CBA shares tumble 3% on half-year profit decline and margin pain

The market hasn't responded positively to this banking giant's results.

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Commonwealth Bank of Australia (ASX: CBA) shares are under pressure on Wednesday morning.

In early trade, the banking giant's shares dropped 3% to $112.65.

This follows a broad market selloff on inflation concerns and the release of its half year results.

CBA shares under pressure

As we covered here earlier, CBA reported a modest 0.2% increase in operating income to $13,649 million but a 3% decline in cash net profit after tax to $5,019 million.

Management advised that its operating income reflects volume growth and higher volume-based fee income, offset by margin compression. CBA's net interest margin was down 6 basis points since the end of FY 2023 to 1.99%. This was driven by increased deposit price competition and deposit switching.

Australia's largest bank's cash profits were down 3% to $5,019 million after operating expenses increased 4% to $6,011 million. Management advised that this was due to inflationary pressures and additional spending on technology to support the delivery of strategic priorities.

One positive that is failing to lift the CBA share price today was its dividend. The CBA board decided to increase its fully franked dividend by 2.4% to $2.15 per share despite the profit decline.

What are analysts saying?

Analysts at Goldman Sachs have responded relatively positively to the bank's results. They said:

CBA's 1H24 cash earnings (company basis) from continued operations grew by 2.6% hoh to A$5,019 mn, and was -0.8%/+1.6% versus GSe / Visible Alpha consensus expectations (VAe). The quality of the result was good, with PPOP +1.6/+1.3% vs. GSe/VAe, largely on account of expenses. Versus GSe, the higher-than-expected BDD charge was entirely on account of our expectations of provisions releases, which CBA has remained conservative on this half. […] The interim ordinary DPS of A215¢ was higher than GSe (A210¢), and implies a 1H24 payout ratio of 72% GSe: 70%).

Goldman currently has a sell rating and $82.37 price target on CBA's shares.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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 Scott Phillips.

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