Earnings Wrap: Commonwealth Bank's $10bn profit, Suncorp

Reporting Season quick bite results for Wednesday, 9 August.

Suncorp: Strong growth but below expectations

Suncorp’s (ASX: SUN) FY23 result reads strong at face value but key metrics including net profit, net interest margins and dividends came short of analyst expectations. The stock fell 3.0% as the market opened on Wednesday.

The bank reported a 68.5% uplift in net profit to $1.15 billion, thanks to factors including continued momentum in top-line growth across the Group, improved underlying margins and a significant turnaround in investment returns.

Here are the key figures and how they performed against expectations:

• Net profit up 68.5% to $1.15bn (vs. $1.18bn expected)

• Insurance GWP up 10.6% to $10.2bn (in-line with expectations)

• Suncorp Bank net profit of $470m (vs. $492m expected)

• Suncorp Bank net interest margins of 1.96% (vs. 2.00% expected)

• Full-year dividend up 50% to 60 cents per share (vs. 73 cents expected)

In its commentary, the company said its GWP growth of 10.6% reflected “targeted price increases required to address material rises in reinsurance and natural hazard costs and economy-wide inflation.”

Bank profits were a little softer than expected due to competitive pressures in home lending pricing and increased funding costs.

The bank’s outlook commentary was filled with uncertainty, notably:

• Operational outlook: “The operating environment remains challenging … Economic growth is expected to moderate.”

• Insurance: “GWP growth of around 10% is expected …Over the medium-term the Group expects ongoing margin improvement as higher renewal premium rates are earned through.”

• Bank: “Overall, system growth is expected to slow as economic growth moderates and against a backdrop of significantly tighter monetary conditions … The Bank expects NIM to be around the bottom of its 1.85% and 1.95% target range.”

CBA announces record profit, $1 billion buyback

Commonwealth Bank (ASX: CBA) this morning has announced a $1 billion buyback, along with its full year results, which appear to have beaten expectations.

The banking giant delivered FY NPAT of $10.16 billion (up 6% and a record), which was slightly ahead of the $10.1 billion estimates, whilst earnings per share (EPS) came in at $6.02, ahead of estimates of $5.89. CBA also declared a final dividend of $2.40 per share, bringing the full-year dividend to $4.50, up from $3.85 per share in 2022.

The buyback is slated to start on 18 September this year, and run through to 7 August next year. If follows the completion of a prior, $3 billion buyback.

In its commentary, the bank stated that “The Australian economy has been resilient with the tailwinds of a recovery in population growth, relatively high commodity prices and low unemployment. However there are signs of downside risks building as rising interest rates have a lagged impact on mortgage customers and other cost of living pressures become a financial strain for more Australians”.

If further added, “We are seeing consumer demand moderate and economic growth slow and we are closely monitoring the impact of reduced discretionary spend, particularly on our small and medium sized business customers”.

Diving a bit deeper into the numbers, CBA noted that net interest margins increased 0.17 percentage points over the past 12 months, to 2.07%, largely due to the higher cash rate.

Whilst NIMs expanded however, home and personal loans with payments more than 90 days overdue rose, and loan impairment expenses rose to $1.5 billion and weighed on profits.

Other key numbers:

Income:

• Net Interest Income A$23bn

• Pre-provision profit A$15.59bn vs year-ago A$13.13bn

Assets:

• NIM 2.07% vs SA 2.08%

• ROE 14.0% vs SA 13.9%

Capital:

• CET1 Ratio (International comparable) 19.1% vs year-ago 18.6%