Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Reporting wrap: TLS, SEK, TCL
CBA profit dips 11.3% but dividend at the limit
The Commonwealth Bank of Australia Ltd (ASX:CBA) handed down their financial year result today; beating guidance on its dividend, but not on earnings.
Management reported a 12.4% increase in statutory profit, which includes gains on the sale of assets including CFS, to $9.6 billion, but real cash profit fell 11.3% to $7.3 billion.
The biggest hit came from higher loan impairments, effectively reducing the value of their loan book to account for potential losses, which increased $1.2 billion in the year; still tiny compared to the $200+ billion loan book.
CBA declared a 98 cent per share dividend for the second half, a 60% cut on the 2019 dividend.
The dividend is at the upper end of APRA’s 50% of profit guidance, hitting 49.95%.
Based on the current share price of around $75, the dividend yield is around 4% before franking, far lower than the 6.5% most investors are accustomed too, in my view, this is where the dividend will sit for several years now requiring an adjustment from income seeking investors.
On the positive side, CBA saw $15 billion in new deposits, potentially coming from people taking advantage of the early superannuation withdrawals and putting the funds in their offset account.
CBA’s loan book is now 74% funded by cash deposits and supported by their 25% market share for all home loans.
My take: Hold. CBA remains a hold, but investors should brace for lower dividends, falling profits and lower their growth expectations for the next three years.
SEK hit hard by COVID-19, cuts dividend to focus on investment
Employment and online education group, Seek Ltd (ASX:SEK), delivered a weak result but not unexpectedly; job advertising in a pandemic isn’t easy.
Despite an incredibly difficult second half of the financial year, the company reported a 3% increase in revenue to $1.57 billion.
Management continued to target $5 billion in revenue, but this has been pushed out beyond the original FY25 target.
Regardless, this sort of foresight and initiative is what has driven SEK’s growth for many years.
The Australian business was hardest hit, falling 12% with billings bottoming at 65% of 2019 levels, whereas the Chinese Zhaopin business remains the leader adding 12%.
The board is now forecasting a reasonable 2021, but with earnings to remain below 2020 peak levels.
The company managed to stay cash flow positive even throughout April and May, finishing with a net profit of $90.3 million, down 51% on the prior year.
This was reduced to a statutory loss of $111.7 million due to the downward revaluation of SEK’s investments in Latin America and Asia.
Importantly, cash flow remains solid, albeit below 2019 levels, with $409 million being received.
The CEO has, however, decided to cancel the dividend, in an effort to avoid a discounted capital raise and focus on their continued investment and development opportunities.
The highlight in 2020 has been the growing Online Education Services, which includes an investment in Coursera.
The business unit grew 7% in 2020 and is likely to benefit from the COVID-19 tailwind of re-skilling and the need for online education courses for new employees.
My take: Buy. The result was as expected for a business directly exposed to the pandemic. The dividend cut is a prudent decision and management’s growth focus will payoff in the longer term.
A tough year for Transurban
Transurban (ASX:TCL) FY20 performance was severely impacted by COVID-19 with average daily traffic numbers falling 8.6% across the entire portfolio of toll roads.
TCL posted a $111m net loss compared to a $171m profit last year. Traffic was down 48% in Melbourne’s City Link which later sank to +60% as stage 4 lockdown restrictions kicked in.
There has however been some concern that workers may not return to the CBD for work and the landscape has changed forever.
CEO of Transurban tends to think otherwise saying “The longer the pandemic goes and there’s more interference between your home life and your work life it seems the more interested [people are] in going back to some sort of office environment.”
Overall, an OK result considering the tough environment the company is in.
The company announced a second-half dividend of 16c a share, making the total 47c down from 59c last year. TCL also withdrew its 2H guidance of 31c a share in February.
