Valuation in focus as Australia’s biggest bank reports
Australia’s largest bank is set to announce its financial results, six months after a similar earnings announcement sent its shares tumbling.
Commonwealth Bank will report its results for the six months to December 31 on Wednesday morning; This announcement will be closely watched, both for its financial health and for what it says about the health of the banking sector and the national economy.
Consensus estimates are for CBA’s revenue to increase 5.05 percent annually to $14.81 billion, while earnings per share will increase 1.11 percent annually to $3.10.
After CBA announced its 2024/25 results on August 13, its shares fell 5.4 percent to $169.12 from $178.80.
They have remained below that level since then, changing hands at $159.17 on Tuesday afternoon; They decreased by 0.45 percent compared to Monday and by 10.9 percent in the last six months.
This underperformance came after a spectacular turnaround period.
CBA shares reached a record high of $192 in June after changing hands at $100 from mid-2021 to the end of 2024.
IG analyst Tony Sycamore said the August 2025 sell-off occurred despite the bank posting solid numbers, including increasing full-year profits by 4.0 percent to $10.25 billion and keeping net interest margin steady at 2.08 percent.
“When you are priced for excellence, a result that is merely in line with expectations without sparkling earnings growth often feels like a disappointment,” Mr. Sycamore said.
He said there were also concerns about profit margin shrinking due to fierce competition for deposits.
Mr Sycamore said CBA’s first-quarter trading update on November 11 had raised investors’ concerns despite the bank’s profits rising 2.0 per cent to $2.6 billion.
Core earnings of $3.9 billion missed consensus by about two percentage points, mostly due to unexpected costs, while net interest margin was reported to be slightly lower.
Net interest margin is used to measure the profitability of banks, measuring the difference between income from loans and interest expenses paid to depositors.
Morningstar market strategist Lochlan Halloway said CBA remains expensive despite the nearly 20 percent drop in its shares.
CBA was trading at a price-to-earnings ratio of 26.7 on Tuesday, making it the most expensive bank in the developed world by market capitalization.
Its Australian peers trade with a PE ratio in the teens, as do US banking giants such as Morgan Stanley and Bank of America.
Mr Sycamore said the market would seek reassurance that the sector remained healthy, with solid loan volumes, low bad debts and a strong capital position.
“As the only big four banks reporting this cycle, CBA is leading the way,” he said.
In analyzing CBA’s earnings, Mr. Halloway said Morningstar will focus on margin swaps used to support loan growth, progress on loans growing outside of broker channels, and deposit mix, particularly low-cost transaction accounts that provide a funding advantage.
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