Commonwealth Bank (CBA) is the nation’s largest bank by market capitalisation, holds the greatest amount of deposits, the most home loans, and also controls a fair chunk of the wealth management market through Colonial First State.

The bank also operates Australia’s largest discount online brokerage operation, Commsec, as well as a multitude of international operations. Importantly, the bank has used its size to grow even bigger over the years. While many financial institutions collapsed over the global economic downturn – or neared collapse – CBA used its massive deposit base to maintain funding and buy depressed assets.

The banking giant also has diverse exposure geographically with stakes in several banks in the fast growing China.

1Q13 Trading Update

Despite facing slowing credit growth, CBA was still able to generate solid earnings growth in 1Q13. The group reported a 1Q13 statutory profit of $1.8 billion.

Unaudited cash profit, a measure more reflective of underlying performance, was $1.85 billion, a 5.7% increase on the prior corresponding quarter.

A breakdown of the results revealed net interest margins (NIM) were broadly stable in the quarter, relative to 2H12 NIM of 2.06%. The company noted that asset repricing impacts were largely offset by continued deposit pricing pressures.

The company’s’ trading income improved to a level consistent with the company’s long-term average run-rate, the result was also helped by a positive Credit Valuation Adjustment. CBA’s asset growth was mainly a function if of increased retail deposits, which now make up of 63% of the group’s total funding.

The Australian Retail division had a particularly good quarter, with improved lending margins, improved credit quality and good growth in customer numbers at its Bankwest subsidiary.

The Wealth Management and Insurance division produced solid volume growth, with Funds under Administration and Funds under Management growing by 6% and 4% respectively. Insurance premiums grew by 3%, with cross selling to the banks retail customer base showed signs of improved penetration.

With regards to CBA’s other division, the bank said most were trending at similar run rates to the 2H12.

Looking ahead

CBA’s quarterly update was solid, with a clearly improved tone from previous periods. Although the company did note slower revenue growth, it did increase profits by over 5%, this is an indication that the group has been able cut its expenses to cover for any reduction in revenue.

On a return on equity (ROE) basis, CBA does look attractive to its major rivals, with an average (ROE over the last three years of 17.6%, which is over 1% higher than any of its rivals.

Overall we expect a continuation of growth for CBA’s earnings in the current quarter, and this should hopefully translate into continued share price appreciation.

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CBA Reported Unadited 3rd Qtr Cash Profit of $1.75b

Commonwealth Bank (CBA) is the nation’s largest bank by market capitalisation, holds the greatest amount of deposits, the most home loans, and also controls a fair chunk of the wealth management market through Colonial First State.

The financial stock also operates Australia’s largest discount online brokerage operation, Commsec, as well as a multitude of international operations.

Importantly, the bank has used its size to grow even bigger over the years. While many financial institutions collapsed over the global economic downturn – or neared collapse – CBA used its massive deposit base to maintain funding and buy depressed assets.

The banking giant also has diverse exposure geographically with stakes in several banks in the fast growing China.

3^rd Quarter Trading Update

CBA last month reported a third quarter unaudited cash profit of $1.75 billion, a 2.9% increase on the prior corresponding quarter.

The results come after the company had a record first half cash profit of $3,576 million, which was a 7% jump on the prior year.

The group warned not only in its first half update, but also in its March quarter update, that higher funding costs have reduced its margins.

However the updates from the bank covered periods before the RBA cut the official cash rate twice for a total of 75 basis points.

CBA only passed 61 points of these cut, we believe that these should help alleviate some of banks margin pressures.

Aussie Banks

Last week Moody’s downgraded 15 major global banks, with Bank of America, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley also receiving at least a one notch cut its long-term debt rating.  Credit Suisse was downgraded three full notches.

Spanish and Brazilian banks recently had their ratings cut with Spain obviously suffering major downgrades after the government had to borrow money to keep the banks adequately capitalised.

However the Australian banks continue to be rated amongst the highest in the world, all four remain within their AA credit rating band.

Moody’s said that our banks “don’t engage in capital markets business and in particular higher-risk activities, like proprietary trading. They are focused on traditional lending for residential mortgages and the corporate sector.”

With the Australian banks in such good condition, and some of the last few AA rated banks globally, they are in a better position than most to borrow funds from wholesale markets.

Looking ahead

CBA said in its quarterly update that it is in a strong position, which continues to enable them to take a long term view of business. This is important as the bank continues to expand its presence in the growing Asian region.

We believe that the bank’s worries of higher funding costs would have subsided or at least eased with the two consecutive rate cuts by RBA.

