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Last week blood product company CSL Limited (ASX: CSL) released a huge result for the 2020 financial year. The CSL share price soared on the news. But three things in particular caught me by surprise:

1. CSL was able to avoid major COVID-19 disruption

Collecting plasma from donors is an essential part of producing many of CSL Behring’s products. I was expecting the disruption from the COVID-19 pandemic might have a big impact on the company’s performance. However CSL was able to avoid major disruption and says plasma collections only dropped by around 5% compared to the prior financial year.

This was helped somewhat by the opening of 40 new plasma collection centers and a US Food and Drug Administration mandate that reduced plasma quarantine periods from 60 to 45 days. The reduction opened up inventories and improved the availability of essential blood components.

Still, CSL says that COVID-19 restrictions are expected to continue to restrain plasma collections in the 2021 financial year and it expects increased collection costs for plasma in the year ahead.

2. Cash flow from operations rocketed 51%!

Given revenue lifted by a solid 7.2% in the 2020 financial year I was not expecting a huge 51% jump in cash flow from operations. The increase helped to power CSL’s cash balance to US$1.2 billion, up almost 82% on the prior year.

Because CSL has changed to the ‘indirect’ method of reporting cash flows, it can be a little tricky to tell exactly what drove the increase. But essentially, the higher profit result, combined with less cash tied up in working capital and less cash paid out in taxes, helped to lift cash from operations higher.

3. CSL has one of the top CEOs in the world

Earlier this year, I wrote that I think CSL could be one of the best companies in the world. So I shouldn’t have been surprised to discover that CEO Paul Perreault had been named as one of the top 100 CEOs in the world by Harvard Business Review. In fact, he came in a few places ahead of fellow healthcare titan Colin Goldschmidt, CEO of Sonic Healthcare Limited (ASX: SHL).

Paul Perreault has been with CSL since July 2013. CSL’s reported revenues have almost doubled since then, climbing from US$5.1 billion to US$9.2 billion.

With the successful integration of flu vaccine business Seqirus, and continuing success in research and development, it’s no wonder Perreault is considered one of the best.

More reading

• The latest ASX stocks that brokers just upgraded to “buy”
• 3 ASX shares that could give investors a stock split in 2020
• Here’s why I would buy CSL and this ASX blue chip share
• Here are the highlights of this ASX reporting season
• This healthcare share could be a COVID-19 bargain

Regan Pearson has no position in any of the stocks mentioned. You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended Sonic Healthcare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Bravura Solutions Ltd (ASX: BVS) share price will be on watch on Wednesday following the release of its full year results.

How did Bravura perform in FY 2020?

Bravura was on form in FY 2020 and delivered another year of growth and further operating leverage expansion.

For the 12 months ended 30 June 2020, Bravura reported a 6% increase in revenue to $274.2 million. This comprised a 2% increase in Wealth Management revenue to $180.4 million and a 16% lift in Funds Administration revenue to $93.8 million.

Thanks to the aforementioned operating leverage expansion, the company earnings before interest, tax, depreciation and amortisation (EBITDA) margin increased from 18.8% to 21.1% in FY 2020. This led to Bravura reporting a 19% increase in EBITDA to $57.8 million.

This EBITDA growth was driven entirely by its Funds Administration business, which reported a 33% increase in EBITDA to $43 million. This offset a 2% decline in EBITDA for its Wealth Management segment to $52.9 million. Management advised that this decline was driven by lower licence fees during the year. Nevertheless, it notes that the business has a sales pipeline that is strong and growing, with significant opportunities across all key markets. Though, it warned that COVID-19 is lengthening the sales cycle.

On the bottom line, Bravura posted a 22% increase in net profit after tax to $40.1 million. Approximately $3 million of this came from acquisitions. On a per share basis, earnings came in at 16.5 cents.

In light of its positive form during the pandemic, the Bravura board declared a 5.5 cents per share unfranked final dividend.

Bravura’s Chief Executive Officer, Tony Klim, was pleased with the company’s performance in FY 2020.

He said: “We are pleased to report our FY20 results, with continued investment and the acquisitions of FinoComp and Midwinter positioning Bravura for long-term growth driven by market demands for microservices ecosystems, digital solutions and automation. Midwinter and FinoComp expand our product ecosystem, integrating adviser and microservices solutions with our core registry offerings. As expected, group margins continued to expand, reflecting the benefits of scale and operating leverage in the business.”

FY 2021 outlook.

Although the company has a strong sales pipeline across its key markets, management has warned that FY 2021 could be a challenging year because of the pandemic. As a result, its earnings could be flat year on year.

It explained: “While the new sales pipeline remains strong, due to the wider impact of COVID-19 there is greater uncertainty in the timing of deal closures when compared to prior years. It is therefore possible that FY21 NPAT will be similar to FY20.”

