Commonwealth Bank (CBA) - Operationally sound quarter

Commonwealth Bank provides retail and commercial banking services in Australia, New Zealand, and internationally. Commonwealth Bank of Australia was founded in 1911 and is based in Sydney.

‍

Commonwealth Bank reported March-quarter cash earnings in line with market expectations, buoyed by revenue growth of 2% quarter-on-quarter(QoQ) after adjusting for fewer days in the period, versus headline growth of1% QoQ, and what the bank described as a "stable" net interest margin (NIM). Ord Minnett’s calculations suggest NIM actually expanded two basis points to 2.10% after adjusting for the delay in passing through the Reserve Bank's February cut in official interest rates to borrowers.

‍

The lender noted its hedging portfolios were particularly sensitive to three and five-year swap rates, however, and these had declined "materially in recent months". This could squeeze its NIM in FY26 and FY27 if official interest rates were to be cut deeper and faster than currently expected by the market. The balance sheet remains rock-solid, while asset quality deteriorated, as it has at the other big banks.

‍

Another operationally sound performance from the business does nothing to change Ord Minnett’s negative view on the stock, however, as the bank’s fundamentals bear no relation to the extreme valuation multiples of CBA shares. We thus reiterate our Sell recommendation on CBA.

‍