The Commonwealth Bank of Australia (ASX: CBA) share price is climbing higher on Wednesday after Australia's biggest bank delivered its highly anticipated full-year results.
At the time of writing, shares in CBA are commanding a $108 price, up 1.39%. Today's rally puts the bank's gain over the past 12 months at more than 43%.
A major contributing factor to CBA's strength today might lay in the monstrous $6 billion share buyback it announced.
Exceeding Citi's expectations
It has been a joyous day for CBA shareholders following the release of the bank's full-year results. To briefly summarise, Australia's largest bank reported a net profit after tax of $8,843 million, representing a 19.7% increase year over year.
The significant jump in earnings was helped along by a large reduction in loan impairment expenses and provisions. According to the release, loan impairments were down 78% to $554 million.
All in all, these figures were reportedly in line with leading broker Citi. However, one metric that the broker wasn't expecting was the massive $6 billion buyback program. Instead, analysts had been expecting in the ballpark of $5 billion. A beat that is likely pushing CBA higher on the ASX today.
Commenting on the large off-market buyback, Citi analysts said:
It appears CBA's rationale for $6 billion revolves around the $6.2 billion of excess capital generated by divestments. Post buyback, CBA retains ~$5 billion of organically generated excess capital.
However, not everything was rosy in the eyes of the broker.
What's baked into CBA on the ASX?
While the share buyback will likely drive an increase in return on equity and dividends per share, Citi seems apprehensive about the forward tailwinds for the big bank.
More to the point, analysts relayed that CBA's revenue momentum was secluded to Australian mortgages and a strong New Zealand print. Meanwhile, contraction took place in its business banking revenue, despite growth in its lending amount.
On top of that, trading revenue dropped by roughly 40% as share market volatility subsided.
However, despite an overall in-line result, the revenue outlook appears more challenged than our expectations. Consequently, investors will be asking the question of at which point is excess capital and provisions in the share price?
Citi analysts
Based on the CBA share price at the time of writing, the bank is trading on a price-to-earnings (P/E) ratio of 21.7 times.
