CBA (ASX:CBA) share price falls on HY21 result

The Commonwealth Bank of Australia (ASX: CBA) share price is down over 1% after reporting its FY21 result.

CBA HY21 report

The big four bank reported that its cash net profit after tax (NPAT) declined by 10.8% to $3.89 billion. CBA said that the net profit was supported by strong business outcomes but impacted by the low rate environment and COVID-19. Excluding COVID-19 impacts and remediation costs, cash NPAT was broadly in line with last year according to the bank.

Income

Operating income was just under $12 billion, down 0.5% due to the impact of COVID-19 and the lower net interest margin, partly offset by core volume growth. Home lending grew by 1.5x the system whilst household deposit balance grew at 1.1x the system. CBA’s net interest margin (NIM) – how much of a margin a bank makes on the loans it lends out (against the cost of borrowing) – was 2.01%, which was down 10 basis points (0.10%) year on year and down 3 basis points (0.03%) compared to the second half of FY20.

Expenses

CBA’s operating expenses increased by 2.3% excluding remediation costs. The investment spend increased by 34%, particularly in ‘digital’. It also invested in higher staff and IT costs. Financial assistance for customers impacted by COVID-19 was a notable expense as well.

For this period, remediation costs of $241 million were recognised during the half, including $118 million of additional provisions.

CBA loan impairment expense

CBA said that the loan impairment expense was $882 million, an increase of $233 million compared to the prior corresponding period. Forward looking adjustments were made to reflect the uncertain economic outlook and emerging industry risks in particular for the aviation and entertainment, leisure and tourism sectors.

The big bank said that its consumer arrears remain low. The percentage of home loans more than 90 days overdue declined from 0.61% a year ago to 0.57% at December 2020.

Statutory profit

CBA said that including discontinued operations, statutory profit was $4.88 billion, down 20.8% mainly due to lower gains realised in the period on the sale of businesses.

CBA dividend

The big bank declared a FY21 interim dividend of $1.50 per share, which was down 25% compared to last year, though it was up 53% compared to the FY20 second half dividend. This dividend represents a cash payout ratio of 67%.

Summary thoughts

This seems like a pretty solid result, considering what has happened over the last 12 months.

However, CBA said that there are number of health and economic risks that could dampen the pace of the Australian economy.

The dividend wasn’t quite as big as I was expecting, though the final FY21 dividend may make up for it. With the (pre-open) CBA share price at $87, I don’t think that the shares are good value, particularly with how slow going ‘normalised’ growth (excluding the recovery) will be. I’d go for other investments for income.

There are other ASX dividend shares in the financials space I’d rather buy, such as Magellan Financial Group Ltd (ASX: MFG).

Instead of CBA, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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