Why is the CBA share price having such a strong start to the week?

The Commonwealth Bank of Australia (ASX: CBA) share price is in the green in early morning trade, up 0.4%.

CBA shares closed on Friday trading at $101.41 and are currently trading for $101.82.

The other big bank shares are all heading in the other direction, dipping into the red, as witnessed by the 0.3% drop in the S&P/ASX 200 Financials Index (ASX: XFJ).

What’s influencing the CBA share price today?

Atop wider market forces, ASX investors are also scrutinising analysts’ forecasts on what to expect when the bank delivers its results for the 2022 financial year (FY22). Those will be reported this Wednesday.

While estimates vary, many analysts are expecting CBA to report strong results for the 12 months. This comes as the second half of FY22 has seen inflation levels soar and the Reserve Bank of Australia (RBA) ratchet up interest rates for the first time in a decade, taking them from 0.10% to the current 1.85%, with more hikes expected.

As for likely impacts on the CBA share price, Tribeca Investment Partners portfolio manager Jun Bei Liu said investors are likely to be more focused on what’s ahead than on metrics already largely priced.

According to Liu (quoted by The Sydney Moring Herald):

I think for the market, the issue is that all of these results are being pretty much in the rear view mirror. It’s really about the commentary about how they see the credit growth and some of those things going forward, what they see in the underlying market at this point, rather than what the result is indicating. That’s going to be very important.

Liu noted that at the current CBA share price, the bank trades at a premium to its competitors (CBA trades at a price-to-earnings (P/E) ratio of 19 times).

“Now clearly, there’s flight to quality. So, for this business to maintain its premium, it’s incredibly important for it to demonstrate leadership,” she said, adding the bank needs to demonstrate that “it’s above the system growth”.

“So, if they disappoint on some of those growth stats, the share price will come off quite meaningfully because it is at such a premium,” Liu said.

As for Goldman Sachs, the broker is forecasting a 9.7% increase in full-year cash earnings to $9.49 billion. It expects the full-year, fully franked dividend to come in at $3.80 per share, which would be an increase of 8.6% year on year.

Despite that relative strength for FY22, Goldman Sachs retains its sell rating with a $90.45 target for the CBA share price.

One-off profits and losses for FY22

In a non-price sensitive release this morning, meaning it’s unlikely to have a material impact on the CBA share price, the big bank updated investors on one-off items impacting its FY22 results.

On the plus side of the ledger, in FY22 CBA sold its 10% shareholding in the Bank of Hangzhou Co to Hangzhou Urban Construction & Investment Group Co and Hangzhou Communications Investment Group Co for a $516 million pre-tax gain. That’s recognised in its cash net profit before tax (NPAT) and increased the bank’s CET1 capital ratio by 0.35%.

CommBank announced the completion of the transaction on 30 June. The CBA share price edged higher on the day.

On the negative side of the ledger were one-off expense items of $445 million (pre-tax). That’s comprised of $389 million related to the acceleration of amortisation on capitalised software, along with $56 million relating to changes in CommBank’s operating model

CBA share price snapshot

The CBA share price has enjoyed a strong rebound since the 17 June lows of $87.26 per share and is now down 1% in 2022.

That compares to a year-to-date loss of 8% posted by the S&P/ASX 200 Index (ASX: XJO).

The post Why is the CBA share price having such a strong start to the week? appeared first on The Motley Fool Australia.

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More reading

• Own CBA shares? Here’s what to expect from the bank’s FY22 results
• Which ASX 200 shares will prove to be dividend heavyweights this earnings season?
• First mover: CBA share price rises amid interest rate changes
• Here is the RBA interest rate outlook according to ASX 200 banks
• How are ASX 200 bank shares responding to the RBA rate increase?

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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