The Commonwealth Bank of Australia (ASX: CBA) share price is currently trading at around $100. Could the major ASX bank be worth looking at after its strong run?
Over the last 12 months the CBA share price has risen by 41% and the last six months has seen a share price rise of 16% over the last six months.
What's the latest from the bank?
The last price sensitive announcement from the big four ASX bank was the news of the sale of its general insurance business, CommInsure General Insurance, to the Hollard Group. It has established an exclusive 15-year strategic alliance with Hollard for the distribution of home and motor vehicle insurance products to CBA's retail customers in Australia.
The consideration includes $625 million of upfront consideration, together with deferred payments. CBA will also continue to earn income on the distribution of home and motor insurance products. A pre-completion dividend is also expected to be received.
This sale is expected to increase its common equity tier 1 (CET1) capital by approximately $400 million, or 9 basis points. It's estimated to result in a post-tax gain on sale of approximately $90 million, which includes estimated post-tax separation and transaction costs of approximately $130 million.
In terms of the actual CET1 ratio, it was 12.7% at the end of the quarter ending 31 March 2021.
The third quarter of FY21 saw the bank generate $2.4 billion of statutory net profit after tax (NPAT). It also saw cash net profit from continuing operations of $2.4 billion in the quarter, up 24% from the FY21 first half quarterly average, mainly driven by lower loan impairment expenses.
CBA saw income up 2% with above system core volume growth, improved margins and higher non-interest income partly offset by the impact of two fewer days. However, expenses were up 1% excluding remediation costs (and 2% including remediation costs).
Profit was significantly helped by a lower loan expense. An improved economic outlook resulted in a reduction in collective provisioning levels. However, CBA said that provision coverage remains strong and continues to reflect a cautious approach to managing risks as the economic recovery from COVID-19 continues.
Should investors look at the CBA share price?
Morgans doesn't think that CBA shares represent good value when compared to the other big four banks of Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
Whilst the broker is positive on the improving outlook for the major banks and strengthening financials, the CBA share price has risen too far. That's why its price target is $76, which implies that the CBA share price could fall by over 20% over the next 12 months if Morgans is right.
Looking ahead to FY22, Morgans thinks that CBA will pay a dividend of $4.17 per share, equating to a forward grossed-up dividend yield of 6%.
On Morgans' numbers, CBA is valued at 18x FY22's estimated earnings.
