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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.


Commonwealth Bank


Commonwealth Bank of Australia (CBA:ASX)

Commonwealth Bank of Australia is Australia's largest retail bank. It also operates in New Zealand and Asia.  Its core business is the provision of retail, business and institutional banking services.
It is also a major participant in Australia's wealth management sector with products covering superannuation and life insurance as well as retail and wholesale fund management.

CBA's strategy is focused on Australia, New Zealand and Asia. The strategic priorities are customer service, business banking, technology and operational excellence, trust and team spirit, and profitable
growth. CBA has invested heavily in customer service training and new staff to recover market share losses in home loans and deposits. The bank has recruited new business bankers and has upgraded its service offering.
The bank sees medium-term growth opportunities in Asia and has built a portfolio of holdings in Asian banks.
CBA has avoided business it perceives to be high-risk or which does not meet its return criteria; the aim is to keep credit quality strong.
CBA is currently assessing potential acquisitions of struggling financial institutions. With a war chest of plenty of cash, CBA is well positioned to emerge from the credit crisis in an even stronger position.
For the year ended 30 June 2008, revenues from ordinary activities were $37.05bn, up 12% from last year. Diluted EPS was 348.7 cents compared to 339.7 cents last year. Net operating cash flow was $4.05Bn compared to $6.2bn last year.  It was able to actually increase it's dividend. Not many Banks have been able to do that in the current crisis!  The final dividend declared was 153 cents fully franked, taking the full year dividend to 266 cents compared with 256 cents last year.  This solid result was achieved in difficult market conditions and shows the underlying strength of the business.  The Group did incur additional funding costs during the year due to ongoing volatility in global credit markets. In addition, loan impairment expense increased $496m on the prior year due to increased provisioning in the corporate portfolio reflecting a tougher economic  climate. But, looking ahead, the Bank looks well placed to emerge as an even stronger player in the Australian Banking sector. The Group looks set to continue with its conservative stance until signs of  improvements in economic conditions are evident. The Groups capital position is strong with capital levels well above target ranges. A prudent approach has been taken to the management of credit and market risk and the Group is well provisioned given the economic outlook.

The Bank's conservative stance has served it well during the credit crisis and it has emerged, so far, relatively unscathed.
Its share price has been dragged down over 45% since reaching a high of $61.55. This is mainly due to a lack of confidence in the whole Banking sector. CBA is still a strong business with good management
and it will be able to make considered acquisitions in the coming year.
At current prices around $33 and with a dividend yield of 7.8%, CBA represents excellent value as a long term hold, for the more conservative portfolio.

Buy Commonwealth Bank of Australia (CBA:ASX) up to $35.00


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.