CommBank (CBA) Update

Submitted by Craig Strzelecki on 19 April, 2007 - 18:14

CommBank (CBA) has a Buy 1 broker call and a share price target of $57.50 from sharemarket analyst UBS. The bank has provided a positive 3Q07 Trading Statement and hence business momentum is maintained in 3Q07. Key messages from CBA observed by the analyst (1) Earnings momentum from 1H07 has been maintained into 3Q07 (2) On track to deliver Cash EPS gth >= peers (3) Retail banking doing well with loss rates less than expected (4) NZ doing well (5) Strong business banking with stable margins (6) Some slight deterioration in SME credit, but well secured (7) 2H07 BDD/RWA flat on 1H07 (8) Wealth Management (WM) FUM growth weaker than expected. Operationally on-track, a strong turnaround opportunity for Commonwealth Bank: The analyst believes the critical message is that CBA's turnaround is on track, with earnings risk on the upside. The analyst sees the medium term opportunites for Commonwealth Bank as: (1) strong, under-leveraged franchise (2) significant changes in executive ranks (3) good upside in both revenues and costs, and (4) potential register squeeze. Risks: (1) retail bank division promises a lot, and (2) delivery is key. In the analyst's opinion, CBA is cheap at a 3% sector discount ex WM: CBA is trading in line with the sector PE at 13.9x (on our 2008 est), down from a 5% average premium. However, if the analyst values all the bank's WM divisions at a 10% discount to AMP, CommBank's Banking operations are trading at a 3% sector discount. Key drivers to Commonwealth Bank of Australia (CBA): (1) stock is cheap on our valuation (2) lead indicators are improving (3) corporate bank is accelerating (4) WM has upside potential. Risks for CBA: (1) retail division execution risk (2) WM gains are partly cyclical.

CommBank 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. The Bank is one of the largest listed companies on the Australian Stock Exchange and is included in the Morgan Stanley Capital Global Index. The Bank is Australia’s largest life insurer and is Australia's largest manager in retail superannuation, allocated pensions and annuities by funds under management. Commonwealth Bank has an international presence: Retail banks in New Zealand (ASB Bank), Indonesia (PT Bank Commonwealth), Fiji (Colonial National Bank) and China (11% of Jinan City Commercial Bank and 19.9% of Hangzhou City Commercial Bank); Commonwealth Bank branches in London, New York, Tokyo, Singapore, Hong Kong and Auckland; Wholly owned life insurance operations in New Zealand (Sovereign Insurance and Fiji (Colonial Fiji Life); Joint venture life insurance businesses in Indonesia (Astra CMG); China (China Life CMG) and Vietnam (Bao Minh CMG); First State funds management business in Hong Kong, Singapore, London, Fiji, China and Indonesia; and Representative offices in Beijing, Shanghai Hanoi and Bangalore. Their brands include: Colonial First State, ASB (New Zealand), CommSec and CommInsure. 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!