Let’s take a look at how we can value CBA shares.
The Commonwealth Bank of Australia, or CBA for short, is Australia’s largest bank, with a significant market share in mortgages (20%+), credit cards (25%+) and personal loans. It has more than 15 million users in Australia, most of which are Basically, it is involved in the Australian payments ecosystem and financial market.
CBA share price
#1. Culture
https://www.youtube.com/watch?v=aglhxpveq_0
For long-term investors looking to invest in great companies and hold them for 5, 10 or 20 years, we think it’s fair to say that a good workplace and staff culture can lead to better retention of high-quality personnel and a company’s long-term financial success.
Aussie investors can get one way or another like a company Commonwealth Bank of Australia or ANZ Banking Group (ASX: ANZ) is to be used as an HR/recruitment website seek. Sec’s website includes data on companies’ culture, including things like employee reviews. According to recent data we pulled at CBA, for example, the company had an overall workplace culture rating of 3.4/5. more than ASX Banking Sector Average Rating 3.1.
#2 Loans
ASX Bank shares like CBA need reserves and good profit margins to make their business profitable. That is, a bank receives money from term deposit holders and wholesale loan investors and lends the money to homeowners, businesses, and investors. The difference between the bank payment What else do rescuers have? Makes from A mortgage holder (for example) has a net interest margin or NIM. Remember: When it comes to nemeses, the wider the margin, the better.
If you are thinking of calculating the profitability of a bank like CBA or Macquarie Group Limited (ASX: MQG), knowing how much money a bank lends and lends to borrowers per dollar. This is why NIMC is the most important measure of profitability of CBBA. Among the ASX’s major bank shares, we calculated an average NIM of 1.78% while Commonwealth Bank of Australia’s lending margin was 1.99%, meaning the bank generated betterPay back consumer loans on average compared to its peers.
The reason analysts study NIM so closely is that the Commonwealth Bank of Australia earned 85% of its total income (equivalent to income) from lending last year.
#3. Why CBA’s ROE is Key
Return on shareholder equity, also known as ‘Roe’, helps you compare a bank’s profitability against its total shareholder equity, as shown on its balance sheet. high cry better. Commonwealth Bank of Australia’s ROE in the latest full year was 13.1 percent, which means that for every $100 of shareholder equity in the bank it made an annual profit. Generated 13.10. This was 9.35% above the sector average.
#4 Understanding the Commonwealth Bank of Australia CET1 Ratio
For Australian banks, the CET1 ratio (aka ‘Common Equity Tier One’) is important. CET1 represents a bank’s capital buffer that goes towards protecting it from financial collapse – basically, it’s the proportion of total assets that are ‘liquid’ or readily available. Commonwealth Bank of Australia’s CET1 ratio was 12.3% last year, according to our numbers. This was above the sector average.
#5 Value Price Using Profitability
A dividend discount model or DDM is a highly effective method for forecasting ASX bank shares. To do DDM we have to take the last full year profit of the bank and then apply the risk rating. Last year’s total profit was $4.65. Let’s assume that CBA’s future dividend payments grow at a constant rate each year, somewhere between 2% and 4%. We will use multiple risk rates (between 6% and 11%) and then average the value. The calculation we use is: Share Price = Full Year Profit / (Risk Rate – Profit Growth Rate).
| Growth rate | ||||
| 2.00% | 3.00% | 4.00% | ||
|
Hazard ratio |
6.00% | .00 119.00 | 8 158.67 | 8 238.00 |
| 7.00% | . 95.20 | .00 119.00 | 8 158.67 | |
| 8.00% | . 79.33 | . 95.20 | .00 119.00 | |
| 9.00% | .00 68.00 | . 79.33 | . 95.20 | |
| 10.00% | . 59.50 | .00 68.00 | . 79.33 | |
| 11.00% | . 52.89 | . 59.50 | .00 68.00 | |
According to this quick and easy DDM model, the estimated average price of CBA shares is $98.33. However, using an ‘adjusted’ dividend payment (expected future dividend) of 7 4.76 per share, which is the preferred measure because it uses forecasted dividends, the price goes to .6 100.66. The valuation compares to CBA’s current share price of 2,152.51. Since the company’s profits have been fully clarified, we can make further adjustments and make a valuation based on the ‘gross’ profit paid (this is the value of the profits including franking credits). Using gross dividend payments, the predicted ‘fair value’ becomes 3 143.80.
This means that the price of CBA shares using our simple DDM model may seem expensive, but this is just one of many steps you should take before making an investment decision. It is important to consider all the risks and ideas we present here, including the benefit of increased profitability and the positive effects of franking credit.
For more information on analysis and evaluation, consider emailing our free investment report to you (continue reading). This should be one of many steps when making an investment decision. Consider reading at least two or three years’ worth of Commonwealth Bank of Australia annual reports and then look for good investors and analysts who disagree with your view – a great way to find out if you’re making a strong decision based on rigorous analysis and consider alternative opinions. Finally, before going any further with CBA or ANZ shares, I recommend getting a copy of our free investment report.
