Why is the CBA share price on the rise?

Posted: 11 August 2021 12:33 pm
News
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Shares in the top lender have rebounded nearly 50% in the past 12 months.

Shares in Commonwealth Bank (ASX: CBA) are always a market favourite and the stock is again among the top traded stocks. The stock hit an all-time high of $109.03 in early trading on Wednesday, and was still up 1.2% at $107.75 at the time of writing.

Why the CBA share price is poised for gains

Australia’s biggest lender on Wednesday reported full year results and the numbers have turned out better than expected. Cash profit for the 12 months to 30 June rebounded nearly 20% to $8.65 billion, while operating revenue rose 1.7% to $24.2 billion.

The bank said an improvement in economic conditions helped boost performance in its core retail, business and institutional banking businesses, all of which saw solid volume growth. It also allowed the bank to write back $554 million in provisions that it had made at the height of the pandemic last year.

CEO Matt Comyn said the bank’s continued balance sheet strength and very solid capital position has allowed CBA to support customers while delivering strong and sustainable returns to shareholders.

But more importantly for investors, CBA unveiled a mammoth off-market share buyback worth up to $6 billion and also lifted its final dividend to a solid $2 per share, fully franked. Analysts had expected it to announce a buyback up to $5 billion, so the final number was certainly a surprise.

Strong capital position

CBA’s share buyback follows similar capital management initiatives by rivals ANZ (ASX: ANZ) and National Australia Bank (ASX: NAB) in recent weeks.

Mr Comyn said the bank’s buyback was “the most efficient and appropriate way” to return capital after the bank built up excess capital of $6.2 billion from divestments since 2018.

At the same time, it had a Common Equity Tier 1 capital ratio of 13.1% at June-end, far in excess of the unquestionably strong 10.5% benchmark mandated by the prudential regulator APRA.

The bank said the share buyback would open on 30 August and close on 1 October, and would be conducted at a discount of 10-14% on the market price. CBA’s last major buyback, in 2006, amounted to about $500 million.

CBA shares are already up nearly 50% over the last 12 months.

Considering buying CBA shares?

If you are keen to buy CBA shares, you should consider investing through an online share trading platform.

Not all platforms offer the same list of stocks. Some trading platforms offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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