CBA (ASX:CBA) share price closes lower as bank warns of shrinking GDP
Australia’s rolling lockdowns are keeping the virus largely at bay, but the economic costs are mounting.
The Commonwealth Bank of Australia (ASX: CBA) share price closed the day down 1.4%, to $99.30 per share.
Today’s loss sent CBA shares back below the psychological $100 mark, which they’d once again breached just yesterday.
CBA made headline news today after it announced major changes to its regional branch operations.
CommBank also sounded the alarm in a note released this morning, warning of the hit Australia’s economy is likely to get from the extended COVID-19 lockdown measures in the Greater Sydney area.
CBA sounds alarm on economic slowdown
According to CBA researchers, New South Wales extended lockdowns will result in some 300,000 job losses in the coming months.
“A deep contraction in GDP over third quarter of 2021 is now a fait accompli. It is the inevitable consequence of shutting down large parts of the economy,” CBA’s head of economics Gareth Aird said (quoted by the Sydney Morning Herald).
CommBank now expects the unemployment rate will top out at 5.6% in October.
Aird also expects the federal government will be rebooting its stimulus efforts:
Substantial policy support will once again be needed to ensure that the economic rebound is swift when restrictions are eased… The recently announced fiscal support is significant, but we suspect that policymakers will once again err on the side of doing too much rather than not enough and further stimulus is likely.
New South Wales remains at the epicentre of Australia’s new COVID wave. While South Australia and Victoria have tentatively eased their respective lockdowns, NSW reported 177 new cases over a 24-hour period.
With lockdowns in the state now extended for at least 4 weeks, Aird forecasts economic demand in NSW will shrink by 9% in Q3 while GDP will fall by 2.7%. He expects the rest of Australia will grow modestly during the quarter, while NSW, the most populous state, contracts.
CommBank share price snapshot
Despite today’s move lower, the CBA share price remains up by around 38% over the past 12 months, compared to a 23% gain posted by the S&P/ASX 200 Index (ASX: XJO).
CBA shares hit all-time highs on 17 June, closing at $105.91 per share. Since the record high, shares are down 6.2%.
What’s moving the Commonwealth Bank (ASX:CBA) share price this week
The big banks have been strong performers over the past year.
The Commonwealth Bank of Australia (ASX: CBA) share price is up 0.6% in late afternoon trade, back at $100 per share.
This marks the 4th day of gains for Commonwealth Bank shares this week, with CBA slipping only on Wednesday.
What drew investor interest in CBA this week?
Commonwealth Bank likely popped onto many investors’ radars on Monday when analysts at Bell Potter released a note with some impressive forecasts for the bank’s upcoming full year results. Bell Potter is predicting a 16.5% increase in CBA’s cash net profit after tax, year-on-year, to $8.51 billion.
On Tuesday, when shares closed the day up 1.6%, Commonwealth Bank was back in the financial news over a reported spat with Apple Inc (NASDAQ: AAPL).
This, after CEO Matt Comyn complained to a Federal parliamentary committee that the US tech giant was abusing its near monopoly market powers with its Apple Pay system. Comyn said more government regulation was needed to level the playing field.
On Wednesday, the only day the bank’s shares closed lower this week, CBA’s head of economics Gareth Aird sounded the alarm on the looming economic hit facing the nation as much of New South Wales is looking at protracted lockdowns. “A deep contraction in GDP over third quarter of 2021 is now a fait accompli. It is the inevitable consequence of shutting down large parts of the economy,” Aird said.
Investors also took note on Wednesday after Commonwealth Bank announced a major shakeup for its regional branch network. The opening hours of branches in 90 regional locations were scaled back and staff will be reallocated to Aussie-based contact centres.
How have Commonwealth Bank shares been moving?
The CBA share price is up 37% over the past 12 months, well ahead of the 23% gains posted by the S&P/ASX 200 Index (ASX: XJO).
Year-to-date Commonwealth Bank shares have gained 19%
Is it a good time to buy Commonwealth Bank (ASX:CBA) shares?
Here’s what to consider in deciding whether now is the time to buy shares in Australia’s largest bank?
Commonwealth Bank of Australia (ASX: CBA) shares have been on a handy run of late. Shares in Australia’s biggest bank are up 18.8% year-to-date and 37.3% in the last year.
Investment decision-making is a very individual process and whether or not to buy will vary greatly depending on financial position, investment horizon and investment strategy.
However, the bank’s shares are trading just shy of $100 per share and aren’t far off an all-time high. So, is it a good time to buy CBA shares?
When is a good time to buy CBA shares?
Some investors may be wary of purchasing CBA shares so close to an all-time high. However, an all-time high isn’t a bad thing in and of itself.
For instance, in order for a share price to continue climbing over time, you’d expect it to be at an all-time high at several points. That means that record highs, or even 52-week highs, aren’t something to be afraid of.
What might help in assessing CBA shares right now is the relative value that they offer versus peers. A comparable peer group for CBA could be its fellow Big Four banks.
CBA shares currently trade at a price to earnings (P/E) ratio of 22.1 times earnings with a 2.5% dividend yield. Let’s see how that stacks up against Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
Based solely on the P/E ratio, ANZ is the best value at 16.8x earnings compared to NAB (19.9x) and Westpac (21.1x). For those hunting for income, ANZ also leads the pack with a 3.8% dividend yield. CBA (2.5%) is notably the lowest with NAB (3.5%) and Westpac (3.6%) both trading higher.
Based purely on these metrics alone, it does look like CBA shares are trading at a slight premium to their peers. CBA’s 22.1x P/E ratio is above the group average of 20.0x with a lower dividend yield. However, investing isn’t as easy as buying whatever is cheapest based on a couple of easy numbers.
There are many reasons why a share may trade at a premium to its peers. For instance, a large price drop would be bad for total returns but if the earnings and dividends estimates remained unchanged, the relative value would look more attractive.
P/E ratios and dividend yields could also be reflecting demand for greater governance, a stronger capital position, a better balance sheet or even a preferred strategy.
Foolish takeaway
Whether now is a good time to buy CBA shares will depend on the individual.
There’s no doubt they’ve performed well in the last year or so and aren’t far away from an all-time high. If I were considering buying, I’d keep a close eye on CBA’s full-year results on 11 August.