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Reporting season – not horror season

With so much uncertainty, companies have delivered better results than many feared.

Shane Oliver, head of investment strategy at AMP Capital, says the season is 70% complete by companies (S&P/ASX 200) and 80% complete by market capitalisation. So far, says Oliver, only 28% of results have exceeded expectations, compared to a ‘norm’ of about 44%; but ‘misses’ (that is, results falling short of analysts’ consensus expectations) are running at almost the same proportion, at 27%.

Only 33% of results have seen earnings rise from a year earlier (compared to a norm of 66%) and 55% have cut dividends (compared to a norm of just 16%).

Even with dividend cuts dominating, the extent of the cuts has not been as heavy as expected, helped by a number of special dividends announced by companies finding themselves with excess cash. This has been caused by special situations, for example, Wesfarmers, following the sale of Coles; Northern Star Resources, on the back of a booming gold price (especially in A$ terms); and even the embattled AMP, which was able to pay a special dividend following the $3 billion sale of its life insurance business.

AGL Energy, despite tough conditions, said it expects to pay special dividends over the next two years of up to 25 per cent of profit, on top of the 75% payout ratio already in place.

Investors were particularly concerned about bank dividends, and there, the news wasn’t great. Investors knew that the prudential regulator, the Australian Prudential Regulation Authority (APRA), had “requested” in April that banks and insurers consider deferring dividend decisions until the impact of COVID impact was clearer. In July, APRA relaxed this requirement, but its revised guidelines asked companies under its ambit to retain at least half of their earnings, when deciding dividends, until December.

In April, National Australia Bank cut its interim (first-half) dividend by more than 60%, while ANZ and Westpac deferred theirs until further notice. Because it reports on a June 30 balance date – while its “big four” peers end their financial years on September 30 – CBA had already paid an interim dividend, which it kept at $2 a share (as it related to pre-COVID times, of the six months to December 2019). However, its COVID-affected final dividend, at 98 cents, was down by 57% on the $2.31 paid last year – bringing the full-year fully franked dividend to $2.98, one-third (31%) lower than last year’s $4.31 a share.

While that is disappointing to income-oriented shareholders, the total payout and final were still better than the market had expected – and that is the point when assessing all profits and dividends in this environment.

During this reporting season, NAB, Westpac and ANZ all issued third-quarter trading updates, with the latter two delivering very different news on their interim dividends: Westpac confirmed that it would not pay an interim dividend, while ANZ declared a first-half payment of 25 cents a share, almost 70% lower than last year. ANZ chief executive Shayne Elliott specifically referred to the needs of retiree shareholders as influencing the decision to pay a “prudent and modest” dividend amid the prevailing economic uncertainty.

Other companies that have delivered better-than-expected dividend news include Aurizon, Evolution Mining, GPT, Newcrest and QBE.

On the flipside, Telstra – while holding its fully franked full-year dividend steady at 16 cents – reported a set of numbers that had analysts concluding that it will not be able to do so in the current financial year, unless the business performs at its absolute optimum. FNArena’s collation of analysts’ consensus estimates arrives at an expectation of 14.7 cents a share for FY21, slipping further to 14.2 cents in FY22. Thomson Reuters’ collation does see 16 cents in FY21, declining to 15.4 cents in FY22.

A unique factor affecting the current earnings season is the impact of government stimulus: we have seen the strange sight of the Federal Government’s JobKeeper scheme showing up in company figures. For example, vehicle parts retailer ARB Corporation and homeware retailers Nick Scali and Adairs reported numbers that showed consumers channelling some of their COVID support payments into purchases. Nick Scali and Adairs were actually able to lift dividends on the back of this effect – drawing criticism from some quarters. After all, these payments were meant primarily to sandbag the wages of their workforce.

Travel centre chain Flight Centre reported in its result that it is receiving $10 million a month from JobKeeper. Qantas is expecting to receive about $400 million by the end of September. Retail giant Premier Investments (owner of brands including Peter Alexander, Just Jeans and Smiggle) admitted that JobKeeper payments would be one of the factors helping to push it to a forecast record profit for FY20, as well as rent waivers and strong online sales.

