CBA to maintain 19 per cent ROE

Analysts expect Commonwealth Bank to report a cash profit of A$7.1 billion to $7.2 billion, when it delivers its result for the year to June 2012 on Wednesday.

A result in that range would be more than 10 per cent higher than the cash profit of $6.4 billion the bank reported last year.

If these estimates are correct, then CBA's cash profit in the second half will the same as in the first half, give or take a million. Given growth in revenues and assets over the second half, the full-year profit could be portrayed as a decline, on a "return on assets" basis.

On the other hand, several sell-side analysts expect the bank to report a return on equity of in excess of 19 per cent, with the ROE in the second half in the line with that for the first half.

Double-digit growth in a year when banks have struggled to achieve revenue growth is rated a good outcome, but analysts are wary of recommending the stock, given the strong rally it has had over the past three months.

After moving sideways for the first few months of the year, CBA stock took off in mid-May, rising from $49 to a peak of $57 earlier this month. It has outperformed the S&P/ASX 200 over the past three months 

In a note issued last week, Deutsche Bank said: "With the stock having run hard into this result we retain our Hold. CBA is now trading at a 19 per cent premium to its peers, compared with an historical average premium of seven per cent."

Deutsche's forecast is for cash earnings of A$7.2 billion and a return on equity of above 19 per cent.

Deutsche said: "We expect NIM to decline by four basis points in the second half, driven by deposit margin pressures and higher liquid assets holdings. These pressures were partially offset by mortgage repricing in February and May."

Analyst UBS expects CBA's cash profit to be $7.14 billion and its ROE to be 19 per cent.

UBS rates CBA a Buy. In a note issued last week, previewing the result, it said: "We view CBA as a high quality stock delivering solid returns, making it a core portfolio holding in the current environment. However, post the rally it is now one if the world's most expensive banks.

"We believe it needs a solid result to support its price as it heads ex dividend."

UBS expects CBA's net interest margin to be down about three basis points. And it expects CBA's revenue growth for the June half to be "fairly soft", at around 0.9 per cent. Cost growth will be around one per cent.

Merrill Lynch's view is not as positive. It said: "CBA faces margin headwinds as its deposit base migrates into lower margin products. Also, the bank has the highest equity market exposure of the major banks, through its wealth management business, and may suffer in the current environment."

Merrill Lynch rates CBA Underperform. It expects the bank to report cash earnings of $7.16 billion.

UBS said it expected the bank to report cash earnings of $7.12 billion. It rates the stock a Hold.