Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy?
The initial excitement after the Royal Commission seems to be over. Although the CBA share price rose more than 7% in the week of the Royal Commission report release, the share price is now only up 2% since before the report's release.
The CBA half year result seems to have taken out a lot of the gloss from the initial excitement. The big bank reported that continuing cash net profit after tax (NPAT) increased by 1.7% to $4.68 billion and continuing cash earnings per share (EPS) grew by 0.9 cents to 265.2 cents.
Any growth is good for CBA in this difficult trading environment, but you can't expect the share price to do much on such little growth.
CBA also maintained the all-important dividend at $2 per share, which is solid considering the yield is so high.
One disappointing factor from the CBA report was that the net interest margin (NIM) was lower by 4 basis points to 2.1% from 2.14%. This was impacted by higher funding costs, competition and switching from interest only to principal & interest.
CBA said that home loan arrears of more than 90 days decreased slightly (from 0.70% to 0.67%) on the prior half due to seasonality, partly offset by some households continuing to experience difficulties with rising essential costs and limited income growth. However, the 0.67% arrear ratio was higher than the 0.59% arrear ratio a year ago. Rising arrears could lead to rising bad debts and lower profits.
Foolish takeaway
CBA is trading at under 14x FY19's estimated earnings with a grossed-up dividend yield of 8.6%. This price is about as attractive as it has been for most of the last five years, but I wouldn't jump at buying shares of CBA until we see a sustained stabilisation of Australian house prices. In-fact I'm waiting until there's a recession to consider buying.
