Long a dividend favourite, the Commonwealth Bank of Australia last week reiterated its dominance in the country’s banking sector, revealing an impressive set of FY21 results.
In saying that, the headline result had little to do with the bank’s loans book or earnings, but rather it’s capital management initiatives. Here the bank revealed a bumper final dividend and a heady $6 billion buy-back program.
That announcement proved to be a compelling surprise for income-focused investors, with the market expecting a buy-back program in the realm of $5 billion, heading into the full-year. After running up into those results and then in their immediate aftermath, the stock would pull-back 1.75% on Friday, erasing a week’s worth of gains in the process.
By comparison, the broader market rose during the final session of the week, suggesting that investors may have finally found a limit to just how high they’d bid CBA’s stock. Certainly, few questions have ever been asked of CBA’s quality or of it’s operational excellence, but rather questions around it’s valuation, which have long proven challenging, may finally be catching up to the stock.
All of this is framed against an increasingly nervous economic backdrop, with Victoria, ACT, and New South Wales facing tighter restrictions in the wake of mounting covid-19 case counts. In a roundabout way, housing is one of the main impact points here. After dwelling prices have run hard off the back of low rates and a supply-demand imbalance (on the supply-side of course); will further lockdowns finally trigger price declines?
At the very least they’ll sap listing growth, which could hurt the growth rates of the banks bread and butter: residential mortgages. Could we also see these latest lockdowns hurt business lending? Only time will tell.
Australian earnings snapshot
Looking at the week ahead more broadly, a significant 5-days loom, with BHP Group reporting on 17 August, CSL on 18 August, Coles on 18 August, and Sydney Airport on 20 August.