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Morningstar: The bank on the up down under
Francisca Thomsen
17 July 2014 at 9:01 GMT
Video / 17 July 2014 at 9:01 GMT

Morningstar: The bank on the up down under

Francisca Thomsen
So far, earnings season has seen a lot of US banks post positive results. But what about The Commonwealth Bank of Australia, will we see a similar rebound down under?
David Ellis, Director of Australian Banking Research at Morningstar, advises investors to take a look at The Commonwealth Bank, the largest and most profitable bank in Australia. Morningstar classes it as a ‘wide-moat’ bank; currently generating returns on equity in excess of 18 percent.
Commonwealth has been generating total shareholder returns between fifteen and twenty percent for the last ten years. David Ellis believes that the bank will continue generating returns well in excess of its cost of capital for at least the next ten years and probably for the next twenty.
Commonwealth derives its moat sources from cost advantages and an efficient scale. According to David Ellis these two sources provide strong competitive advantages and allow the bank to be able to deliver high profitability and strong shareholder returns. Besides its efficiency, the bank’s cost of income ratio is declining, which is a good sign.


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