“However, the main uncertainty over the next 12-18 months remains COVID-19 disruptions which are weighing in the near-term, and we’re seeing the ongoing impacts of lockdowns on supply chains and cost increases.”
Retail conglomerate Wesfarmers warned on Friday that it expects earnings to fall in the first half of 2022 as lockdowns weigh on sales at Bunnings, Kmart and Officeworks. CEO Rob Scott said he would be concerned if lockdowns continued because of the negative impact of high unemployment, but expressed hope things would open up once vaccination targets were met.
“So we’re optimistic about the outlook for Christmas because as a country, we have a path forward,” Mr Scott said.
New vaccination rules
Wesfarmers reported bumper earnings from the boom in household spending in the year to June 30 which helped the company to return $1.02 billion to shareholders via its 90¢ per share final dividend and another $2.3 billion via a surprise capital return.
Woolworths revealed its own struggles on Thursday as CEO Brad Banducci said 3300 staff were in isolation, including three in hospital with COVID-19, and more than 12,000 staff were likely to be disrupted by new vaccination rules in Sydney.
The supermarket giant revealed a $2 billion off-market share buyback and hiked its final dividend to 55¢ a share, returning an extra $697 million to shareholders.
Better than expected profits allowed businesses to reward shareholders throughout the reporting period, with 45 per cent of ASX 100 companies beating analyst forecasts and just 15 per cent missing projections, according to Mr Jenneke.
The country’s largest iron ore miner, dual-listed Rio Tinto, set the tone early on by splashing its ASX shareholders with $2.8 billion in dividends, comprised of a combined $US5.61 ($7.60) a share ordinary and special dividend.
A bumper $US17 billion underlying profit on the back of record high iron ore prices also saw the other dual-listed mining giant BHP treat its ASX shareholders to an $8.07 billion distribution after declaring a better than expected $US2 ($2.73) final dividend.
The third behemoth of the iron ore industry, Fortescue Metals Group, is expected to add another $7.4 billion worth of dividends to the commodity’s war chest of returns when it reports on Monday.
“The resources sector is an area that we’ve seen structurally change,” Mr Jenneke said. “With higher-than-average commodity prices, moderate levels of capital expenditure and a lack of strong volume increases in response to those higher prices, cash generation is higher than we’ve seen for these companies.”
Commonwealth Bank led the cash splash from the banking sector as a red-hot housing market and strong demand for capital saw the country’s biggest lender report a cash profit of $8.65 billion. The bank will return nearly $10 billion to shareholders through a $6 billion off-market buyback and $3.5 billion in dividends.
National Australia Bank opted for a $2.5 billion on-market buyback in a bid to reduce its number of shares on issue and boost returns to investors. The bank was sitting on around $8.5 billion in surplus capital after raising $4.25 billion in the depths of the pandemic last year.
ANZ followed a similar path, revealing in mid-July its plans to launch a $1.5 billion on-market buyback, having been the only big four bank to reduce its share count over the past five years.
“While the banks are paying out a lot of cash, quite a bit of this is catch-up from last year when they cut dividends and took provisions at the height of the pandemic,” said chief investment officer at Atlas Funds Management, Hugh Dive. “What it does show though is the major banks are in a solid position and sitting on plenty of capital.”
This earnings season was also characterised by a wave of mergers and acquisitions as markets were flooded with liquidity and cashed-up private equity firms were on the prowl for undervalued companies.
It’s estimated that more than $34 billion in cash will be returned to shareholders through the spree of takeovers, and that’s not including scrip deals such as Square’s $39 billion acquisition of Afterpay or Santos’ $21 billion purchase of Oil Search.
“Many of these takeovers are from private equity firms who have capitalised on the cheap money available given record low interest rates,” Mr Dive said.
The largest of the cash offers came from the Sydney Aviation Alliance bidding consortium, led by IFM Investors, which lifted its bid for Sydney Airport to $8.45 a share, valuing the company’s equity at $22.8 billion.
Spark Infrastructure was the second largest at $5.2 billion after its board agreed to a $2.95 per share takeover bid by a consortium led by private equity giant Kohlberg Kravis Roberts and the Ontario teachers’ pension fund.
The total $86 billion windfall returning to investors’ wallets is expected to boost the sharemarket in coming months as it faces a stern test from rising COVID-19 cases and the potential tightening of monetary policy.
“The sheer amount of cash is mammoth – the largest I have ever seen – that will swamp the Australian market over the coming months,” Mr Coppleson said.
“If we get a September sell-off, institutional investors, and retail investors, will be sitting there flush with hordes of cash just waiting for the right time to pounce.”
“One of the best times to be long the market has been from mid-October into the end of December, but this year will be supercharged and markets will end the year with a bang.”