Monthly Agenda July 2020 – Australian Equities
FY20 earnings announcements will be a key focus of the market through August, with companies detailing the impact to earnings related to COVID19, particularly in the June quarter. For the 12 month period, earnings for the ASX 200 are forecast to decline by 15%. Of the three broad sectors of the market, only resources are expected to hold up well on the back of a robust iron ore and gold price, while banks are likely to show a 30% drop in profits. Earnings from industrials are more mixed and are expected to show a 14% profit contraction, with varying degrees of impact from lockdowns.
Chart 7: ASX 200: Actual and Forecast EPS GrowthEnlarge Source: Citi, IBES, Datastream
Aggregate dividends for the market are likely to be much lower this financial year, with companies prioritising balance sheet strength amid a fall in profits and an uncertain outlook. While all three broad sectors will likely announce lower dividends, the most significant decline is the major banks, which typically account for a large percentage of the overall market's dividends. Consensus forecasts show a gradual recovery over FY21 and FY22, although these outer years are still expected to be below the dividends paid in FY19.
Chart 8: ASX 200: Consensus Aggregate DividendsEnlarge Source: Citi
Which sectors are likely to show the greatest dividend declines in August's reporting season? The chart illustrates groupings by number of companies in each sector of the Australian market. Consumer discretionary stocks are expected to be hurt significantly, with many experiencing a large fall in demand caused by the change in conditions over the last several months. Energy dividends will be down on the back of the decline in the oil price. In terms of higher dividend security, the health care sector stands out in the Australian market.
Chart 9: ASX 200: Dividend Growth (August Reporting Season)Enlarge Source: Bloomberg, IRESS