The hunt for capital in a COVID-19-strained economy has been forecast to see Australian companies squeeze a total of more than $350 billion, with as much as $19 billion to be retained from dividend cuts.
The analysis from AMP Capital portfolio manager Dermot Ryan has shown the federal government’s JobKeeper program will be the largest contributor to working capital, helping boost balance sheets by $130 billion if there is a full drawdown of government payment this year.
The investment manager has tipped out of the total $350 billion, around $19 billion will be raised through dividend cuts and around $9 billion in cancelled share buybacks.
AMP Capital has estimated half of the expected buybacks will be cut in 2020. The investment manager also previously tipped that ASX 200 payouts are set to be cut by a third or more in the coming year.
Further contributors to the $350 billion in capital are predicted to be $45 billion from banking facilities, $31 billion from bond issuances, $15 billion through listed equity issuance on the ASX, and a rough estimate of $7 billion in rent abatements nationally.
“Our analysis is skewed to what is happening at the big end of town, but a similar squeeze is on for small business, however, they are less able to raise debt and equity,” Mr Ryan said.
“For this reason, the federal government may have to consider increasing their working capital and debt-guarantee program as only $6 billion has been delivered to date in the COVID-19 SME stimulus and this might be a bit light in comparison.”
The slump is pitting traditional company stakeholders against each other, Mr Ryan added.
“Companies are having to decide on using cash and debt facilities to pay invoices, dividends, wages or spend capital expenditure for future growth,” he said.
“Working capital preservation is key during these times when revenues are under pressure and as companies move to preserve cash by temporarily standing down workers, negotiating rental abatements with landlords and reducing outgoings.
“We have seen directors and executives taking pay cuts, shareholders receiving reduced dividends, some job losses and government waivers and support programs. Wages and enterprise agreements need to get more flexible too in order to facilitate a recovery and keep jobs.”
But shareholders should remember the period is transitory, he said, recommending they value companies on a mid-cycle three-year basis and look through the short-term pause to find companies that will grow their earnings and dividends in normal times.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].