The shift to online is benefiting many retailers, but while that was a trend that was in place before COVID, government subsidies were not – and analysts and investors have to factor-in what ensues when the cash injection tails off later in the year, due to the criteria for receiving it being tightened.

The general uncertainty brought about by COVID is making looking forward into FY21 more difficult than usual. At the outset of reporting season, analysts expected earnings across the market for FY21 to be down 21%: that fall is now seen as –22.3%, Oliver says, which is on track to be the biggest slump in company earnings since the early 1990s recession. Financials are being hit the hardest, with the consensus expecting a –29% slump in earnings – led by insurers and the banks – followed by industrials with a –17.7% fall in earnings and resources (which have been buttressing overall market earnings in recent years) with –14.4%.

Oliver says most companies appear quite resilient, and this in turn has enabled a majority (or 59%) of companies’ share prices to outperform the market on the day they reported, and for the market as a whole to rise so far through August.

But the cloudiness of the outlook is having a big impact on the mood of corporate Australia, with Deloitte’s biannual CFO (chief financial officer) Sentiment Survey showing plunging optimism, with 75% of Australia’s CFOs expecting the pandemic to hit revenues in the second half of 2020, and more than half foreseeing further declines in 2021.


Reports still to come



Bingo Industries (BIN)

The waste management company could be a potential star of the season: analysts’ consensus expects earnings per share (EPS) to more than double, from 3.9 cents last year to 8.1 cents in FY20, but with a slight fall in the fully franked dividend, from 3.7 cents to 3.6 cents. Analysts’ consensus target price of $2.438, versus current share price of $2.10.

Blackmores (BKL)

Analysts’ consensus expects sharp EPS contraction, down 64% to 110.1 cents in FY20, and no dividend (BKL paid $2.20 a share in FY19). Analysts’ consensus target price of $72.467, versus current share price of $75.16.

Seven West Media (SWM)

Analysts’ consensus expects EPS of 5.2 cents, a major recovery from a loss of 29.5 cents a share in FY19; but no dividend (the last dividend was in FY18). Analysts’ consensus target price of 21 cents, versus current share price of 14 cents.

Ansell (ANN)

A COVID beneficiary. Analysts’ consensus expects EPS of 116.9 US cents, up 4.9%, and a dividend of 51.3 US cents, compared to 46.8 US cents a year ago. Analysts’ consensus target price of $33.69, versus current share price of $39.57.



Reece (REH)

Analysts’ consensus expects EPS of 28.8 cents, down 19.9%, and a fully franked dividend of 6 cents, down 70%. Analysts’ consensus target price of $8.92, versus current share price of $11.06



Woolworths (WOW)

Analysts’ consensus expects EPS of 131.7 cents, down 36.1%, and a fully franked dividend of 94.9 cents, down 7%. Analysts’ consensus target price of $38.53, versus current share price of $39.76

Afterpay (APT)

Could be another star, after flagging last week that EBITDA (earnings before interest, tax, depreciation and amortisation) for the full-year would be almost double the forecast made in July: $44 million compared to the flagged $20 million–$25 million, plus the important core measure of profitability, the net transaction margin, was coming in at 2.25%, or 0.25% higher than expected. However, analysts’ consensus target price is $67.92, significantly below the current share price of $81.97.


Nine Entertainment Company (NEC)

Analysts’ consensus expects EPS of 8.4 cents, down 44%, and a fully franked dividend of 6.2 cents, down 38%. But analysts’ consensus target price, at $1.90, offers upside on the current share price of $1.65


Zip Co (Z1P)

Afterpay’s buy-now, pay-later (BNPL) rival Zip Co now has access to the US’s online retail market (15x bigger than the Australian market) thanks to its acquisition of QuadPay. The QuadPay business struck record monthly transaction volume of more than US$70 million in July, representing a 30% increase on the June quarter average and a 600%+ increase year-on-year. The business added 133,000 customers in July and surpassed the 2 million customer milestone in August. But analysts’ consensus target price, at $6.20, is well below the current share price of $7.14.


Ramsay Health Care (RHC)

Analysts’ consensus expects EPS of 186 cents, down 30%, and a fully franked dividend of 64.1 cents, down 58%. Analysts’ consensus target price, at $68.45, sits higher than the current share price of $65.82.