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ASX 200 (XJO) down, ASX banks up due to APRA

The ASX 200 (ASX: XJO) is currently down 0.20%, though ASX banks are stopping the index from being down much further.

There has been a disappointing COVID-19 update – two positive COVID-19 cases flew back to Brisbane from Melbourne and have apparently been out and about in the QLD community whilst they were sick. There were 19 new cases in NSW. Victoria’s new cases are expected to be much lower than previous days.

ASX banks support the ASX 200

According to reporting by the AFRAPRA Chairman Wayne Byres has sent a letter to banks to inform them that dividend payout ratios are expected to be under 50% because of the high demand of capital that COVID-19 impacts are having on the banks and economy.

One of the main things that is helping banks at the moment is the payment holidays for borrowers. Mr Byres said that there is still heightened risk in the economy, though APRA and the banks now have a better sense of how Australia’s economy is coping.

The AFR quoted Mr Byres: “In the current environment, banks face additional challenges to their capital resilience, including the material volume of loan repayment deferrals (which are subject at present to regulatory concessions), greater financial impact from COVID-19, and restrictions on dividends from their New Zealand operations.

ASX banks are also being impacted by the fact that New Zealand bank dividends are currently restricted, so profit generated there can’t be passed up to the parent banks in Australia.

The AFR is reporting that APRA wants the banks to utilise their capital buffers to help householders and borrowers through this period.

The share prices of Westpac (ASX: WBC), NAB (ASX: NAB), ANZ (ASX: ANZ) and CBA (ASX: CBA) are all up more than 1%.

AP Eagers (ASX: APE) shares race higher

The AP Eagers share price is up more than 8% after giving an update at its AGM.

Annual general meetings are usually focused on reviewing what happened in the previous financial year. But the AP Eagers leadership gave a sizeable update about how FY20 is going with COVID-19.

Management said that there has been a significant impact on the automotive retail industry. The car dealership business reduced its headcount and its fixed monthly cost base was cut by $6 million. However, the company managed to save many jobs with the help of jobkeeper. It was able to rehire 165 people due to jobkeeper as well.

The company has tried to optimise the existing business to achieve a significant cost reduction of around $78 million per year.

AP Eagers is expecting an underlying profit from continuing operations of $40.3 million, which represents a 23.6% decline from last year. Management think this is actually a pretty resilient operating performance considering the declines experienced in April and May.

The leadership are pleased with the company’s financial position with a substantial property portfolio and $633.9 million of available liquidity. This financial position provides the buffer to withstand long term impacts of COVID-19, according to AP Eagers.

CIMIC (ASX: CIM) rises on potential asset sale

The CIMIC share price is up more than 3% this morning.

Thiess is the world’s largest mining services provider according to CIMIC. CIMIC announced this morning that it has signed an exclusivity agreement and is in advanced negotiations with funds advised by Elliot Advisers to sell half of Thiess.

CIMIC said that the introduction of an equity partner in Thiess would capitalise on the “robust outlook” for the mining sector and provide capital for Thiess’ continued growth, while enabling CIMIC to maintain its strong balance sheet.

Management expect that the advanced negotiations will conclude in the coming weeks with a share purchase agreement that will require the usual approvals.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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