Stock Pick

  • Why the Commonwealth Bank share price is the best buy among the Big 4 banks

    woman holding large pink piggy bank

    The Commonwealth Bank of Australia (ASX: CBA) may emerge from the coronavirus pandemic as the best bank to invest in among its Big 4 cohorts: Australia and New Zealand Banking Group Limited (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB).

    Could it be the big four bank to buy? 

    No deferred dividend or capital raising 

    CBA’s strong capital position enabled the bank to deliver 1H20 interim dividend of $2.00 per share or $3.5 billion to its ~830,000 shareholders. A much-needed cash benefit to the economy. 

    Comparing this to the likes of Westpac and ANZ, which both deferred their interim dividend, and NAB, which offered its existing shareholders more capital in its $3.5 billion capital raising yet still opted to pay them a small interim dividend. 

    Despite paying $3.5 million in dividends, Commonwealth Bank was still able to maintain a March CET1 (Common Equity Tier 1) ratio of 10.7% above APRA’s ‘unquestionably strong’ benchmark of 10.5%, notwithstanding the timing of the 1H20 dividend payment and additional COVID-19 and remediation provisions. 

    I believe Commonwealth Bank’s commitment to paying a dividend in today’s uncertain climate – without having to raise additional capital, while also meeting APRA’s stringent capital requirements – is a reflection of its position as the leading big four bank. 

    Sturdy relative earnings

    Commonwealth Bank demonstrated relatively sturdy earnings compared to its peers. Cash net profit after tax for the big four banks in comparison to 1H19 was:

    • CBA down 44% 
    • Westpac down 70%
    • NAB down 51.4%
    • ANZ down 60%

    Commonwealth Bank is well placed to manage the challenging market conditions, with strong balance sheet settings and a favourable business mix. The group is 70% deposit funded, underpinned by the bank’s peer lending franchise strength in stable household deposits. Deposit balances grew strongly in Q3, influenced by growth in retail/SME deposits and corporate clients drawing down on funding lines and placing these funds into CBA deposits for liquidity purposes. 

    Is it a buy?

    There are a number of risks and scenarios that could play out following COVID-19. Commonwealth Bank’s report outlines key drivers in the housing market including unemployment, underemployment, changes to income and house prices.

    Government assistance programs such as the JobKeeper scheme have been able to prop up the economy and employment levels. However, the implicit end of JobKeeper combined with structural changes in Australian sectors and ongoing China trade tensions could see economic conditions worsen. Despite a potentially weaker economic outlook, I would still consider Commonwealth Bank the better of the big four banks, given its earnings and commitment to dividends. 

    While banks have traditionally been the ‘go to’ shares to hold for dividends, check out our free report for ASX200 shares that have been able to grow earnings amidst the coronavirus for safe and reliable dividends.

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    Motley Fool contributor Lina Lim 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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  • Stock Futures Mixed on Vaccine Doubts; Yields Down: Markets Wrap

    Stock Futures Mixed on Vaccine Doubts; Yields Down: Markets Wrap(Bloomberg) — U.S. and European equity futures were mixed along with stocks in Asia as reports on Moderna Inc.’s coronavirus vaccine added to concern that a successful way to beat the pandemic remains a long way off. Treasuries held an overnight advance.Japan and India saw the bulk of gains in a mixed Asian session, with Shanghai and Hong Kong in the red. U.S. futures nudged up, while European contracts dropped. The S&P 500 lost ground in the final hour of trading Tuesday, and closed down. Riskier assets had started the week on the front foot after Moderna had fueled hopes for a coronavirus vaccine, but investors are struggling to maintain the optimism. Crude oil slipped below $32 a barrel in New York.“We are being fairly cautious,” Shawn Matthews, founder and chief investment officer at Hondius Capital Management LP, said on Bloomberg TV. “If you look at the economy, it feels like it’s the summer of hope right now, where everyone is hoping it’s going to turn around.”Large money managers from Capital Group Inc. to BlackRock Inc. are keeping their faith with equities despite warning calls from some corners of Wall Street. Still, headwinds remain for stocks, not least a deteriorating U.S.-China relationship. In a further sign of tightening scrutiny on capital flows to the Asian nation, Nasdaq is set to unveil new rules for initial public offerings including tougher accounting standards that will make it more difficult for some Chinese companies to list on the exchange.Walmart and Home Depot both suspended their outlooks for the year, the latest companies to show the difficulties in predicting the road ahead. Earlier, Federal Reserve Chairman Jerome Powell reiterated during a Senate hearing that the central bank is ready to use all the weapons in its arsenal to help the U.S. economy endure the coronavirus pandemic.Meantime, the New Zealand dollar rose after comments from central bank governor Adrian Orr suggested any move to bring interest rates below zero remain some way off. In Japan, Tokyo Stock Exchange was among stocks which surged amid speculation that it may be a contender to join the Nikkei 225 equity index.These are some of the main moves in markets:StocksFutures on the S&P 500 rose 0.4% as of 7 a.m. in London. The gauge fell 1.1% on Tuesday.Japan’s Topix index rose 0.6%.Hong Kong’s Hang Seng fell 0.2%.Shanghai Composite dipped 0.4%.South Korea’s Kospi added 0.4%.Australia’s S&P/ASX 200 Index gained 0.3%.Euro Stoxx 50 futures dropped 0.4%.CurrenciesThe yen was little changed at 107.75 per dollar.The offshore yuan held at 7.1153 per dollar.The euro bought $1.0945, up 0.2%.BondsThe yield on 10-year Treasuries remained at 0.69%.Australia’s 10-year yield fell three basis points to 0.95%.CommoditiesWest Texas Intermediate crude was at $31.99 a barrel, up 0.1%.Gold rose 0.2% to $1,747.63 an ounce.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • ASX 200 ends the day higher, EML share price rises another 12%

    ASX 200

    The S&P/ASX 200 Index (ASX: XJO) ended the day higher by 0.24% to 5,573 points after being down in the morning.

    The New South Wales government is now encouraging people to visit regional NSW in another sign of areas of the country opening up.

    Strongest ASX 200 performance

    The biggest rise within the ASX 200 belonged to EML Payments Ltd (ASX: EML). The EML share price went up 12% today.

    It gave a trading update which included solid growth in certain sections of the business. While the gift & incentive section is suffering, other areas are still growing nicely.

    Despite everything that’s going on the company managed to generate $2.7 million of earnings before interest, tax, depreciation and amortisation (EBITDA) including the PFS acquisition. It ended April 2020 with $125 million of cash.

    Australian Agricultural Company Ltd (ASX: AAC) moo-ves upwards

    The cattle company announced its FY20 report today.

    AAC announced that Wagyu beef sales were up 20% after price and volume growth. The company generated an operating profit of $15.2 million compared to a loss of $22.9 million last year.

    It managed to generate its strongest operating cashflow in three years of $20.1 million.

    AAC said that COVID-19 had a negligible impact on FY20 results, the impact on FY21 is uncertain and couldn’t be reasonably estimated.

    The business saw its share price rise 12.8% today.

    Fletcher Building Limited (ASX: FBU) lets go of some workers

    Fletcher building provided a COVID-19 update today.

    It recorded an earnings before interest and tax (EBIT) loss of around $55 million in April, which excludes significant items. The loss was made in New Zealand whereas Australia was a breakeven result.

    As a result of the difficult conditions, Fletcher Building is reducing its workforce by around 10% which equates to around 1,000 jobs in New Zealand and another 500 in Australia.

    The share price of the construction company dropped 2.8% today.

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    Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia has recommended Emerchants Limited. 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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