Pinned straw:
I can't help myself.. sorry.
Cash profit growth of 2% justifies a PE of 26x? Even with a 5% lift in payout, the dividend yield is still under 3%. Statutory profit growth of 6% looks better, but most of that came from a reduction in impairment charges -- strip that out, and statutory profit growth was just 1%. And let’s not forget, a big part of those lower impairments is thanks to higher home prices inflating collateral values -- this alone accounted for 60% of the drop!
In real terms (inflation-adjusted), profit and revenue actually went backwards.
Ok, so shares are overvalued. That’s not a new or unique take. But why on Earth would they continue a buyback at this kind of premium? They’ve got billions in franking credits just sitting there, yet instead of using them for a special dividend, they’re burning $700 million in shareholder funds to engineer earnings per share growth. Outrageous capital management.
CBA, like the other majors, is basically a giant, overleveraged bet on Australian residential property. About 70% of its loan book is in home loans, and if you include small business loans secured against property, it’s even higher. I’ve made the point before, but a 12% drop in the carrying value of CBA’s loan book would wipe out all their equity. Not saying that will happen (the average LVR is 42%) but risk happens at the edges. Seven percent of home loans have an LVR above 90%, and around $5.5 billion worth of loans are already in negative equity. A small proportion overall, sure, but if all of those defaulted, that’s an 8% hit to CBA’s equity right there.
If there was ever hope for a truly free banking and property market, free from well-intentioned but fatally flawed political interference, i'd short the hell out of this thing. But given the political reality -- this thing is "too big to fail", as is the house of cards its built on -- there's every chance the party keeps rocking for some time yet.
In fact, I note that APRA (at the urging of the treasurer) is considering excluding HELP debts from lending assessments to boost borrowing capacity for first-home buyers, while also easing financing rules for property developers. There's also talk of reducing serviceability buffers..
Unfortunately I cant see banks changing there focus away from residential property any time soon. Currently reading "Breaking the Banks" by Joseph Healy (Judo bank founder). Only about a 1/3 of the way through so far but it provides a great explanation as to why the banks are so focused on residential property. It all comes down to risk weightings and profitability. SME lending has about 2-3x the risk weighting of residential property. IE the dollar amount of loans they can write in residential is much higher for the same capital requirement. ROE being the critical profitability metric of the banks means that to not focus on this "low risk" asset would hit profitability of the banks hard.
The author makes the point that this all comes at the cost of available capital for SMEs. If the capital to innovate isn't flowing to SMEs I wonder if this provides part of the explanation for a lack of productivity growth over the last decade or more...
It should also be noted that Judo bank is SME focused so author is talking their book as such with regards to SMEs...
In terms of CBA share price.. Well starting to feel like the baby boomers have finally created their own meme stock to put the younger generations to shame... HODL for that 2.8% dividend yield!
Astounding!
But I still think I will buy some because they are likely to get to 200 bucks by years end ????????????.
My bigger problem is managing mum's portfolio which has some sitting there is massive profit (the ones in super can be sold fine in pension mode).
Nessy