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ABN-AMRO: CBA – Even more appealing now
22/07/04 By: Nathan Young

Thanks to NAB we went a bit early on CBA. It was around $32.60 when the 45 day countdown started. NAB came out blaming, amongst other things, margins pressures. We don’t believe that CBA will suffer the same fate as NAB and that this sell-off has been well overdone. After CBA report in early August we are expected a 91 cent dividend to be paid on or around August 23.

Key Points for continued out-performance:

1. The “Which New Bank” initiative should continue to deliver
2. Cost cutting could surprise to the upside
3. Gaining market share from competitors
4. Continued strong dividend growth
5. Historical out-performance from 45 days prior to ex-date

Past Performance

The chart below (which Arne painstakingly prepared) show quite well how CBA performs in the 45 days prior to it’s ex-date. Clearly if you had bought somewhere between the 45th day prior and the 20th day prior to the



ex-date you would have seen the stock run up (on most occasion) by more than the dividend. However, there were a couple of occasions, in particular in March and August 2003 when the stock fell after the dividend and kept falling. We don’t expect this to occur again. In 2003 CBA was under pressure from the market’s perception of the struggling wealth management division and decreasing margins. Each result was met with fresh selling after expectations were not met. In 2004 the environment has changed, the wealth management division has benefited from the strong performance of equity markets world wide, the property market (although slowing) has been an excellent contributor and cost cutting initiatives are also delivering. In addition, CBA has taken over as the preferred bank amongst investors as it has managed to avoid the disasters that NAB has encountered in recent times. And the dividend growth profile remains better than NAB in the short to medium term.

The line on the chart below is a massive level for CBA, having been major support on the way down and resistance on the way up. The level is around $30.60. Again we believe that this sell off caused by NAB has been well overdone.



The Best Exposure

We expect the dividend to be paid on August 23. Which is 32 days from today. The table below shows the Theta that can be expected over a 45 day period and the grossed up standstill return if CBA was to remain at it’s current share price. So these returns do not include any upside from capital appreciation.



To view the complete report please click here.

http://www.egoli.com.au/egoli/egoliWarrantsPage.asp?PageID={0603143F-3DFD-4125-A462-A38AB1CB98FB}