A Famous book called TOP STOCKS by Martin Roth in Australia which just had its 28th edition last September describes that the Commonwealth Bank of Australia is the only company that has met the criteria for the book over 28 years. That means it is publicly listed during the time and it is a top 500 Australian company. They should have 28 years of profits and dividend payments. In addition to these, the ROE of the company exceed more than 10% and a debt to equity ratio is less than 70% over the 28 years. I believe the company anyone who is interested in Australian share has to look into. The company is based in Syndey and was founded in 1911. It is one of Australia’s largest banks, provides home loans, personal loans, credit cards, and is the largest holder of deposits. Commonwealth Securities is Australia’s largest online stockbroker. On the other hand, anyone in Australia knows this bank and can look at it so it can be already expensive to buy. Let’s see the position of the company.
2017 | 2018 | 2019 | 2020 | 2021 | |
Operating income (A$m) | 25386 | 24914 | 23579 | 23761 | 24156 |
Net interest income (A$m) | 17543 | 18342 | 18224 | 18610 | 18839 |
Operating expenses (A$m) | 10626 | 10995 | 10824 | 10895 | 11359 |
Net income (A$b) | 9.93 | 9.33 | 8.57 | 9.59 | 10.18 |
Earning per share (EPS) (cent) | 563.4 | 510.6 | 465.78 | 421.50 | 488.59 |
Dividend (cent) | 429 | 431 | 431 | 298 | 350 |
Net tangible assets per share (A$) | 30.79 | 33.14 | 34.88 | 36.8 | 40.49 |
Net interest income to total income (%) | 30.9 | 26.4 | 22.7 | 21.7 | 22.0 |
Cost to income ratio (%) | 41.9 | 44.1 | 45.9 | 45.9 | 47.0 |
ROE (%) | 15.7 | 13.7 | 12.0 | 10.3 | 11.5 |
ROA(%) | 1.0 | 0.9 | 0.8 | 0.7 | 0.8 |
As Top Stock describes, banks are somewhat different from other companies. EBIT and debt to equity ratio have little relevance for them. These numbers are taken from the Top Stocks 2019-2022 except for net income.
Here, operating income is used instead of sale revenues (=total interest income – total expense + other income such as bank fees, fund management fees and income from other businesses). Banks borrow money and lend it to businesses, homebuyers, other borrowers, the difference is knowns as net interest income. Operating expenses are all the costs of running the bank.
The numbers are surprisingly flat. I am not sure how we treat 2020 and 2021 but the Australian economy is flat so I think it is reasonable. But at least, they are stable. EPS are not good last three years. The bank pays out 71-72% of EPS as dividends to investors in 2020 and 2021.
Net tangible assets per share are the theoretical value of the company per share. We could see this is higher than the actual price but if we want to see this is reasonable, maybe I would need to compare with other banks, I will need to do this another time. The net tangible assets per share of CBA is gradually growing last 5 years even under the COVID-19.
Net interest income to total income (%) shows how the bank diversifies the income source other than traditional banking business, so surprisingly the CBA has only 20% or so in the last three years. The cost to income ratio (%) shows how the company manage the cost. Since the bank has a high cost including numerous branches, their computer system and many stuff. The company is managing good but the number should be compared with other banks. This should be my homework as well.
ROA should be usually lower for banks since they have enormous assets. The ROE of the company was over 10% last 28 years.
The share price of the company was about $80 per share in the last 5 years but since June 2021, it exceed $100 per share. If you need a 3-3.5% dividend income, the company is good. The company can keep ROE of 10% and can manage well in the past. Also, if you think Australia will grow well in the future, the share price of CBA should also keep up in the long run. Also, the share price would keep up with inflation since their business is all over Australia. I believe the company should be for long term investment.