Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Reporting season puts CBA and BHP in the spotlight
With this month’s reporting season front and centre on investors’ minds, some of the country’s largest companies are due to post earnings results over the next two weeks. In this article, we assess CBA and BHP and look at what the brokers say.
CBA – Shares in Commonwealth Bank at the time of writing are down 0.39 per cent after the result, trading slightly above the $100 mark. The country’s biggest bank delivered a cash profit of $9.6 billion (up 11 per cent), above a Goldman Sachs forecast of $9.509 billion. The dividend was also a beat coming in at $3.85 a share versus the $3.80 forecast. The bank’s net interest margin contracted by 18bps to 1.90 per cent; a solid result that beat on both cash earnings and dividends but did not provide confidence going forward. Credit quality was also a highlight with lower loan impairments, however, some analysts have pointed out that the lag in interest rate hikes is yet to take full effect. In other words, the impact of the recent interest rate rises on mortgage holders will be a lot higher by year’s end, raising the potential for bad debts. Here are some of the highlights from CBA’s report:
- Operating income up 1 per cent to $24.4 billion
- Operating expenses down 1.5 per cent to $11.2 billion
- Loan impairment expense decreased by $911 million to a $357 million benefit
- Deposit funding of 74 per cent
- Cash net profit up 11 per cent to $9.6 billion
- Statutory net profit up 9 per cent to $9.67 billion
- Final dividend of $2.10 per share, up 5 per cent
- Total dividend of $3.85 per share, up 10 per cent
- Common equity tier 1 (CET1) ratio of 11.5 per cent
Citi and Macquarie both have a Sell rating on CBA. Citi has a $90.75 target price and Macquarie has a $78.00 target price. Both brokers say there was nothing genuinely concerning CBA’s earnings result. It seems CBA simply underperformed its peers on margins.
BHP – Australia’s largest listed miner is due to report its FY earnings Tuesday 16, August. Thinking back to the first half, the miner posted a better-than-expected result supported by a booming iron ore price together with higher demand for green-energy related metals such as copper and nickel. Tony Sycamore, market analyst at City Index says “…since April, commodity prices have slumped, including a 35% per cent fall in the price of iron ore, and similar for copper. Zinc prices have halved, as have coking coal prices. On the other side of the ledger, the company faces higher costs from supply-chain constraints and a tight labour market. Compounded by the deepening woes in China’s real estate sector.”
The fall in demand saw Rio Tinto disappoint after its dividend was lower than expected. BHP has also lobbed a bid for Oz Minerals at a 32 per cent premium. Sycamore says the “expectation is for BHP to report an underlying net profit of US$20.4 billion, up 19.3 per cent for financial year 2021.”
UBS has a Neutral recommendation with a target price of $35.50. The consensus target price is $42.35. The broker expects investors to remain more focused on BHP’s next steps post the knockback of the offer by OZ Minerals. If the deal gets the green light, UBS is confident net debt would be sustained in the $5 billion-$15 billion range with no impact on the FY22 results.