The bank also remains one of the most attractive of the big four banks, with an average return on equity (ROE) over the last three years of 17.4%, a full 2% higher than any of its rivals.

With three quarters of its fiscal year completed, CBA is on track to be the first Australian bank to make a profit on over $7 billion and we look forward to seeing CBA’s continued success translate into continued gains for its share price.

Biota Holding (BTA) To Merge with Nabi Biopharmaceuticals And List

Biota Holdings Limited focuses on the research and development of new human drugs for the treatment of viral respiratory diseases.

Biota’s marketed products are used for the treatment of influenza along with an influenza diagnostic test kit.  The Company is also developing products for the treatment of RSV and rhinovirus.

Small Cap Biota Holding announced that it plans to merge with Nabi Biopharmaceuticals to form a combined company to be listed on Nasdaq.

Chairman Jim Fox said “We believe this is a necessary step to increase our options for the development and commercialization of our product portfolio and will ultimately improve the recognition of the underlying value of our product portfolio for our shareholders.”

Under the merger Biota shareholders will own about 74% of new company, whilst Nabi will own the remaining 26%.

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Asciano is transport infrastructure and operations company, formed from a de-merger from Toll Holdings in June 2007.

Asciano Fails To Reach Agreement To MUA

Asciano announced that it has been unable to reach an agreement with the Maritime Union of Australia over a new workplace agreement for container terminal employees.

This is the third time the parties have failed to reach an agreement via a conciliation process involving workplace umpire Fair Work Australia.

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The group said that local agreements have been struck with employees at Melbourne and Brisbane ports, except on a national dispute resolution procedure clause

Shares To Buy: The Reject Shop (TRS)

The Reject Shop (TRS) is a discount variety retail company, targeting Australian consumers through low price points, bargain-purchasing and convenient shopping locations.

TRS offers a wide variety of general consumer merchandise, with a focus on everyday needs, such as toiletries, cosmetics, homewares, personal care products, hardware, basic furniture, household cleaning products, kitchenware, confectionery and snack food.

The company has two key advantages that many of its mid-to-upper market rivals don’t – a strong Australian Dollar benefits earnings due to lower import costs, whilst the substitute nature of its products can appeal to cost-conscious consumers.

After a disappointing finish to FY11, TRS got itself back on track in 1H12, with net profit and sales rising on the back of a resumption in operations at its Ipswich Distribution Centre.

1H12 results

TRS grew its 1H12 net profit 4% on-year to $16.6 million.

New store openings helped sales climb 6.1% to $292.8 million, but this could have been higher had TRS not face capacity constraints in the early part of the half.

These capacity constraints were due to the early-2011 Queensland floods, which impacted operations at the Ipswich Distribution Centre.

TRS was able to generate sales momentum in the second quarter, helped by improved seasonable trade and the reinstatement of the Ipswich Distribution Centre.

A strong AUD combined with a reduction in shipping costs saw the company’s underlying gross margin rise from 44% in 1H11, to 45.4% in 1H12.

This was particularly impressive considering TRS faced price deflation over the period. It also illustrates how for TRS a high AUD can provide a hedge against price deflation, unlike many other retailers.

Outlook

With the Ipswich Distribution Centre now fully functional, TRS can focus on continuing the sales momentum generated in the second quarter.

Furthermore, with inventory management back to normal, we expect TRS to further improve margins (via less stock markdowns) and build on 1H12’s strong operating cash flow performance (via better working capital management).

Although it expects a tough trading environment to persist into 2012, TRS said second half comparable sales to date were positive. We expect TRS’ new store rollout to continue to underpin sales growth into this year.

The group forecast FY12 net profit to be between 27% and 36% higher than FY11. Even taking this strong growth into account, TRS is trading on reasonable multiples and we expect this to translate into further gains in its share price.

National Australia Bank (ASX:NAB) is one of Australia’s “big four” banks, with a focus on regional banking, wealth management operations, international capital markets and institutional banking business. Brands within Australia include NAB and MLC, and the group is represented in New Zealand by Bank of New Zealand. In the UK the brands are Clydesdale Bank and Yorkshire Bank.

Financials stock, National Australia Bank released its first quarter trading update which showed 1Q FY12 earnings of approximately $1.4 billion, 8% higher than the previous corresponding period.

The bank said that revenue was driven by wholesale banking and to a lesser extent, MLC and NAB wealth.

NAB also revealed that it will undertake a strategic review of its UK operations, with a view to reposition the arm to deal with the current economic situation in the region.

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St Barbara (ASX:SBM) is an Australian Small Cap gold producer and explorer.

