Following a trading update, Morgans downgrades earnings forecasts for Commonwealth Bank and lowers the rating to Reduce from Hold.
On a run-rate basis, the unaudited first quarter cash profit is -7.5% softer than the broker forecast for FY21. It’s considered the quarter had been impacted by a collective provision top-up that is not expected to be repeated in coming quarters.
Morgans lowers cash EPS forecasts by -3.8% and -4.8% for FY22 and FY23, respectively. This is largely due to lower net interest margin (NIM) forecasts and higher operating expense forecasts.
The first quarter NIM is lower than the second half FY20. The contraction was largely attributable to a lower interest rate environment as well as unfavourable lending margins and higher liquid assets.
The bank said an increase in operating expenses was the result of increased investment spend and higher staff costs due to continued impacts from covid-19.
The target price is decreased to $63 from $66.
Sector: Banks.
Target price is $63.00.Current Price is $73.07. Difference: ($10.07) – (brackets indicate current price is over target). If CBA meets the Morgans target it will return approximately -16% (excluding dividends, fees and charges – negative figures indicate an expected loss).
