FNArena’s Weekly Insights – February 22 2021

In this week’s Weekly Insights:

-February 2021: Banks Are Back!
-A Supercycle In Dividends
-Best Set Of Numbers In A Decade
-The Market Is A Duck Pond
-When Gold Meets Its Master
-Bond Yields Won’t Rise Forever

By Rudi Filapek-Vandyck, Editor FNArena

February 2021: Banks Are Back!

In a reporting season that is about to beat all reporting seasons from the past ten years on important key metrics (see further below), the stand-out winners are Australian banks, showing investors the true meaning of “better-than-expected” with a glimpse of what old glory days used to be like.

The most remarkable achievement, probably, is that banks have become the main contributor for rising EPS growth forecasts in Australia, which is no mean feat considering the ongoing stronger-for-longer environment for the three large cap iron ore producers on the Australian stock exchange.

Banks and iron ore producers are at the forefront of what is characterising February 2020 for Australian investors: financial results that beat market estimates, forcing forecasts to rise further, and with a strong come-back for large cash dividends.

All of BHP Group ((BHP)), Rio Tinto ((RIO)) and Fortescue Metals ((FMG)) have surprised with much larger dividend payouts than had been expected. If the iron price retains its stronger-for-longer momentum, there should be more of the same in August and again next year, though most analysts would assume dividends will still fall from this year’s peak-payouts. These are commodity producers, after all.

No such holding back is prevalent when it comes to analysts’ views on Australian banks this season. If anything, many see plenty of opportunity and ongoing upside risks. The faster economic recovery on top of government support programs, combined with rising bond yields and a widening beneficial spread between short-term and longer-dated government bonds is turning banks into the undisputed winners of February 2021. If analysts’ forecasts are anything to go by, this sector revival has a lot further to go.

Not only are implied (forward looking) yields on bank shares already approaching levels similar to the good old days, with all three of the Majors outside of CommBank ((CBA)) now promising 5% or more (plus franking) on current share prices, analysts see excess cash and potential for special dividends on the horizon.

This truly is one remarkable come-back, if ever investors have witnessed one in Australia.

A Supercycle In Dividends

The best way to illustrate just how strong this February reporting season has been up to this point (Monday, 22nd) is through equity strategists at JPMorgan. Before February, Jason Steed and Emily Macpherson had been expecting a strong turnaround in earnings and dividend expectations.

On Monday, the duo exclaimed: “The reality, thus far, has exceeded our elevated expectations.

Click to read the Full Report