Macro Intelligence: February earnings reveal diverging fortunes for CBA and AMP

Written by Juliette Saly

Earnings season

In this week's edition of IG Macro Intelligence, we take a look at the February reporting season - with a deep dive into Commonwealth Bank of Australia (CBA) and AMP's results.

Beating the street

Australia's largest lender and largest listed stock on the ASX 200, CBA "beat the street" with its first half profit, and rewarded shareholders with a record interim dividend of $2.25 per share.

CBA first half profit highlights

Cash profit for the six months to December rose 2% to $5.13 billion, while CBA's net interest margin – a key gauge of profitability – rose 2 basis points (bp) to 2.08%. Operating expenses in the period rose 6% to $6.4 billion, mainly driven by higher staff expenses due to inflation, and increased investment, including $450 million spent on cybersecurity measures.

Shareholders will receive a fully franked interim dividend of $2.25, up 5% from a year ago.

CBA shares hit a record following the first-half result.

ASX Tradewatch data shows CBA appears to be in a long-term uptrend, as confirmed by multiple indicators. Both the 20-day and 200-day moving averages (MA) are sloping upwards, suggesting the stock can continue rallying in both timeframes, despite most analysts suggesting investors sell the stock.

CBA daily chart

Under pressure

Heading the other way, AMP shares slumped after the financial services company saw its FY24 profit almost halve. The result included AMP's business simplification spend and the loss it incurred on the sale of its Advice business.

AMP's FY24 statutory profit fell 43.4% on the prior corresponding period to $150 million. Underlying profit rose 15.1% to $236 million, with Westpac Head of Credit and ABS Strategy Brendon Cooper, calling this figure "more representative of AMP's new structure".

Total revenue was lower by 1.1% to $1.25 billion. A final dividend of 1 cent per share, 20% franked, was declared taking total FY24 dividends to 3 cents per share.

AMP first half profit highlights

Analysts' stark warnings for CBA

Analysts have not been shy in recommending shareholders sell CBA at its current lofty levels. The average broker recommendation is Sell according to Refinitiv data, with none of the 13 brokers surveyed suggesting investors buy at these levels. Two suggest Hold, nine recommend Sell and two brokers have a Strong Sell on CBA.

The average target price on CBA is $109.45, suggesting the stock is overvalued by almost 34%. Citi analysts have cut their price target on CBA to $90.75, citing risks from funding pressure and increased competition for deposits.

In the wake of its results, Jarden cut CBA's rating to Sell from Underweight, and reduced its price target by 3% to $110. However, Morgan Stanley raised its price target by 7% to $127, although it remains Underweight on the stock due to its "elevated valuation."

CBA analyst recommendations chart

Navigating AMP's uncertain waters

Meanwhile, the technical picture for AMP is mixed, looking at ASX Tradewatch data, which shows bullish signals amid the 20 and 200-day MA trending higher. However, the 50-day MA shows weakness in the medium term as the 5-day MA is below the 50-day. This signals long-term investors should proceed with caution.

The average price target on AMP is $1.47 and the average recommendation is Hold, according to Refinitiv data. Macquarie and Citi are neutral on AMP, while UBS recommends selling, although it has increased its price target from $1.25 to $1.35.

Meanwhile, Morgan Stanley believes the pullback in AMP is "overdone" in the wake of its 2024 results, saying the stock presents a compelling case. The broker is Overweight AMP with a $1.76 price target.

AMP analyst recommendations chart