Commonwealth Bank of Australia (ASX: CBA) shares continue to defy gravity — and the general view of brokers, who still rate the stock a sell according to CommSec despite the persistence of its meteoric rise.
Now, the banking giant might be on the brink of another financial boost, with Klarna, the Swedish buy now, pay later (BNPL) giant, gearing up to list its share in the United States.
Based on expert estimates, CBA's stake in Klarna could deliver a huge capital release, a prospect that may excite its shareholders. Let's take a look.
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Why is Klarna's IPO important for CBA shares?
CBA shares have rallied in 2024, and one could argue that the bank's recent moves have supported this. A case in point is its investment in Klarna.
The bank initially invested $300 million into Klarna in 2019, later increasing its holding to around $350 million.
This investment gave CBA a foothold in the rapidly growing BNPL market and half-ownership of Klarna's Australia and New Zealand (ANZ) operations.
At the peak of the 'BNPL boom' throughout 2020–21, its Klarna stake was valued at almost $3 billion, though it had since settled to $574 million as of June 30. Unlike CBA shares, which continued to rise.
Klarna recently filed confidential paperwork with the US Securities and Exchange Commission (SEC) for a potential initial public offering (IPO). An IPO is when companies list and 'go public'.
MST Marquee analysts estimate Klarna's valuation could reach as high as US$20 billion, whereas others see a US$15 million valuation equally as likely.
With Commonwealth Bank holding a 5.5% stake in Klarna, the bank could benefit significantly if it decides to sell its shares in the BNPL player.
What might this mean for investors?
MST Marquee suggests that if the bank sold its shares after the IPO, the capital release could be $1.8 billion based on a Klarna valuation of US$20 billion.
This is a huge amount of recognised gain, something the bank will have to decide what to do next.
Whether this will directly drive shares higher or lower remains to be seen. But it's worth noting that CBA shares have already climbed above $155 apiece at the time of writing.
This isn't the first time the bank has thumbed its nose at those bearish on its stock price.
It already booked gains from the sale of a 5% stake in Vietnam International Commercial Bank. This delivered a $160 million windfall, according to The Australian.
Should Klarna's IPO proceed, the resulting capital release also provides Commonwealth Bank with plenty of flexibility. It could find more opportunities in the same boat, and CBA shares could benefit.
Adding to this, CBA's proprietary BNPL offering, StepPay, launched in 2021, has reportedly reduced its reliance on Klarna. It is gaining traction here in Australia in competition with the company. Could we see a new sheriff in town? Time will tell.
Foolish takeout
CBA shares continued their ascent this week, and now, with the Klarna IPO approaching, they may have the potential to unlock further value.
If the IPO is approved and achieves its forecasted valuation range, the bank stands to benefit handsomely.
In the last 12 months, the CBA share price is up 51%.
