Thursday, 13 November 2008

CBA Profit Warning ... I mean Trading Update

CBA today released their quarterly trading update for September which you could easily mistake for a profit warning. Here is the money quote:

While there is no evidence of systemic credit issues, the Group‟s exposure to Lehman Brothers, Allco Finance Group Limited and ABC Learning Centres Limited will result in significantly higher first half provisions.

Significantly higher than what? The first half of 2008? If that were the case you'd have to think that 1H09 would at least match the level of 2H08. Currently consensus estimates have CBA's FY09 profit basically flat compared to FY08. That is looking doubtful after today's announcement.

On the positive side, deterioration across CBA's entire asset portfolio has been relatively mild. However the risk is of course that the Australian economy gets materially worse, unemployment rises and therefore credit impairments. Given the recent barrage of negative economic data that is much more of a possibility than most mainstream economists expect, and know how well the mainstream has done over the past 18 months.

Still, if I had to pick one Australian bank to invest in over the long term, it would be CBA. After today's routing the stock is now yielding over 8%. But can that dividend yield be relied upon?

Update: I just spied this article which suggests CBA's total provision for bad debts could rise to as much as $2.3 billion in 2009, more than double that in 2008. That would definitely mean the current projected dividend yield won't hold up.

1 Comment:

Denis C said...

You have a couple of typos in the first sentence.