Commonwealth Bank (ASX: CBA) posted flat third quarter earnings on Tuesday, with volume growth offset by lower net interest margins arising from competitive pressure in home loan pricing and customers switching to higher yielding deposits.
CBA shares finished the session 0.2% higher, up from session lows of -1.7%. But still down more than 3% this month amid renewed US regional banking fears.
On Wednesday, Goldman Sachs, Citi, Morgan Stanley and Macquarie all came out with Sell-rated, raising concerns about CBA’s premium valuation to peers and headwinds for the broader banking industry.
Unaudited statutory net profit of $2.6 billion, up 1% QoQ and 10% YoY
Net interest income was flat at $6.79 billion
Operating expenses was flat on a headline basis
Loan impairment expenses of $223 million, collective and individual provisions slightly higher
Home loan arrears remained low at 0.44% reflecting low levels of unemployment and stability in saving buffers
Citi: SELL with $80 target price
Downgraded FY 23-25 net interest margin expectations to reflect “stronger asset drag, reduced residual deposit repricing benefit and elevated switching to term deposits.”
“We maintain our $80 target price, with near-term earnings revisions reflecting a faster than anticipated moderation in net interest margins.”
Morgan Stanley: UNDERWEIGHT with $85.00 target price
“The result was slightly weaker than expected, with a ~2% miss on net interest income and high single digit QoQ margin decline.”
Revenue, net interest income, margins and pre-provision profits were worse than forecast
Macquarie: UNDERPERFORM with $90 target price
“Like peers, we misjudged margin pressure in 2H23, as funding tailwinds didn’t materialise to the extent we expected.”
“CBA’s result highlighted weaker funding tailwinds than we expected, implying banks will need to behave more rationally to preserve margins.”
“With early provision build and strong balance sheet, we see CBA being relatively well prepared to manage rising stresses.”
“We continue to see CBA as a strong franchise but find current valuations (P/E of approximately 17 and P/B of around 2.2 times) difficult to justify.”
Goldman Sachs: Sell with $84.97 target price
“CBA’s 3Q23 update highlighted the franchise is no more immune to the macro pressures facing the sector.”
Sell rating was reiterated due to CBA’s skew to consumer banking and exposure to elevated mortgage competition, ongoing inflationary pressures and premium valuation to peers
“The stock is trading on a FY24e PER of 17x, a 43% premium to its peers (21% historic average).”
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