More reading

• 2 ASX growth shares to buy with $2,000
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• 2 ASX growth shares to buy with $2,000
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd. The Motley Fool Australia has recommended Bravura Solutions Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Spark New Zealand Ltd (ASX: SPK) share price is on watch after the Kiwi telco’s full-year earnings result delivered to guidance.

What does Spark New Zealand do?

Spark New Zealand is a major New Zealand telecommunications company with operations as a fixed-line telephone, mobile networks, internet service and ICT service provider.

Prior to the market open, the Kiwi telco share was up 9.9% in 2020 with a market capitalisation of $8.3 billion.

Why is the Spark New Zealand share price on watch?

Spark reported 2.5% revenue growth for the year ended 30 June 2020 (FY20) to deliver $3,623 million in revenue.

A strong first half of the year established the momentum which saw mobile service revenue grow 3.9% and cloud, security and service management revenue climb 10.8%.

Spark noted a quick response to the coronavirus pandemic as a key factor. The group moved to maintain essential services and contain costs to help offset lost earnings.

Earnings before interest, tax, depreciation, amortisation and investment income (EBITDAI) grew 2.1% to $1,113 million. That delivers to the middle of Spark’s previously provided guidance for earnings.

Net profit after tax climbed 4.4% to $427 million thanks to that earnings growth and a lower tax expense.

Dividends

The Spark New Zealand share price is one to watch after reporting a final dividend of 12.5 cents per share (cps).

Combined with the 12.5 cps interim dividend announced in February, Spark’s total FY20 distribution will be 25 cps.

Based on yesterday’s closing Spark New Zealand share price of $4.54 per share, that represents an approximate 5.5% dividend yield.

FY21 guidance

After a strong yearly result, management did provide guidance for FY21 despite the current uncertainty.

EBITDAI is expected to fall between $1,090 million and $1,130 million compared to $1,113 in FY20.

Spark is targeting an FY21 dividend of 23 to 25 cps, 100% imputed. That represents a flat or marginal decline in distributions versus FY20 distributions.

The Spark New Zealand share price is one to watch as investors weigh up the FY21 forecast versus FY20 growth.

More reading

• 3 big surprises from the CSL full year results
• Bravura Solutions share price on watch after strong FY 2020 growth but cautious guidance
• Seven Group share price on watch following FY 2020 earnings release
• Betmakers share price on watch as revenues rocket 39%
• Steadfast share price on watch as dividends jump 13%

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Seven Group Holdings Ltd (ASX: SVW) share price is on close watch today following the release of the company’s full year financial results.  

Seven Group owns a portfolio of investments including industrial services, media and property.

Reasonably solid result in challenging market conditions

Investors will be watching the Seven Group share price today after the company reported total trading revenues of $4.6 billion for the 12 months ending June 30 2020. This was a strong increase of 12% on the prior financial year. The group achieved underlying earnings before interest and tax (UEBIT) of $740 million, a marginal increase of 2% on FY 2019. Underlying net profit after tax (NPAT) came in at $474 million. This was a 3% rise on the prior financial year.

Seven Group ended FY 2020 with a relatively strong balance sheet. Underlying operating cash flow for the company came in at $826 million, a 29% rise on the prior corresponding period.

The group declared a fully franked final dividend of 21 cents per share, the same level as in the previous year.

WesTrac outperforms other Seven Group segments

WesTrac was the standout segment in terms of profitability performance for Seven Group. The WesTrac segment delivered EBIT of $371.0 million, up a very strong 22% on the prior year. Revenue also grew strongly for WesTrac, up by 15%. Demand in the company’s Parts and Service segment remained resilient during the 12 month period. This was supplemented by a continued rise in product sales for the CAT equipment dealer.

Seven Group’s investment holdings in energy, however, saw a sharp decline in profitability (underlying EBIT) of 19% to $126.6 million for FY 2020. Beach Energy Ltd (ASX: BPT) was still able to achieve a robust production result for the 12 month period though, with pro-forma production levels up 2%.

In other segment results, underlying EBIT for Coats Hire declined by 1%. Meanwhile, media investments took a big hit, with EBIT down by 25% due to a particularly challenging fourth quarter from the impacts of COVID-19.

Ryan Stokes, Managing Director and Chief Executive Officer, commented: “Today’s result reflects a strong performance from our operating businesses and the robustness of our diversified model….In particular our Industrial Services portfolio has delivered solid growth with WesTrac executing a standout performance, reflecting the strong demand from customers who remain active in mining production and construction.”

Market outlook

Due to the continuing uncertainty surrounding the global coronavirus pandemic, Seven Group decided not to provide earnings guidance.

Over the medium to long term, the group will continue to focus on mining production and infrastructure investment. In particular, east coast gas demand is is viewed by the group as a key  growth opportunity.

The Seven Group share price closed yesterday at $19.18.

