CBA results will be ‘messy’: Morningstar

CBA will deliver its fiscal 2018 results on 8 August, which Morningstar analyst David Ellis anticipates will be “messy”.

“We forecast an underlying $9.9 billion cash profit and fully franked dividend of $2.30 per share, taking total franking dividends to $4.30 per share,” Mr Ellis said.

Morningstar has excluded the one-off $700 million AUSTRAC fine from its forecast. The analyst noted that while CEO Matt Comyn “continues to impress” as he works through important roadblocks at CBA, there remain plenty of challenges ahead.

“Major regulatory changes, business restructuring, asset sales and demerger plans make it difficult to forecast future earnings,” Mr Ellis said.

On 25 June, CBA announced plans to demerge its wealth management and mortgage broking businesses, which would be listed on the ASX as a new entity, the CFS Group.

At the time of the announcement, Morningstar said that it had seen plenty of examples of unwanted “ugly duckling” businesses demerged and subsequently rewarding shareholders handsomely.

“It is obviously too early to reach conclusions concerning the key outlook for [the] CFS Group, but the business will be in control of its own destiny and growth strategies — we see this as a key positive,” Mr Ellis noted.

The analyst predicts CBA’s net interest margins for the second half of FY18 to be weaker than the first half by around 4 basis points.

“Assessing underlying expense growth will be messy, with headline expense growth likely exceeding revenue growth,” Mr Ellis said.

CBA booked $200 million provision in first-half FY18 to cover expected compliance costs. Morningstar expects this provision will increase during the second half. The initial $275 million AUSTRAC provision will be increased by at least $425 million to a total $700 million plus legal costs.

[Related: CBA restructures executive team following demerger plans]