after pushing past $100 per share. CBA continues to trade on the higher end of its 52-week range. Before 2021 CBA’s previous all-time high was $96.2 on the 20th of March 2015.
Should I Buy CBA Shares About
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-capitalized 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. So today, How much are CBA shares worth?
CBA: The Biggest ASX Listed Company
Commonwealth Bank is currently the biggest ASX listed company by market cap. CBA has held this position for several years only briefly being overtaken by CSL in late 2020/early 2021 before reclaiming the top spot.
From this graph, we can see that CBA towers over the remaining big 4 banks: Westpac, NAB, and ANZ in terms of market cap.
CBA Dividend History
The Banking sector has been one of the favorites for investors over the years due to its decent returns and solid dividend history. It’s no surprise why the sector makes up around 30% of the entire market index. Over the past decade, big banking stocks have managed to maintain a steady flow of income for investors, with an exception of the COVID dip.
CommBank typically announces a dividend with the release of its half-year results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (interim dividend) and September (final dividend). Should I buy CBA Shares?
CBA has paid biannual dividends every year since 1992. This included during the GFC in 2008 and the COVID-19 recessionary period. All dividends paid by CBA during this time have been fully-franked. They also offer a Dividend Reinvestment Plan (DRP).
What is CBA’s dividend policy?
Commonwealth Bank of Australia will seek to:
- pay cash dividends at strong and sustainable levels;
- target a full-year payout ratio of 70% – 80%; and
- maximize the use of its franking account by paying fully franked dividends
From the above graph, we see the current dividend payout ratio is on the lower side at 65%, thus CBA plans to increase dividends to meet its goal of 70-80%. This sustainable level will allow generous dividend payments to investors while maintaining a strong cash position for the company.
Past and Present CBA Dividend Yields
CBA is currently paying a dividend of $2.48 per share, fully franked at $3.5429 per share. At the current price, this gives CBA a net dividend yield of 2.57% and a gross dividend yield of 3.67%.
It is important to note these amounts have been dramatically impacted by the banking royal commission and COVID economic environment. We can see prior to these events CBA has had a steadily growing dividend averaging $6.15 gross.
This graph shows the current yield, as well as potential yields, for changes in the CBA price or the return of its normal dividend rate.
|CBA Share Price||Current DPS: $3.5||Previous DPS: $6.15|
At the current CBA Share price and Dividend Per Share, the Dividend yield is relatively low compare to its 10-year average of around 5-6% net (8-10% gross).
CBA FY21 Final Dividend (August 2021)
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.
Should I Buy CBA Shares Investor Sentiment
After surveying 193 Investors about their current CBA sentiment: BUY-HOLD-SELL as well as their target price over the next 12-months here are the results;
The results from this survey show there is currently a strong bullish investor sentiment on the CBA share price, favoring a rise of 17.4%. So how much are CBA shares worth? Let’s get into it.
Should I Buy CBA Shares Fundamentals
|Volume 4W Avg||2,505,341|
|NTA per Share||$37.93|
Based on their current share price we can see CBA shares have an overvalued PE of 21.18x, which is in line with the currently inflated market average of 20.8x. A company with a high PE could be seen as overvalued or may have great investor sentiment.
CBA is a large-cap company with a total market capitalization of just over $177 Billion. This makes it the largest listed ASX company by market cap. Large-cap companies are more likely to show consistent returns over time rather than short-term gains. Their prices are likely to be less volatile. Large-cap companies also tend to make regular dividend payments.
CBA currently has a beta of 0.7. Beta is a measure of a stock’s volatility in relation to the overall market. Lower Beta stocks are said to be less risky but provide lower return potentials, Source: Investopedia.
Earnings, and NTA per Share:
We can see CBA shares currently have earnings per share of $4.719, this gives it its PE of 21.18x. Another way of looking at this is that 4.7% of their share price is backed by solid earnings.
Their Net Tangible Assets per share is $37.93, representing 37.9% of the current share price.
42.6% of CBA’s Share price is backed by Solid Earnings and Tangible Assets
CBA being a large-cap company poses no real risk of market liquidity. There seems to be a healthy number of buyers and sellers, in the current market. We can see the average turnover for the company is 2,505,341 equating to just over $251 million daily.
CBA Shares Fundamental Comparison
Compared to the other big banks, CBA is the most expensive in terms of PE. But this is largely justified by their solid assets, and ROE of 12.7%, which far exceed Westpac, Nab, and ANZ.
