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Summary
- Commonwealth Bank of Australia and Sydney Airport are the key players in the S&P/ASX 200 index, and their performance has a direct impact on the index.
- Sydney Airport results adversely impact during the half-year with a drop of 35.9% in the revenue and loss after income tax expense of A$53.6 million; raised A$2 billion via equity raising on 14 August.
- Commonwealth Bank witnesses a growth of 12.4% to A$9,634 million in statutory NPAT. The Company declared the full-year dividend of A$2.98 per share.
- Despite the challenging environment, the two players have been resilient and managed to stay in a robust position with prudent strategies and enhanced liquidity position.
Sydney Airport and Commonwealth Bank are amongst the top 200 companies that form the S&P/ASX 200 index and are vital players that directly influence the performance of the index. On 14 August 2020, an improvement of 0.58% was seen in the S&P/ASX 200 index which settled at 6,126.2.
Most indices on the ASX closed in the green zone. It appears that a positive influence was because of the economic update provided by RBA’s Governor Philip Lowe. The Governor highlighted that the Australian economy would contract by ~6% in 2020. It would then grow by 5% next year & 4% in 2022. While the 2020 estimates would have been expected by most, return to growth next year creates an air of optimism.
Despite the last 12 months (to 30 June 2020) being extremely challenging for Australia, some established players, by being proactive, bolstering their balance sheets, and taking cost-effective measures, have managed to stay afloat in a reasonably comfortable position and are ready for the next phase of development in the economy.
With the ongoing earnings season, we would look at Sydney Airport and Commonwealth Bank, who recently released their results. We will look at their financial and operational performance, how they managed their operations during the period and their outlook.
Sydney Airport (ASX:SYD)
Sydney Airport, on 11 August, released its 1H FY2020 results for the period ended 30 June 2020. Let us glance at the results:
- Total revenue declined by 35.9% to A$511 million on 1H FY2019.
- Loss after income tax expense was A$53.6 million.
- Because of the COVID-19 pandemic and related traffic restrictions, the passenger volume got impacted.
- Sydney Airport reported a drop of 56.6% in the number of passengers. There were 9.4 million passengers who visited the airport during 1H FY2020.
- International passengers decreased 57.3% while domestic by 56.1% as compared to the previous corresponding period.
- EBITDA declined by 35.4% to A$300.4 million.
- Net operating receipts were down 79% on the pcp.
- Operating costs for the 1H FY2020 slipped 20.5% with savings tracking consistent with the cost reduction plan.
- Capital investment during the period was A$152.8 million, used for delivering critical projects targeting asset resilience, safety, and security.
- Balance sheet remains strong, and the credit ratings were BBB+/Baa1 and financial flexibility with more than A$2.6 billion of liquidity.
Due to COVID-19 pandemic, the impact on the results was seen in various ways, including:
- Expected credit loss
- Capital projects impairment
- Abatements
Outlook:
In the present situation, Sydney Airport is not sure about the duration of the domestic and international travel restrictions. Till the time restrictions are in place, the Company expects that their operations would be adversely impacted.
Regarding operating costs and capital expenditure, Sydney Airport would maintain discipline and is currently practising further reductions in the operating cost by 35% for 12 months, starting 1 April 2020.
Capital project expenses will be further reduced in between A$100 million to A$125 million for CY2021 1 primarily concerning to key projects. Meanwhile, it would evaluate commercial investment opportunities which are subjected to business case assessment. The Company did not declare any distribution.
Capital Raising:
Apart from the announcement of 1H FY2020 results, the Company also unveiled its plan to raise A$2 billion via a fully underwritten pro-rata accelerated renounceable entitlement offer, with retail rights trading. The placement was completed on 14 August 2020, and the Company could raise A$1.3 billion successfully.
Commenting on the equity raising, Sydney Airport CEO, Geoff Culber stated that the equity raising would position the Company for the future. Although the Company took pre-emptive action at the start of the COVID-19 pandemic, there is massive uncertainty concerning the time it would take for the aviation markets to return to pre-COVID-19 levels.
Hence, the Company is taking decisive action to strengthen its balance sheet and to ensure that it remains well capitalised to meet the challenges presented by COVID-19 operating environment.
The Entitlement Offer would:
- Considerably reduce the net debt of the Company.
- It would improve the financial resilience of SYD.
- Help in maintaining a strong investment-grade credit rating.
- Increase the liquidity available to Sydney Airport.
Stock Performance:
By the end of day’s trade, SYD shares settled at A$5.310, down 1.484% from the previous close.
Commonwealth Bank of Australia (ASX:CBA)
On 12 August 2020, Commonwealth Bank of Australia released its annual results for the period ended 30 June 2020. Below are the highlights of FY2020 results:
- Statutory NPAT increased 12.4% to A$9,634 million while cash NPAT dropped by 11.3% to A$7,296 million as compared to the previous corresponding period. The NPAT was supported by the robust business performance offset by higher loan impairment expense due to COVID-19. Increase in the statutory NPAT was due to gains on sale from divestment.
- Operating income increased 0.8% to A$23,758 million.
- Operating expenses were up 0.7% to A$10,895 million.
- Loan impairment expense increased by A$2,518 million on pcp.
- Common Equity Tier 1 (CET1) capital ratio was 11.6%, up 90 bpts on FY2019.
- The full-year dividend declared by the Company was A$2.98 per share, down 31% on pcp.
MUST READ: CBA profit down 11%, but is it bad?
Outlook:
The Company confirmed that they are focused on helping its customers & the economy through the crisis to recovery.
Despite the challenging situation which the country faced during the pandemic, the Company’s operational performance remains strong. Its balance sheet is robust and has a strong capital position which would help the Company to continue supporting customers and the economy.
Using its strengths in customer service, technology and data, the Company has plans to check-in frequently with clients to assess their financial requirements and to support their recovery.
Apart from this, the Company would focus on retail, business, and digital banking to additionally extend its franchise strength and to deliver long-term performance and returns for shareholders.
Stock Performance:
By the end of day’s trade, CBA shares settled at A$71.760, down 0.925% from the previous close.
