As predictable as frost in winter or the All Blacks taking home the Bledisloe Cup, the Commonwealth Bank is set to announce another record profit.
Analysts expect Australia’s biggest bank to announce a cash profit of around $8.7 billion in its full year results on Wednesday, up about 11 per cent on a year ago.
“One thing I can say with certainty is you’re going to see a record profit, it’s just going to happen,” IG market strategist Evan Lucas said.
What’s less certain, however, is how the market will react to the result for the 2013/14 financial year.
While a profit increase of about 11 per cent is nothing to sneeze at, it’s well known that Commonwealth shares are a long way from cheap.
Mr Lucas says the bank, which has a market capitalisation of around $131 billion, is currently trading at around 2.14 times the value of its assets.
“That makes them well and truly the most expensive bank on the planet in terms of price-to-book and they still have a market cap that is higher than all of Germany’s banks combined,” he said.
But Mr Lucas says if CBA beats analysts’ expectations, which it has a history of doing, and lifts its dividend, then its shares should rise.
“If they deliver on the dividend and they deliver on the cash profit, there’s no reason why the share price won’t go up,” he said.
Morningstar analyst David Ellis said the bank has benefited from the growing housing market, which is likely to have boosted its loan book by about six per cent.
And he expects the bank’s net interest margin – how much money it makes on its loans – to have held up ok as lower funding costs offset the impact of cut-throat lending competition among the big four banks.
“While there is certainly intense competition for loans, there has also been a very pleasing material easing in funding costs,” he said.
Meanwhile, he says gains on stock markets would provide a boost to Commonwealth’s wealth management division, though that could be offset by costs or charges linked to the recent financial planning scandal.
And though markets are generally higher than a year ago, a lack of volatility in equities in the past six months could hurt the bank’s markets division.
“The low volatility that financial markets have gone through over the last six months might flow through to some of their trading income and markets income.”