Equity Strategy Australian Equity Strategy – Has consensus downgraded enough for COVID-19?

Based on UBS analyst forecasts, Australian market EPS will not return to FY19 levels until FY23, while DPS will not return to FY19 levels until after FY23. After the GFC, it took over a decade for EPS to recover to their prior highs.

23 Apr 2020

This bar chart covers Market EPS for the time period of Financial Year 1992 through 2019, plus estimates for Financial Years 2020-22.

Consensus EPS falls largest since the GFC

COVID-19 has created a significant economic shock. Consensus EPS revisions are now falling at the fastest pace since the GFC, while revisions to dividend per share (DPS) are now falling at nearly twice the pace of falls seen in the GFC. For the market, since 28 February, consensus has revised CY20 EPS down by 18% (-17% for FY20) and CY20 DPS down by 22% (also -2 2% for FY20).

UBS estimates greater impact from COVID-19 than consensus in 2020

We highlight that UBS EPS and DPS estimates have been revised down by more than consensus. For the market, since the end of February, UBS CY20 EPS has been revised down 23% (-22% for FY20) and UBS CY20 DPS estimates have been revised down by 30% (-34% for FY20). These results imply that UBS is factoring in a greater impact from COVID-19 than consensus this year. Interestingly, for both consensus and UBS, revisions to DPS have been more negative than EPS, suggesting either further EPS downgrades, or that companies will decrease payout ratios in an effort to conserve capital.

The implied pace of recovery and market and sector multiples

UBS expects lower EPS growth in 2020 but also a larger EPS growth recovery in 2021. Based on UBSe, EPS will not return to FY19 levels until FY23, while DPS will not return to FY19 levels until well after FY23. On a 12 month forward basis, consensus has the market on a 15.6x PE while UBS sees the market on a higher 16.6x PE.

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