Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce (TSX: CM) is Canada's fifth- largest bank which is operating three business segments: retail and business banking, wealth management, and capital markets. It serves approximately 11 million personal banking and business customers, primarily in Canada and US.

Why Should Investors Book Profit?

• Growing risk of broader market correction: The resurgence in Delta variant cases and the latest episode of Chinese real estate giant “Evergrande” is throwing a lot of uncertainties. It might cause a volatility in the equity market, as a result the company might witness lower AUM and deposits which could further impact its operations and cash flows.
• Weaker Net Interest Margin: Despite strong operating performance across many sectors, the bank's NIM was at 1.6%, compared to the industry median of 3.06%.
• Falling CET1 Ratio: The group’s CET1 ration in the reported period declined to 12.3% compared to 12.4% in the previous corresponding period. Moreover, it is below the average median of the industry, which is a worry.
• Rising expenses: In Q3 2021, the group witnessed elevated expenses, which increased by 7.9% to CAD 2,813 million against CAD 2,606 million in the previous corresponding period.

Valuation Methodology (Illustrative): Price to Earnings

Stock recommendation

CM's strong performance in the third quarter was supported by solid revenue growth in its Canadian and U.S. Retail businesses as economic activity and employment levels continued to improve on both sides of the border. However, its NIM is at the lower end compared to industry median and even its CET1 ratio has also fallen and is lower compared to industry median, which may be an area of concern. Additionally, the debt problem at China's Evergrande has sparked fears of a market correction. This issue is anticipated to have an impact on the broader equities market. Therefore, based on the rationales discussed above and valuation, we recommend a "Sell" rating on the stock at the closing price of CAD 145.92 on October 14, 2021.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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