CBA share price: Where next following Q1 FY21 trading update?

CBA share price: The Q1 FY21 update at a glance

During the first quarter of fiscal 2021 the Commonwealth Bank of Australia (CBA) saw its capital position improve, profits dip and lending volumes increase across the board. The stock traded flatly in response to this update and remains down close to 7% YTD, from yesterday’s closing price.

CBA opened at $74.40 per share on Thursday, November 12.

Overall, CBA reported unaudited statutory profits (NPAT) of $1.9 billion against unaudited cash profits (NPAT) of $1.8 billion, down 16%. Despite a challenging operating environment the bank reported stable net interest income, with volume growth across its loan books offsetting the impact of lower margins.

The bank said this was driven by 'reduced earnings on deposits and capital from lower interest rates, unfavourable lending margins [as well as] higher liquid assets.’

CBA continues to build out its position as the biggest of the big four, reporting volume growth across all of its key loan portfolios: Home lending rose $5.6 billion (2x system), household deposits gained $15.8 billion (>1x system) and business lending rose $1.4 billion (>2x system).

Elsewhere, operating expenses fell 4% during the quarter.

Credit quality to remain in focus

The coronavirus and its economic impact – both broadly and on an individual level continues to be a key overhang for the bank, with total credit provisioning rising to $6.7 billion during the quarter, while troublesome and impaired assets dipped to $8.4 billion. This movement lower, said CBA 'mainly reflects lower home loan impairments due to ongoing COVID-19 support.’

Despite a ‘large number’ of loan deferrals expiring in September and October, by October 31, the bank noted that some 46,000 home loans, totalling $19 billion, remain in a state of deferral. Though those figures remain elevated, they've come down significantly from June, where total loan balances in deferral stood at $49 billion.

'We continue to contact customers with a range of options as they approach the end of temporary loan repayment deferral periods, and have been encouraged by the number of customers who have been able to return to making payments on their loans.'

Finally, CBA continues to tout a strong capital position, reporting a CET1 ratio of 11.8% by the close of the September quarter – firmly above APRA’s ‘unquestionably strong’ requirements.

Where next? The analyst outlook

Looking ahead, analysts from Macquarie Wealth Management upgraded their price target from $58.50 to $65.00 per share following the bank’s Q1. Ultimately, with CBA trading at a significant premium to its peers, Macquarie analysts said 'We believe this premium should narrow in a low rate environment and we maintain Underperform recommendation.’

By comparison, analysts from Credit Suisse appeared somewhat more constructive on CBA’s outlook noting that while the Q1 was 'slightly underwhelming', looking forward 'we expect the sector to benefit from recovery status and within this CBA’s defensive status is likely to see it lag peer share price recovery.’

Credit Suisse has a price target of $74.80 per share and a Neutral rating on CBA.

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