Huntleys' Stock of the Week

Recommendations: Buy

CBA's current stock prices

Investment Rating

CBA is one of the country's four major banks and provides banking and financial services in Australia, New Zealand and Asia. It has a powerful retail and business banking franchise in the first two. The branch network and the universally recognised brand are significant competitive advantages but interest margins are still vulnerable to price competition. The loan book is conservatively managed and provisioning is adequate. Attractive for long-term income and growth portfolios.

Event

- CBA released an update on March quarter trading. See Event Analysis for details.

- The bank did not rule out a counterbid for SGB.

Impact

- SGB would probably not be as accretive for CBA as for WBC. Still, the NSW regional is a once-in-a-generation strategic opportunity.

- CBA's margins have taken a hit from the global liquidity crisis but the bank is still in a fairly strong position. Retail deposit funding remains 54%, at the upper end of the peer group, the duration of the long-term funding portfolio has not changed, the FY09 funding program will be similar to FY08, the closure of securitisation markets has had little effect on CBA given the bank's many other funding options, surplus liquid funds are $10bn, and the AA credit rating remains intact.

- The abandonment of guidance for EPS growth at least as high as peers, just because CBA is pressing on with IT spend while peers hold back to reduce costs in straitened times, indicates the folly of basing guidance on what other banks are doing.

- Fears of a rights issue might recede now.

- The forecast for bad and doubtful debt expense of just 0.23% of gross loans is lower than for peers and indicates CBA's lower-risk balance sheet.

- The economy and the banking system have been remarkably resilient to the liquidity crisis and higher official interest rates.

- Wealth management results are cyclical and will rebound with better markets.

Recommendation Impact (Last Updated: 15/05/2008) No changes to our forecasts or valuation. The current share price is an opportunity to own an obviously conservatively managed bank with upside from easing liquidity concerns and recovering equity markets.

The stock of the week is provided by Aspect Huntley, a market leader in sharemarket investment newsletters. For more detailed stock of the week information and expert recommendations, simply click here for a four week FREE trial to Huntleys newsletters.

@ Copyright Huntleys' Investment Information Pty. Limited (HII), a wholly owned subsidiary of Aspect Huntley Pty Limited), 2004. All rights reserved. Australian Financial Services Licence no. 240892. No material may be reproduced, except as allowed by the Copyright Act, without the prior written approval of HII. Some of the material provided by HII is copyright and is published under licence from ASX Operations Pty Limited ACN 004 523 782 ("ASXO"). Consensus forecast data is copyright Thomson Financial DISCLAIMER: While the above-mentioned advice and information are based on information, which HII consider reliable, its accuracy and completeness cannot be guaranteed. This report is made without consideration of any specific clients investment objectives, financial situation or particular needs. Those acting upon such information do so entirely at their own risk. For a copy of HII’s Financial Services Guide please go to http://www.aspecthuntley.com.au/FSG or phone HII on (02) 9256 8000 to request a copy. DISCLOSURE: The directors and associated persons or entities of HII may have an interest in the securities discussed in this report.