Category: Stock Market

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy? It announced its third quarter update yesterday.

All four major ASX banks have now announced their initial coronavirus credit provisions. National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Group (ASX: WBC) decided their provisions in their recent half-year results.

Its March 2020 quarter showed cash profit was down 44% compared to the first half of FY20’s quarterly average. It announced an additional credit provision of $1.5 billion relating to the coronavirus. 

Both the statutory net profit after tax and cash profit came in at $1.3 billion. The CBA share price rose by almost 2% on Wednesday.

The major ASX 200 bank also announced that it had agreed to sell a 55% stake in Colonial First State (CFS) for $1.7 billion. CBA will retain the other 45%. The sale price represents a multiple of 15.5x CFS’ pro forma net profit after tax (NPAT) of approximately $200 million.  

CBA said that it will make an estimated $1.5 billion gain on the sale. The transaction is expected to deliver an increase of around $1.4 billion to $1.9 billion of CET1 capital, resulting in a pro forma lifting of the group CET1 ratio of 30 to 40 basis points.

Is the CBA share price a buy right now?

Even after yesterday’s rise the CBA share price is still down 30% from the level it was trading at on 21 February 2020. 

If the bank can continue to make over $1 billion of profit each quarter then it could continue to be a strong bank with a decent dividend, even if the dividend is reduced somewhat this year.

With profit down by more than a third I think it’s pretty obvious that the CBA dividend will probably be cut by at least a third as well. Unless the economy suddenly and miraculously recovers over the next few weeks. This seems unlikely.

It’s very hard to say what the CBA earnings will do over the next 12 months. It’s also hard to estimate what the dividend and share price will do. But profits are likely to be lower with the RBA interest rate so low. I can think of plenty of ASX shares I’d rather buy first.

More reading

• Negative interest rates coming? Here’s what it would mean for ASX shares
• ASX 200 up 0.35%, CBA gives Q3 update
• This is the best ASX big bank stock you can buy right now
• 4 top ASX shares to invest $4,000 into immediately
• How can the ASX 200 soar with rising unemployment?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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On Wednesday the S&P/ASX 200 Index (ASX: XJO) bounced back from a sharp decline in the morning to record a solid gain. The benchmark index climbed 0.35% to 5,421.9 points.

Will the market be able to build on this on Thursday? Here are five things to watch:

ASX 200 set to tumble.

It looks set to be a poor day of trade for the ASX 200 on Thursday. According to the latest SPI futures, the benchmark index is expected fall 1% or 53 points at the open. Over on Wall Street the Dow Jones fell 2.2%, the S&P 500 dropped 1.75%, and the Nasdaq index fell 1.55%. Investors were selling shares after Fed Chairman Jerome Powell warned that more needs to be done to help the U.S. economy.

Xero full year results.

All eyes will be on the Xero Limited (ASX: XRO) share price today when the cloud-based business and accounting software provider releases its full year results. In the first half of FY 2020 Xero delivered a 32% increase in operating revenue to NZ$338.7 million and surpassed 2 million subscribers. Investors will no doubt be keen to see if the pandemic has impacted its growth.

Oil prices lower.

Energy producers such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could be dropping lower today after oil prices weakened. According to Bloomberg, the WTI crude oil price is down 0.5% to US$25.50 a barrel and the Brent crude oil price has fallen 1.8% to US$29.69 a barrel. Oil prices fell despite the U.S. revealing a surprise crude stock drawdown.

Gold price pushes higher.

Australian gold miners including Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) could be pushing higher on Thursday after a strong night for the gold price. According to CNBC, the spot gold price is up 0.95% to US$1,722.80 an ounce after Jerome Powell signalled more stimulus in the United States.

Qantas on watch on Virgin Australia news.

The Qantas Airways Limited (ASX: QAN) share price will be on watch today after the Queensland government threw a lifeline to rival Virgin Australia Holdings Limited (ASX: VAH). On Wednesday afternoon Queensland Treasurer Cameron Dick revealed that state-owned Queensland Investment Corporation will make an official bid for a stake in the airline. Mr Dick said: “This is a competitive space, but Queensland is a serious contender and our discussions with the administrators have been making progress.”

Returns as of 7/4/2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More reading

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• ABS reveals overseas travel arrivals plummeted a massive 99% in April
• How to use your superannuation to become a millionaire
• ASX stock of the day: This ASX airline share jumped 45% today on expansion speculation
• This ASX 200 gold share is making the most of the gold rush

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