Commonwealth Bank of Australia (CBA)

By Jason Fittler

CBA announced a record full-year profit result of $6.9bn.

The result was up 4% on the 2011 fiscal year.

It’s fully franked final dividend of 197 cents a share was ahead of expectations.

Full-year dividends stood at a record 334 cents a share fully franked, reflecting a 75% payout ratio.

The record result contained no big surprises and we retain our positive view on the bank.

CBA produced earnings per share of $4.49 which was an increase of 2%, due to a 1.7% increase in share count.

Return on equity (ROE) eased 90 basis points from 19.5% to 18.6%.

CBA did manage to grow its retail and business banking, up $30bn to $355bn.

Customer deposits as a proportion of total group funding improved to a new high of 62%.

Loan growth was moderate, up 2%. CBA rose 51 cents (0.92%) to $56.05.

However, at 3.0 time’s net tangible asset value and 12.8 times price to earnings it is one of the most expensive banks in the developed world.

CBA's market cap has now hit US$94 billion, for which you could buy Standard Chartered, Credit Suisse and DBS (Development Bank of Singapore).

CBA may continue to be supported if asset allocation and fund flows continue to be put toward stable higher yielding stocks, but its valuation multiples now appear stretched.

It seems that global income investors, scarred by US and European banks, remain sceptical that they are sustainable, however, Australian banks have learnt from the mistakes of US and European banks. They have changed their funding sources, strengthened balance sheets and benefit from a strong sovereign.

This should help underpin current high dividend payments and ensure dividend growth. These are the best bank yields at the moment, the yields are higher than 6%.

I expect Australian Banks will hold up as the rest of the world chases the yield.

For more information on Commonwealth Bank of Australia (CBA) please contact us on 07 4771 4577.