SBM’s primary assets are its Southern Cross and Leonora operations, both of which are located in Western Australia. The company purchased the Gwalia (WA) mine in 2005, which has now become its main focus.

St Barbara today announced it has established an on-market share buy-back facility to repurchase up to a maximum of 15 million of its ordinary shares.

The buy-back will be conducted over a six month period.

The company stated the buy-back facility will enable it to apply its strong balance sheet and cash position to consolidate the company’s capital base for the benefit of shareholders.

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National Australia Bank (ASX:NAB) is one of Australia’s “big four” banks, with a focus on regional banking, wealth management operations, international capital markets and institutional banking business. Brands within Australia include NAB and MLC, and the group is represented in New Zealand by Bank of New Zealand. In the UK the brands are Clydesdale Bank and Yorkshire Bank.

Financials Stock NAB held its AGM today, where it stated it expects a challenging 2012 as it faces a combination of volatile markets and subdued consumer and business sentiment.

CEO Mr Cameron Clyne said the group was committed to its strategic agenda, which drove a solid performance in 2011.

Mr Clyne also flagged increasing offshore funding costs which were placing further pressure on the bank’s margins.

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National Australia Bank (ASX:NAB) is one of Australia’s big four banks, whose divisions span retail and business banking, wealth management, capital markets and institutional banking.

It is one the biggest companies in the Australian share market and is widely considered among the blue chip stocks.

Overnight, newspaper reports suggested NAB is in talks to acquire more than 600 Lloyds branches in the UK.

The acquisition would see NAB merge its Clydesdale and Yorkshire bank units with the Lloyds branches, creating a new major UK lender.

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AGL Energy (ASX:AGK) is Australia’s leading energy provider and the only energy producer with a full offering of renewable generation, providing natural gas and electricity to more than six million Australians.

AGK is Australia’s largest operator and developer of renewable energy generation, and is among the biggest companies (by market cap) in the stock market.

It has major investments in the supply of gas and electricity, as well as a substantial base of customers across Australia.

In line with one of the world’s hot topics, AGK is committed to leading Australia in minimising the effects of climate change by investing in sustainable energy businesses such as wind farms and environmentally friendly projects, including the underground Bogong hydroelectric power station in Victoria.

AGK’s organic growth strategy continues to deliver success with 95,959 new NSW electricity customers contracted in the second half of FY11.

Changing environment

The company has been busy since swapping assets with Alinta in 2006, a move that saw it acquire the retail business of both companies.

AGK now has a diverse power generation portfolio including base, peaking and intermediate generation plants, spread across traditional thermal generation (coal and gas) as well as renewable sources, including hydro, wind, landfill gas and biogas.

AGK’s power generation assets are predominantly located within the regions where its retail customers are generally located, and their renewable energy generation assets comprise around 40% of their portfolio.

AGK is well positioned for a low carbon environment with a pipeline of low-emission gas and renewable power development projects.

The company has grown from strength to strength with some key acquisitions made along the way.

It completed the acquisition of Mosaic Oil NL in October 2010 after Mosaic urged its shareholders to accept AGK’s $123 million bid.

The move has helped AGK gain access to MOS’ gas storage facilities in Queensland.

Earnings full of energy

AGK this week reported a 57% rise in annual net profit to $558.7 million boosted by a gain in the value of derivatives.

Underlying earnings for the period edged 0.5% higher to $431.1 million (from $428.9 million).

The marginal improvement was due to severe weather events and a much lower contribution from Loy Yang A (LYA).

The results were in line with AGK’s guidance provided in February. AGK had warned that expected earnings would be around $30 million to $35 million lower than initially thought.

AGK declared a final fully franked dividend of 31 cents bringing the full year dividend to 60 cents.

It has also been one of the hot stocks in recent weeks, having surged more than 20% from this month’s low of $12.50.

Looking ahead

Its core business remains strong with a solid FY operational cashflow. For the year, operating cashflow before tax rose more than 7% to $676 million.

Its retail energy division continues to grow with earnings rising 17% to $373 million on year.

AGK expects strong growth from its merchant energy business on the assumption that there will not be a recurrence of the cost incurred in connection with the severe weather events from earlier this year.

The company is looking to further expand its position by exploring a suite of low emission and renewable energy generation development opportunities.

AGK has long been focused on reaching the government’s 2020 renewable energy goal.

We find the company’s defensive qualities particularly attractive in the current economic climate.

It is likely to make some bolt on acquisitions locally to boost its strong hold on the Australian market.

With a strong balance sheet and defensive earnings, AGK is well equipped to weather current volatile times.

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