The Commonwealth Bank of Australia (ASX: CBA) share price is rising on Thursday.
In morning trade, the banking giant’s shares are up 0.7% to $102.19.
This compares favourably to a decline of 0.8% by the ASX 200 index.
Why is the CBA share price rising?
Investors have been bidding the CBA share price higher today after responding positively to the bank’s third-quarter update.
For the three months ended 31 March, compared to the quarterly average during the first half, Australia’s largest bank reported a 1% decline in operating income to $6,103 million and flat cash earnings of $2,400 million.
This reflects 3% volume growth and higher non-interest income, which helped offset continued margin pressure from elevated swap rates, mix effects, and competition.
How does this compare to expectations?
As you might have guessed with the CBA share price outperformance today, this result was better than the market was expecting.
For example, the team at Goldman Sachs note that the bank’s quarterly cash earnings are run rating 10% ahead of its second half forecasts. It said:
Cash profit from continuing operations in 3Q22 of c.A$2.4 bn was flat on the 1H22 quarterly average but run-rating c.10% ahead of what is implied by our 2H22E forecasts.
And while the broker acknowledges that a bad and doubtful debts (BDDs) benefit helped drive the stronger than expected result, it highlights that its pre-provisioning operating profit (PPOP) was still ahead of expectations. Goldman said:
The better-than-expected cash earnings result was largely due to lower-than-expected BDDs (benefit of A$48 mn), but PPOP was also run-rating c.4% above our implied 2H22E forecasts on better performance on costs (NIMs and revenues largely in line with GSe).
CBA smashes consensus estimates
CBA also outperformed Citi’s estimates, which were already sitting 3% ahead of consensus forecasts. The bank’s cash profit was 6% ahead of the broker’s expectations and 9% ahead of the analyst consensus estimate.
Another positive was CBA’s net interest margin (NIM). While the bank didn’t reveal what its NIM was, Goldman Sachs estimates that it was 1.87%. Although this is down from 1.92% during the first half, it is ahead of Goldman’s second half estimate of 1.86%.
All in all, CBA has been given the tick of approval for its third quarter. However, at this stage, both Citi and Goldman don’t see enough value in the CBA share price to recommend it as a buy.
They continue with their sell ratings. Though, that could change once they have updated their financial models.