Commonwealth Bank of Australia (CBA) Share Trading Recommendation

Submitted by Craig Strzelecki on 31 January, 2007 - 22:18

Commonwealth Bank of Australia (CBA) have a Neutral 1 share trading recommendation and a share price target of $50 from analyst UBS. They expect CBA to report a strong 1H07 result, with Cash NPAT (UBS format) of $2,145m ($2,154m CBA format). EPS is expected at 162.6cps (up 9.2% seq & 11.4% on pcp). Interim div is forecasts at 107cps. Divisional forecasts: Banking $1,761m, driven by Business & Insto up 8.4%, Retail up 7.1%. Funds Management should be strong at $250m (up 12.5%) & Insurance $141m (up 6.5%). According to the analyst: revenue could surprise on the upside given: (1) Seasonality, more days in 1H accruing interest (2) Credit growth remains strong (3) Deposits stronger than expected should help margins (4) Rate rises help deposit spreads (each 25bp adds $25m pre tax p.a.) (5) Rallying mkts will boost WM & CommSec. UBS expect BDD to remain at low levels (17bp) as CBA credit card portfolio charges run off. Corporate losses remain low. Costs should remain in line as the full period WNB benefits & IT savings offset investment. UBS sees the following key positives for CBA: (1) register short squeeze, most under-held bank (2) stabilisation in mkt shares (3) deposit spread benefit (4) WM upside (5) recent management re-jig. Issues: (1) unlikely to achieve lead status in retail bank satisfaction by 08 (2) culture change is LT (3) most susceptible to retail competitive pressures. Our price target is derived from a combination of DCF, SOP and international peers.

Commonwealth Bank of Australia Limited is listed on the Australian Stock Exchange (ASX) under stock code CBA. You can view their investor website here. Ralph J Norris is the CEO of CommBank and John Schubert the Chairman. The company offers banking, financial and related services. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade CBA. Check your charts and good luck with your share trading!

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