The Commonwealth Bank of Australia (ASX: CBA) share price has risen around 2% since the company reported its FY24 results and has gone up 8% from 5 August 2024 following the global sell-off. Investors seem more confident about the bank's outlook than before the result.
With the dust settling, I think now is a good time to examine one of Australia's biggest businesses and consider whether the ASX bank share is a buy.
The bank announced several interesting numbers, so I think it's important to consider both the pros and cons.
Let's start with the good news.
Positives
Yesterday, I noted that the CBA net interest margin (NIM) stabilised in the second half of FY24. In fact, the NIM rose by 1 basis point (0.01%) in the second half compared to the first half.
One of CBA's key strengths is that significantly fewer of its mortgages come from brokers compared to the rest of the market. CBA grew its proprietary home loan mix to 66% for FY24, compared to the market of around 28%. More of its loans are directly with customers.
CBA share owners were rewarded with another dividend increase. The FY24 final dividend was $2.50 per share, taking the full-year dividend to $4.65 (up 3%).
Its position as Australia's leading bank continued to be underlined, with the number of retail transaction accounts increasing by 29% to 11.2 million and the total number of business accounts rising by 55% to 1.25 million.
The bank reported that 35.5% of Australians count CBA as their main financial institution, while 25.5% of businesses have the bank as their main bank. It is the number one bank in both of these statistics.
The balance sheet remains in a strong position, with the common equity tier 1 (CET1) ratio being 12.3%. That's comfortably more than its target operating range of over 11%.
The ASX bank share also said that its lending portfolio quality remains "sound" and "well-provisioned". The loan impairment expense decreased 28% year over year to $802 million, reflecting its "robust credit origination and underwriting practices, rising house prices and lower expected losses with consumer finance."
Negatives about CBA shares
It wasn't all positive for the business.
CBA reported that its cash net profit after tax (NPAT) declined 2% to $9.8 billion, and the statutory NPAT declined 6% to $9.48 billion. Operating expenses increased 3% while operating income was flat.
The ASX bank share reported that its percentage of home loans that were overdue by at least 90 days had increased to 0.65% at June 2024, up from 0.47% at June 2023. That's a significant increase, in my opinion.
While the bank increased its share of home loan net interest income, it lost 61 basis points (0.61%) of market share. CBA said that it maintained a disciplined approach to volume and margin, which is commendable, but I wouldn't want to see it continue losing market share, otherwise large competitors may gain scale advantages.
For most analysts, the biggest negative about CBA shares is the valuation. The ASX bank share is currently valued at 23x FY24's estimated earnings, so it's priced at a materially higher earnings multiple than the other major ASX bank shares of National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) which are trading on a mid-teen earnings multiple.
I'm not sure what precise premium I'd suggest CBA shares should trade at compared to the other banks, but its price-earnings (P/E) ratio does seem elevated. It's a great bank, but I'd personally give it a miss until it's approximately 20% lower than it is today, considering profit growth remains challenging.
