1Q18 cash earnings were 3- 4 % better than consensus, but driven almost entirely by lower bad debt charges.
CBA’s underlying margin has expanded in the past 6 months, impairment charges have fallen to record lows. However, increased regulatory scrutiny and emerging economic risks and higher loan losses remain a risk.
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If we assume flat dividend growth into FY18 and FY19, it places CBA on a forward yield of 5.4%.
We remain cautious on the outlook, we feel the current earnings is about as good as it gets over the next few years and risk exists on the downside due to declining ROE, slower home loan growth and corporate compliance concerns.
Technically, the chart below shows CBA in a lower high pattern and we think the current rally tops out in the $80.50 – $83 range.
