Monthly economic e-news – September 2020

10 September 2020

By Craig Turnbull  
Chief Investment Officer


Historic GDP figure caps off the latest corporate reporting season

The latest Australian corporate reporting season culminated with the Australian Bureau of Statistics (ABS) revealing the sharpest quarterly contraction in real GDP in more than 50 years.

Despite the historic 7% fall in the June quarter, the Australian economy compares quite favourably to many other countries and this is partly due to the Federal Government’s fiscal support for individuals and business.

Source: AFR, Australian TreasurySource: AFR, Australian Treasury

Some retailers thriving despite a sharp fall in consumer spending

According to the ABS, private consumption fell by 12.1% in the June quarter, but while less of us may be dining out, many have been spending up to make the stay at home more comfortable, boosting the bottom line of some key retailers.

People upgrading their technology and their home entertainment systems helped JB HiFi report a 33% rise in underlying full-year net profit to $332.7 million, and reward shareholders with a healthy final dividend, up 78% to $0.90 per share.

As more of us worked from home, the demand for toasters, coffee makers and blenders boosted appliance manufacturer Breville’s underlying full-year net profit by 11% to $75 million, and the final dividend to $0.205.

After a recent surge in online sales, home furnishings retailer Adairs reported a full-year net profit of $35.3 million, up 19% on last year. However, profits were boosted by JobKeeper subsidies the company received after the closure of many stores in Australia and New Zealand during April and May.

Other companies to report strong profits included online retailer Kogan, gold miners Newcrest and Evolution, and the ASX Ltd which announced a solid full year net profit of $498.6 million as investor uncertainty continues to drive high levels of trading activity on the Australian share market.

So how are some of our blue chip companies performing?

Many of our largest listed companies reported their latest performance results in August and this provided a good insight into the economic impact of COVID-19.

Most analysts considered CBA’s full-year cash profit of $7.3 billion as resilient in the current environment. While the bank has deferred repayments on many home and business loans, it has experienced a high rate of deposit growth over the last 12 months.

After other banks deferred their dividend payments earlier in the year, there was relief for investors with CBA announcing a final dividend of $0.98, a fraction under the cap imposed by the Australian Prudential Regulatory Authority.

Despite solid sales growth in its food and alcohol retail businesses, Woolworths reported a 56.7% drop in full-year net profit to $1.165 billion mainly due to the closing of Woolworths-owned hotels as part of the COVID-19 restrictions. The retailer’s final dividend fell 15% to just $0.48.

The cancellation of elective surgeries had a huge impact on hearing implant manufacturer Cochlear with full-year underlying net profit down 42% to $153.8 million and no final dividend for shareholders.

In contrast, strong demand for immunoglobuIin and vaccine products boosted CSL’s full-year net profit after tax by 17% to US$2.247 billion, and the dividend by 7% to US$1.07 per share.

What does this mean for investment returns and self-funded retirees?

The good news is that, despite mixed profit results, share prices held up relatively well during the reporting season.

However, it’s estimated that the pandemic has wiped off around $7 billion in dividends from Australia’s largest ASX-listed companies, and this will have an impact on investment returns and the income of self-funded retirees.

So, if you think you need to review your investment strategy, it may be worthwhile talking with your financial planner about how you can protect your wealth and maximise your dividend income in the current environment.

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Markets at a glance

for the month ending 31 August 2020
 

 Australian shares1 up by 2.83% (ASX 200 Accumulation Index)

 10 year Australian Government Bonds yield2 up to 0.980%

 Australian dollar up to US$0.7354

noArrowRBA Cash rate3 steady to 0.25% 

 International shares4 up by 6.57% (MSCI – World ex Australia (USD)
 

View our latest performance figures.

The information on this website is of a general nature only and does not take into account your personal objectives, situation or needs. You should consider obtaining professional financial, taxation and or legal advice tailored to your personal circumstances prior to making any financial decision.