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Canadian Imperial Bank of Commerce research and analysis

Contributed by eResearch

Canadian Imperial Bank of Commerce (CM) reported net income of $2.00 per share. Excluding certain non-operating items detailed below, adjusted cash net income was $2.06 per share, higher by 8% on a Y/Y basis. This was a solid performance as earnings exceeded our expectations by $0.06 per share and consensus by $0.11 per share. The adjusted EPS excludes $0.06 of Items of Note below. Adjusted cash ROE was 22.5% in the quarter versus 22.1% last quarter. The Tier 1 capital ratio decreased to 14.1% unchanged from last quarter (IFRS basis).

Management announced an increase in the Bank’s quarterly dividend per share of 4.4% to $0.94 ($3.76 annually) from $0.90 ($3.60 annually). Management also announced its intention to purchase for cancellation of up to a maximum of 8.1 million common shares representing about 2% of the total shares outstanding.

The quarter was driven by strong earnings across all sectors of the Bank and benefitted from a lower tax rate. The latter accounted for a large part of the better than expected earnings this quarter. Wholesale Banking net income was particularly strong, up 15% Y/Y as trading was stronger but underwriting fees declined substantially. Retail & Business Banking as well as Wealth Management performed well, increasing about 8% Y/Y. Provision for Credit Losses (PCL) was in line with expectations.

For fiscal 2012, we have raised our EPS estimate to $8.05 from $8.00 which would imply a gain of 7% over 2011. However, in light of the intensely competitive lending conditions and slower mortgage volume growth, we have lowered our EPS outlook for 2013 to $8.30 from $8.35. Our forecast assumes slightly higher PCL and stable domestic interest margins.

Management indicated that it will continue to repurchase non-qualifying capital instruments such as preferred shares. Fully implemented, this action is expected to be $0.07 to $0.09 accretive annually to EPS. Subsequent to the quarter end, management indicated that it will redeem all of the 12 million Non-cumulative, Class A, Series 18 Preferred Shares outstanding. We expect a further dividend increase of 3% to 5% over the next 12 months as the dividend payout ratios of 47% and 45% on our fiscal 2012 and 2013 EPS forecasts respectively are at the mid-range of management’s target payout ratio of 40% to 50%.

We have maintained our BUY recommendation. Our 12-month share price target has been maintained at 80.00.