ASX 200 sector wrap: the outlook for CBA, FMG, CSL, BHP Group and NAB
Of Australia’s top three sector indices, the ASX 200 Materials index is the only one in positive territory over the last month.
ASX 200 sector summary
While the ASX 200 benchmark now trades clearly off its March lows, in the last month the index has struggled, trading flatly in that period.
Illustrating these lacklustre market conditions, of Australia’s top three sectors – materials, financials and healthcare – only the materials index is up over the last month. With that in mind, below we examine the recent news flow that may have contributed to these performance disparities.
CBA, NAB, ANZ and Westpac share prices: provisions climb as earnings fall
With Australia’s big four banks having now wrapped up their latest round of earnings results – investors have significantly improved visibility on the true economic impact of the coronavirus.
All up, the common theme across the big four’s results were lower earnings, significant Covid-19 related provisions; and uncertainty regarding the dividend outlook.
For example, while NAB resolved to pay a significantly lower interim dividend; both Westpac and ANZ deferred their interim dividend payments completely, given the current environment of deep economic uncertainty.
Elsewhere, the banks all booked significant provisions in relation to Covid-19 as part of their latest results releases. For instance, CBA booked a $1.5 billion provision related to the expected future impacts of Covid-19; ANZ booked $1675 million worth of provisions during the half; Westpac booked a $2238 million H1 impairment charge; while NAB’s 'collective provisions now include $2.135 million of forward looking adjustments for anticipated stress,' the bank said.
All up, in the last month, the ASX 200 Financials Index (XFJ) – which makes up ~24.5% of the Australian market – has fallen 3.27%.
Looking forward, Macquarie analysts currently have an Underperform rating on ANZ and a price target of $16.50; an Underperform rating on CBA and a price target of $57.00; an Outperform rating on NAB and a price target of $17.00; and a Neutral rating on Westpac and a price target of $17.00.
Rio Tinto, FMG and BHP remain resilient, share price outlook positive, according to Macquarie
In fact, during the most recent quarter, Rio Tinto saw its iron ore shipments increase by 5% to 72.9 million tonnes, BHP Group saw its iron ore shipments increase by 7% to 60 million tonnes, and FMG saw its iron ore shipments rise 10%, to 42.3 million tonnes.
The common thread amongst all the big three miner’s results was that while demand in many parts of the world had fallen as a result of the coronavirus pandemic, in China, demand for iron ore remained robust.
Speaking of Chinese demand, FMG's chief executive, Elizabeth Gaines said that the firm expects a ‘steady recovery in economic activity in that market;' while Rio Tinto’s management pointed out that that 'Demand for the high-quality iron ores we produce remained strong in Q1 of 2020.’
In the last month, the ASX 200 Materials Index (XMJ) – which makes up 18.6% of the local market – rose 0.83%.
Compared to the big four banks, Macquarie analysts remain bullish on the prospects of Australia's big three miners, retaining Outperform ratings on all three. Overall, the investment bank's analysts have a price target of $36.00 on BHP Group, $104.00 on Rio Tinto and $13.20 on FMG.
CSL share price dips, health care falls
Though CSL already reported its H1 results in February, over the last month, the biotech giant has reaffirmed its FY20 profit guidance as well as revealed a new set of debt facilities, totalling US$750 million.
Moreover, while the CSL share price has fallen 7.52% in the last month, the biotech remains Australia’s largest listed company – touting a market capitalisation close to $140 billion.
Over the last month, the ASX 200 Health Care Index (XHJ) – which makes up 13.7% of the local market – has fallen 3.63%.
Looking forward, Macquarie analysts currently have a Neutral rating and an $311.00 price target on CSL, arguing that 'we see the earnings risk associated with Covid-19/lower plasma volumes as skewed to the downside.’
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