Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
CBA delivers fat dividend, buy back
Australia’s largest bank, the Commonwealth Bank of Australia (ASX:CBA), has posted a massive $8.65 billion cash profit for FY21, up 20%, together with a $6 billion share buyback and an increase in its final dividend.
Including CBA’s discontinued operations such as CFS Asset Management, the profit was $10.18 billion. The bank increased its final dividend to $2, up 98 cents from last year, when ASIC forced the banks to cap dividend payments. The rise in profit was driven by a rebound in the economy from the pandemic.
Senior portfolio manager at Plato Investment Management, Dr Peter Gardner commented on the result, saying: “The CBA result highlights strong management and leadership through what has been a very unpredictable 12 months and underscores our view that of the big four, CBA is best-positioned to deliver sustainable income and capital growth for investors in the coming year and beyond.”
CBA’s operating income from interest and fees rose 1.7 per cent, while its operating expenses were up 3.3 per cent. Net interest margin (NIM) fell 4 per cent to 2.03 per cent compared to last year, though it was higher in the second six months of the year. Loan impairment expenses were $554 million, continuing to fall as deferred loans reversed 2020’s massive numbers.
Portfolio manager at Ausbil Active Dividend Income Fund, Michael Price, says, “We have been expecting a big dividend from CBA – and we expect similar announcements from the other majors, and have been positioned accordingly. We expect to see more capital management across the banks in terms of buybacks, which bodes well for the future earnings per share and returns for long-term holders of bank stocks.”
However, the bank has warned that despite the Australian economic recovery progressing well, the pandemic continues to cause havoc with both the Melbourne and Sydney in lockdown. To add to it, CEO Matt Comyn also added that the bank “expected ongoing economic impacts and future earnings pressure from lower interest rates.”
The buyback was welcomed by shareholders. “It is a logical way for CBA to get rid of surplus capital whilst pleasing retirees and other low-tax-rate investors,” says Gardner. “Using CBA’s closing price yesterday of $106.56 as a guide, we estimate the buyback will be worth approximately $121.63 per share for tax-exempt investors, including a franking credit component of $29.99. This will represent a premium of around 14% to the market price of CBA today for a tax-exempt Australian investor.”
CBA has now sold off chunks of its business that it considers non-core and unprofitable. Going forward, the bank intends to head the same way Square did with its takeover of Afterpay. CBA has a collection of start-up apps – StepPay, Little Birdie and Klarna which it has offered to its customers. The end result is to use StepPay as a customer acquisition channel for merchants, the same way Afterpay does.
All in all, a great result. Analysts’ consensus expected $8.6 billion: CBA met these expectations as well as the final dividend and share buyback. Looking ahead, the current lockdowns due to the Delta variant are of concern if vaccination rates don’t improve as expected. Paul Xiradis, executive chairman and head of equities at Ausbil Investment Management, comments: “CBA is looking through the current Delta-lockdown impact and has guided that they are confident in the economy maintaining growth momentum into 2022.”