CBA Shares vs The Banking Sector Averages
Compared to the Australian Banking Industry average Price per Earnings (PE) Ratio of 15.2x, CBA’s valuation seems overvalued at 21.18%. However, this is largely in line with the currently inflated market average PE ratio of 22.73x. CBA has an EPS of $4.719
Again, in comparison to the Banking Industry CBA’s Price to Book (PB) Ratio is relatively high. When compared to the market as a whole, CBA’s valuation seems reasonable.
CBA’s Future Return on Equity (ROE) is relatively high at 12.7% compared to the Industry Average of 8.2%.
Should I Buy CBA Shares Financials
In early August CBA released their full year results for FY 2021, here are the highlights:
- 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.
Commonwealth Bank is obviously in an excellent financial position to not only support the company but to grow the company going forwards. They have a wide economic moat and excellent market share.
“Close to 36 percent of Australians count CBA as their main financial institution. It has 24.9 percent of the home loan market and 26.8 percent of the deposit market”Australian Financial Review.
CBA Financial Summary
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.
CBA Balance Sheet
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%.
Should I Buy CBA Shares Technicals
In summary, the upside is likely to prevail as long as $97.6 is a support. The alternative scenario is that a downside breakout of $97.6 would call for $94.7 and $93.
Support, Resistance, and Moving Averages
CBA Insider Ownership and Trading
We can see that the general public own the large majority of CBA. This is a common trend amongst most listed shares. We can see individual insiders only own 0.2%.
We generally like companies with large insider ownership. Skin in the game helps ensure the management’s motives are in line with ours. We like small-cap stocks with ~30% insider ownership and a history of owners buying on market. Although Privatized companies are an exception to this.
CBA Shareholder Distibution
|No. of Shareholders||662,301||181,477||19,480||8,086||147||871,491|
CBA Shares Insider Trading
We can see a lot of insiders buying into CBA in 2021. However, we do notice CEO Matt Comyn executed a sale of 22,000 shares valuing $1.9 Million in March.
It is worth noting that Matt Comyn does still have 61,996 CBA shares in his possession.
|18 Aug 21||Buy||$20,516||Mary Padbury||205||AU$100.08|
|18 Aug 21||Buy||$25,620||Robert Whitfield||256||AU$100.08|
|22 Mar 21||Buy||$79,945||Peter Harmer||948||AU$84.33|
|19 Mar 21||Buy||$942||Anne Templeman-Jones||11||AU$85.61|
|19 Mar 21||Buy||$2,140||Mary Padbury||25||AU$85.61|
|19 Mar 21||Buy||$19,947||Robert Whitfield||233||AU$85.61|
|19 Mar 21||Buy||$12,585||Genevieve Bell||147||AU$85.61|
|16 Mar 21||Sell||$1,922,800||Matt Comyn||22,000||AU$87.40|
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.
Should I Buy CBA Shares Future Prospects
There is no question that CommBank and the entire market have felt the effects of COVID-19. CBA has seen impairments and higher expenses. In 2021 we are beginning to see a marked turnaround in economic conditions which is, of course, very good news looking forward.
Commonwealth Bank has an incredibly strong balance sheet and retained earnings. This will position the company well to see out the final ramification of the Banking Royal Commission as well as further market uncertainty.
“our balance sheet is in very strong shape, the strongest it’s ever been”Matt Comyn, CEO of Commonwealth Bank of Australia
In this low-interest environment, Net Interest Margins will continue to be under pressure for the foreseeable future. Despite this CBA has proven its ability to remain massively profitable.
CBA and the Royal Commission
In light of the Royal Commission CBA also divested a large portion of its subsidies; including its wealth management, Aussie Home loans, and Insurance businesses. Matt Comyn believes these are necessary steps for CommBank to build a simpler, better bank. It is too early to tell how this will impact Commonwealth Bank’s future growth.
CBA, Klarna: BNPL
CBA is also focusing on the changing market by entering into the Buy-Now Pay-Later (BNPL) space with its 5.5% stake in BNPL giant Klarna. They also unveiled their own CommBank BNPL platform, available for all their customers.
CBA recently lost their dollarmites program from QLD schools. This program arguably helped grow CBA’s market share. However, CBA still entices young bankers with its leading mobile app and website, which are both way above its competitors.
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%.
Should I Buy CBA Shares Prophet’s Take
Commonwealth Bank has been a core business in our portfolio since the royal commission crash. It has made us excellent capital gains and dividends for the past 3 years.
We will continue to hold CBA for the foreseeable future. We see CBA as an excellent business that will continue to lead the way in the Australian Banking Industry.