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Is the CBA (ASX:CBA) share price a buy?

CBA

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy after it just reported its FY21 half-year result?

What was the FY21 half-year result like?

A lot of analyst eyes were on the biggest bank’s report. CBA is able to give investors an insight into many different areas of the economy such as the housing market, household finances and business demand for credit.

The big bank reported that cash net profit after tax (NPAT) declined by 10.8% to $3.89 billion. Statutory net profit dropped 20.8% to $4.88 billion. CBA said that NPAT was supported by strong business outcomes but impacted by the low rate environment and COVID-19. Statutory net profit included gains on the sale of divestments including BoComm Life.

CBA’s net interest margin (NIM) was 2.01%, down 3 basis points on the second half of FY20 and down 10 basis points on the first half of FY20. The bank said that the NIM declined mainly due to higher liquid balances and the impact of the low rate environment on deposits and capital earnings, partly offset by lower wholesale funding costs.

The bank’s total loan impairment expense was increased again by $233 million to $882 million to reflect the uncertain economic outlook and emerging industry risks in particular for the aviation and entertainment, leisure and tourism sectors.

CBA’s common equity tier 1 (CET1) capital ratio rose to 12.6%, driven by “strong” organic capital generation and ongoing benefits of divestments supported by higher capital levels, which remain well above APRA’s ‘unquestionably strong’ benchmark of 10.5%.

The CBA share price fell on the day of the report, but it rose 1% yesterday.

CBA dividend

The bank’s board decided to declare an interim dividend of $1.50 per share. That represents a 53% increase on the second half of FY20, though it’s down 25% on the first half of FY20. This dividend represented a cash payout ratio of 67%, below the board’s target payout ratio range.

The verdict on the CBA share price

Different brokers have had their say on what they thought about the CBA report.

Morgans said that the profit was a bit better than the broker was expecting. There was positive signs in home lending. CBA’s plan to become a bigger bank in the business lending sector is also producing results, growth here was also better than Morgans expected.

However, Morgans thinks it’s a tricky environment for CBA to operate in with low interest rates being a dampener on the net interest profit outlook. Competition for mortgages is also hurting the NIM. However, the broker thinks that the NIM can remain stable.

With those positives in mind, Morgans increased its price target for CBA shares from $64 to $68. However, that still implies a decline of over 20% from here.

UBS may be one of the most positive brokers about CBA. The broker liked how much capital that CBA has on the balance sheet. UBS said that the banks, like CBA, are leveraged well to the recovery of the Australian economy. The low interest rates make things difficult, but the broker feels that CBA can generate more income than the broker thought it was going to be able to.

UBS has a CBA share price target of $90, it’s one of the only brokers that thinks CBA shares can rise further from here in the shorter-term.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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