The country’s largest bank posted a record $10.25 billion profit, only to see its stock drop $12, wiping about $15 billion in market value within days.
Speaking to ABC Radio, chief executive Matt Comyn said his team would focus on “things we can control”, including “doing kind of a great job serving and customers continuing to grow”.
While boosting the bank’s technological capabilities, Comyn said CBA “should also” be able to deliver a “reasonable rate of return to our shareholders”, adding he is “conscious of share price performance”.
“More than 10 million Australians own the Commonwealth Bank, either directly or indirectly,” he said. “And it’s really about thinking about the long term of that performance versus a performance on a particular day.”
But market pundits warn the latest slump could point to a longer-term trend.
The largest weight in the ASX 200, CBA exceeded a $300 billion valuation just months ago – the first ASX-listed company to do so – after its share price surged more than 30 per cent over the past year to above $190. As of Friday morning, CBA was trading at $166.
Matthew Davison, portfolio manager at Martin Currie Australia, rated the stock a “sell” or at least a “hold underweight”.
“CBA trades at a significant premium to our valuations and to its key peers – nearly 4x price-to-book and 29x price-to-earnings. This premium is disconnected from the ROE and growth trends we see in these results and has been disproportionately driven by passive flows,” Davison said.
“Net interest margins are stable for now, but deposit competition is intensifying, and the tailwind from prior interest rate rises is fading. Over time, valuations remain very vulnerable to any shift in sentiment around credit risk – something that would also affect risk-weighted assets and credit charges. History suggests there’s also a risk that liability margins worsen,” he added.
Davison said current valuations are stretched, rating the market a “four on a scale of one to five for expensiveness”.
“Within the banks, we prefer ANZ. ANZ still trades at a discount to peers largely due to sentiment rather than fundamentals, and we think the new CEO has the opportunity to improve cost discipline and close that gap.”
AMP’s Shane Oliver said CBA’s results are “still great”, but “no longer shooting the lights out relative to market expectations and other banks”.
“After its share price roughly doubled over the two years up to its June high, investors are starting to take profits, with this week seeing a third leg down,” Oliver said.
“This could be just another correction but after such a big run, it could be more fundamental as investors rebalance to other parts of the market that have not performed as well.”
In July, Morningstar declared CBA “around 75 per cent overvalued”. Strategist Lochlan Halloway said financials generally lacked value, adding “the market is being a bit irrational with the pricing”.
CBA’s elevated share price has been linked to the buying power of superannuation funds, which have come under fire for distorting equity markets.
“The big issue in Australia is the concentration of industry funds. Whenever you get concentration of power, you get trouble,” PM Capital’s Paul Moore said. “The problem is, the industry super funds in Australia have supercharged the passive impact.”
Betashares executive director Cameron Gleeson echoed that view: “Absolutely right, big super is the gorilla in the room. Your Future, Your Super has changed the way these fundamentally active managers have had to manage their portfolios.”
Gleeson told InvestorDaily that last year’s attempts by funds to reduce underweights in key financial stocks triggered heavy buying, pushing CBA to lofty valuations.
