Investor eyes will be on Commonwealth Bank of Australia [ASX:CBA] today, with the release of their FY19 results, showing an 8% drop in their statutory net profit to sit at $8.57 billion. The bank also reported a 4.7% decline in their cash earnings.
We note it is on the cusp of a bearish crossover of its 20- and 50-day moving averages:
CBA attributed the poor results to high remediation costs from the Hayne Royal Commission and falling interest rates.
Shares fell 1.74% upon market open today. The current price at time of writing is $79.20.
As expected, CBA chose not to pay out a special dividend, instead keeping their full-year dividend flat at $4.31 per share.
So our suggestion that CBA shares had hit resistance in the $82–$83 range is looking increasingly astute.
We’ve also been convinced for a while that the bank dividend staple is in peril, and there are signs a dividend cut could be in the offing. We have a comprehensive look at the primary factors threatening bank stock dividends in this free report.
But while dividend growth prospects look slim for the big four, CBA’s entry into the ‘buy now, pay later’ sector with its latest company investment appears to be trying to put distance between its commission-hit peers and into the fintech race alongside market giant Afterpay Touch Group Ltd [ASX:APT].
CBA banks on European Afterpay-style company
CBA CEO Matt Comyn said in the results update that FY19 was about clearing up the commission mess and focusing on further investment in the business, noting the bank has worked ‘to bring together the best technology with the best service to deliver exceptional customer experiences.’
Of interest is their US$100 million into the Swedish ‘buy now, pay later’ provider Klarna as a means to ‘extend’ the bank’s ‘digital capabilities’.
With 130,000 merchants and more than 60 million customers, Klarna is the largest fintech firm in Europe. And thanks to their $460 million capital raising from investors like CBA, its market valuation has increased to $5.5 billion.
Klarna intends to use this funding to expand their reach into the US — a region which has pulled market darling Afterpay into the red this week as it fell alongside its NASDAQ peers.
CBA will be their exclusive partner in Australia and New Zealand.
Outlook for CBA share price remains negative
It’s a smart move by CBA to dodge the dividend drama and instead focus on ‘extending our leadership in digital’.
Fintechs are proving a dangerous rival for banks, and it’s the forward-thinking investors who are seeing it. We’ve found three that are looking like serious threats.
CBA understand where the market is heading, or more importantly, where their customers are heading. Their CommBank app is the leading mobile banking app in Australia with 7.4 million digital logons per day.
But there is an air about their move on Klarna that strikes us as too little, too late.
As a result, Morgan Stanley’s price target of $66.50, may prove to be a conservative outlook on the CBA share price.
For Money Morning