The relative outperformance of the Commonwealth Bank of Australia (ASX: CBA) share price is under threat as one leading broker believes the stock will slump this Wednesday.

This is when Australian’s largest ASX-listed bank will release its quarterly earnings and update.

The news will be ugly, according to Morgan Stanley, which is predicting a 70% to 80% chance that the stock will fall relative to the S&P/ASX 200 Index (Index:^AXJO) and keep underperforming for next two months.

Cut above the rest

CBA shares have fallen 24% since the start of 2020 as the COVID-19 pandemic rocked the economy, but that’s better than the other ASX big banks.

The National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share prices have tumbled by over 30% each.

The three laggards have reported dismal first half profits in the last two weeks, so the bad earnings news from CBA isn’t unexpected although that may not be the bank’s biggest problem.

Reality check

“We expect a ~30% fall in cash profit, an A$1bn COVID-19 provision and a CET1 ratio of ~11.2%,” said Morgan Stanley.

“While the profit decline and higher provisioning are unlikely to surprise investors in the current environment, we think the trading update will lead to less confidence in the capital and dividend outlook.”

This will make CBA’s market premium harder to justify.

CBA losing its crown

The bank has long held the crown of being the best quality bank on our market and investors are happy to pay a higher multiple for the stock.

For instance, CBA trades on a FY21 forecast price-earnings (P/E) multiple of 15 times and a price-to-book value (P/BV) of 1.5 times, based on Morgan Stanley’s estimates.

This compares to the average P/E of 11 times and P/BV of around 0.8 times for its peer group.

Foolish takeaway

This is why the broker thinks CBA is more vulnerable to a de-rating if the cycle deteriorates further, and offers less upside in a rebound scenario.

Morgan Stanley rates the stock as “underweight” (meaning a “sell”) with a price target of $57.50 a share.

If you want to find out more about bank valuations and the importance of P/BV, click here to read my weekend article on the cheapest bank on the ASX.

But of course, price and quality usually move in opposite directions. Those willing to pay for a relatively safer stock in the sector may want to consider Macquarie Group Ltd (ASX: MQG) instead – at least until more coronavirus water passes under the banking bridge.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, and National Australia Bank Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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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The changes in our behaviour during the COVID-19 lockdown has created pandemic winners and losers up and down the S&P/ASX 200 Index (ASX: XJO).

Some of these are obvious. Companies like Qantas Airways Limited (ASX: QAN) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are undoubtedly going to see a fall in full-year earnings. 

However, some are less obvious. Some companies have profited greatly during the pandemic while others may be in for a structural change to their earnings.

3 pandemic winners

ASX gold mining companies have benefited greatly from the rise in the gold price. The Evolution Mining Ltd (ASX: EVN) share price has been one of the great winners. Its share price is up 43.7% year to date (YTD). In fact, it has risen by over 60% since its low point on 16 March. Evolution has benefitted from both the rising gold price and the low Australian dollar. It is regularly one of the top 3 traded gold shares by volume on the ASX. 

JB Hi-Fi Limited (ASX: JBH) is another pandemic winner. The company has seen a rise in earnings due to the short-term rush for work-from-home accessories. Laptops, printers, monitors, keyboards. All items that are bringing trade to JB Hi-Fi’s network of stores. The company reported a 6.9% growth in YTD Q3 sales for JB Hi-Fi Australia. This is up from 4.1% during the comparable period last year.

Ansell Limited (ASX: ANN) is the Australian manufacturer of personal protective equipment (PPE) such as gloves and surgical masks. The Ansell share price has risen by 3.5% YTD. It hit a low point on March 23 and has risen by 41% since then. Ansell is one of the great pandemic winners as it is a company built for crises such as this.

3 pandemic losers

The Bapcor Ltd (ASX: BAP) share price is down by 20% YTD. Given the restrictions in place during the national lockdowns, this is to be expected. However, Bapcor may also suffer a structural reduction in earnings if work-from-home becomes widespread after the resumption of normal work.

The Oil Search Limited (ASX: OSH) share price has been devastated by the pandemic. It is currently down by 59% YTD. The company has been hit not only by the collapse in demand but also by the glut in supply from the Saudi-Russian oil price feud. The company is currently performing well in a fight for survival. Nevertheless, it will be interesting to see if it emerges as the same company it was in January.

Transurban Group (ASX: TCL) has seen its average daily traffic (ADT) percentage drop by 44% across all Transurban assets in the final week of April compared to the same period last year. If work from home becomes permanent, the company is likely to see a structural reduction in ADT% which may call into question other expansion plans. 

More reading

• ASX 200 storms 1.2% higher: Cochlear reports 60% sales decline, Webjet jumps 22%
• Are ASX retail shares undervalued today?
• 3 ASX 200 shares to watch this week
• Where to invest $20,000 into ASX shares for strong long term returns
• Are there any safe havens in ASX aviation shares?

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Ansell Ltd. 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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Shareholders have overwhelmingly voted against executive pay packets at AMP Limited (ASX: AMP). Last week’s annual general meeting saw 67% of shareholders vote against the board’s remuneration report for 2019.

Chief Executive Francesco De Ferrari was paid approximately $4 million in base salary and short-term rewards. Non-executive directors were paid $3.79 million as a group. 

The wealth manager delivered a $2.5 billion loss last financial year and did not pay a final dividend. The AMP share price is down around 35% in the past 12 months and is currently trading for $1.42.

What does the vote mean?

The shareholder vote does not prevent these payments being made, but puts pressure on the board. The ‘two strikes’ rule means a vote on a board spill will be triggered if more than 25% of shareholders vote against two remuneration reports. 

AMP struggles with legacy issues

AMP is still making amends for practices uncovered in the Royal Commission.The wealth manager continues to repay customers for inappropriate advice and for charging customers for advice never received. In its most recent financial year, AMP paid $190 million to clients in misconduct fees. Impairments of $2.35 billion were recorded to address legacy issues.

AMP failed to pay either interim or final dividends last year as its wealth management business sagged. Chairman David Murray told shareholders the decision was disappointing, but in the long-term interests of the company. He  responded to shareholder criticism of executive pay packets by saying the pay reflected the size of the challenge ahead for AMP. 

Business reset 

The wealth manager is undertaking a fundamental reset of its business. Foundational steps in a three-year transformation are underway, but there is much work to be done. CEO De Ferrari said, “2019 was a year of fundamental reset for AMP. We rebased our business, set out a new group strategy, and strengthened our capital base to accelerate the execution of our strategy.”

AMP has shelved the divestment of its New Zealand wealth management operations due to the economic disruption of COVID-19. Offers did not meet expectations, so AMP has decided to retain and grow the business. 

AMP is proceeding with the sale of AMP Life. A deal was struck to sell the business to Resolution Life last year for $3 billion. Payment of the next dividend is dependent on the completion of this sale. Multiple complications have been encountered during the sale process. 

Foolish takeaway

The shareholder strike is an embarrassing blow for AMP. Previous voluntary cuts to fees were not enough to stave off shareholder anger. In April, AMP revealed at least $19.4 billion in outflows in the first 3 months of the year. The wealth manager better hope its transformation strategy brings results. 

More reading

• Is this the next major ASX financial institution to raise capital?
• In a further blow to millions of retirees, leading portfolio manager says ASX banks could slash dividends by more than half

Motley Fool contributor Kate O’Brien 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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