With Commonwealth Bank of Australia (ASX: CBA) shares recently hitting a record-high, it's clear to see that the market is expecting a strong half-year result from the banking giant later this month.
Ahead of the release on 15 August, let's take a look to see what analysts are expecting from Australia's largest bank.
CBA half-year results preview
According to a note out of Goldman Sachs, its analysts expect a strong but slightly below consensus profit result from the bank. It commented:
1H23E cash earnings from continued operations (pre-prefs, pre-NRIs) up 7.6% on pcp to A$5,108mn vs. Visible Alpha consensus A$5,165mn.
Despite this, the broker believes CBA will pay a larger than expected interim dividend. It expects an interim dividend of $2.12 per share, versus the $2.09 per share consensus estimate.
What will drive this result?
Goldman is expecting CBA's deposits to have been a major tailwind for the bank's net interest margin (NIM) during the half. Though, it has warned that this could soon become a headwind. The broker explained:
Amongst the major banks, CBA has the highest skew towards deposit funding (CBA at c.70% vs. peers at c.60%), which our product pricing analysis suggests should have been a tailwind over 1H23, contributing to our 24bp hoh forecast expansion in CBA's 1H23E NIM. However, we have witnessed some more aggressive deposit repricing in late CY23/early CY24 and we will be keen to understand the extent to which this — along with the impact on deposit mix — will have on NIMs over the remainder of CY23.
What else should you look out for?
With the cash rate increasing there are concerns about bad and doubtful debts (BDDs) increasing. However, Goldman Sachs appears confident that this won't be the case with this result. It adds:
While cash rates rose 2.25% over the course of CBA's 1H23, we think the impact on CBA's BDD charge will be fairly muted, to date. However, we are keen to hear from management on i) any exposures where they have witnessed some deterioration, ii) the sensitivity of the banks' provision models to deteriorating macroeconomic conditions (GDP growth, unemployment and house price), and iii) how capital levels might respond if economic conditions start to deteriorate over the course of CY23.
Should you buy CBA shares?
Unfortunately, for valuation reasons, Goldman isn't recommending CBA shares to its clients.
It currently has a sell rating and $92.56 price target on them. This implies material downside for the bank's share price from current levels.
Though, it is worth noting that this has been the case for some time and hasn't been able to prevent CBA shares from scaling new heights this year.
