ASX:CBA
Commonwealth Bank of Australia
Investment Summary
The fund managers believe Commonwealth Bank of Australia (CBA) is a high-quality bank with an exceptional management team and strong brand recognition. However, they caution that the current valuation is premium, reflecting its strengths and no longer providing a sufficiently attractive investment opportunity. In their opinion, CBA’s forward Price/Earnings ratio of approximately 26x makes it one of the most expensive banks globally, especially considering its market cap of around $263bn—12% greater than NAB and Westpac combined—while maintaining a much smaller loan book and generating 30% less profits. The fund managers express concern about rising household debt, increased price competition from mortgage brokers, and the erosion of CBA's historical advantages, leading to muted future earnings growth. They see CBA's valuation being 3.5x above its historical mean and suggest they would reconsider a position only on a pullback in valuation.
Commentary From The Managers
Blackwattle Investment Partners
30 Nov 2024
$158.19
- Commonwealth Bank (CBA) was the largest detractor, due to the Fund’s underweight position.
- The stock continues to re-rate despite no new material developments.
- CBA trades at a forward Price / Earnings ratio of about 26x, making it one of the most expensive banks globally.
- With a market cap of approximately $263bn, CBA’s valuation is 12% greater than NAB ($120bn) and Westpac ($114bn) combined.
- CBA has a 39% smaller loan book and generates 30% less profits compared to its competitors.
- The historical advantage of a large branch network is being eroded by the increased use of mortgage brokers and digital banking.
Blackwattle Investment Partners
31 Oct 2024
$142.75
- Blackwattle Investment Partners holds a moderate position in Commonwealth Bank of Australia (CBA), with portfolio weight significantly below the benchmark of 10%.
- CBA is recognized as a high quality bank with a strong brand and leading deposit and mortgage businesses.
- This leads to healthy net interest margins and a low cost-to-income ratio.
- CBA achieves a superior return on equity compared to other Australian banks.
- Challenges include high levels of household debt in Australia and ongoing price competition in the mortgage sector.
- Approximately 75% of new home loans are originated by brokers, intensifying competition.
- Future earnings growth is muted due to these pressures, with rising sector arrears.
- CBA’s current valuation of 25x forward EPS is significantly above its historical mean by 3.5x standard deviations.
- This valuation is notably higher than similarly profitable global peers.
Cooper Investors
30 Sept 2023
$99.85
- Cooper Investors sold their investment in Commonwealth Bank of Australia (CBA) to fund a new purchase
- They maintained an underweight position in the Bank sector
- CBA is viewed as a fantastic franchise with an exceptional management team
- Cooper Investors considers CBA to be among the world’s great banks
- Current premium valuation does not present a sufficiently attractive opportunity for a continuing position
- They express willingness to revisit CBA on a pullback in valuation
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.