More reading

• The next ASX stocks to beat expectations during this reporting season

Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Betmakers Technology Group Ltd (ASX: BET) share price is on watch after the company posted a 39% jump in full-year revenue.

What does Betmakers do?

Betmakers is an Aussie racing data and analytics supplier  with a number of products and solutions. These include DynamicOdds, BettingHub, Global Tote and GBS. 

Betmakers is focused on providing innovative industry and bookmaker solutions to improve industry coverage and the consumer experience.

Why is the Betmakers share price worth watching?

Betmakers released its earnings for the year ended 30 June 2020 (FY20) headlined by a 39.1% increase in revenue to $8.58 million.

That included $2.25 million from Content and Integrity with a further $6.33 million generated from the Wholesale Wagering Products segment. 

However, that strong revenue didn’t flow to the bottom line with the Aussie wagering group posting a $2.1 million loss, down 40.6% from FY19.

It’s been a wild ride for investors with the Betmakers share price surging 468.8% higher since 23 March at the bottom of the bear market.

The coronavirus pandemic has impacted the racing industry and the Betmakers share price in 2020. However, the company reported growing demand for its digital products and services since the pandemic began.

New deals in global markets like the United States and United Kingdom underpinned strong revenue growth.

Pleasingly for shareholders, the Betmakers share price grew more than 800% in FY20 from 4.5 cents to 42.5 cents at 30 June.

The company raised $35 million in June 2020 thanks to several new institutional investors betting on further growth.

It was good news on the balance sheet side with net tangible assets climbing from -0.60 cents to 7.09 cents in FY20.

FY21 outlook

There was no specific guidance provided for FY21 but Betmakers does have a few key focus areas.

One of those is advancing its position in the US as the country’s wagering market continues to grow.

The strong demand reported in Managed Trading Services, Platforms and Global Racing Network are expected to continue this year.

The Betmakers share price was up 228.6% for the year prior to this morning’s open.

More reading

• Steadfast share price on watch as dividends jump 13%
• Jumbo Interactive share price on watch after signing Tabcorp deal
• 5 things to watch on the ASX 200 on Wednesday
• Beat ultra low interest rates with these top ASX dividend shares
• CBA and NAB may suggest to risky borrowers to sell their property

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Steadfast Group Ltd (ASX: SDF) share price is on watch after the Aussie insurer reported a strong underlying result last night.

What does Steadfast do?

Steadfast is Australia’s largest general insurance broker with growing operations in Asia and Europe.

The insurer boasts a network of more than 458 general insurance brokerages in Australasia.

Why is the Steadfast share price on watch?

The statutory numbers were soft as Steadfast reported a $55.2 million net profit after tax (NPAT) loss due to acquisition and impairment costs.

However, on an underlying basis, Steadfast enjoyed a healthy period of growth in the year ended 30 June 2020 (FY20).

The insurer reported a 15.5% increase in earnings before interest, tax and adjustments (EBITA) to $193.3 million. That was on the back of a 21.4% jump in underlying revenue to $688.3 million with underlying NPAT rocketing 19.0% to $89.2 million.

The Steadfast share price is on watch this morning after yesterday’s result which was underpinned by 36% growth in network gross written premiums (GWP) to $8.3 billion. That included 6.3% of organic growth before including Authorised Representatives and IBNA contributions.

The insurer reported record organic GWP growth in its Steadfast Underwriting Agencies business. Segment GWP jumped 13.1% to $1.33 billion with underlying EBITA up 14.7% to $105.8 million.

Steadfast’s insurTech segment also posted strong growth figures. GWO transacted through the Steadfast Client Trading Platform (SCTP) jumped 45% to $638 million in FY20.

Free cash flow jumped 27.2% to $70.6 million driven by strong operating cash flow figures.

Steadfast remains conservatively geared at 21.5%, well below its 30% maximum gearing ratio, with $323 million of borrowings.

Dividends

Steadfast reported a 13.2% increase in its final dividend to 6.0 cents per share (cps), fully franked.

Combined with its 3.6 cps interim dividend, the group’s final dividend is 9.6 cps up 12.9% on its FY19 payout.

Based on yesterday’s closing Steadfast share price that translates to a 2.7% dividend yield per annum.

FY21 outlook

The Steadfast share price will be one to watch as investors process the insurer’s FY21 guidance.

Steadfast is projecting underlying EBITA of $235 million to $245 million, compared to $193.3 million in FY20.

Underlying NPAT is forecast to increase from $89.2 million to between $115 million and $122 million this financial year.

The coronavirus pandemic has created ‘significant uncertainty’ but Steadfast sees trading conditions similar to those seen in Q4 2020.

More reading

• Betmakers share price on watch as revenues rocket 39%
• Jumbo Interactive share price on watch after signing Tabcorp deal
• 5 things to watch on the ASX 200 on Wednesday
• Beat ultra low interest rates with these top ASX dividend shares
• CBA and NAB may suggest to risky borrowers to sell their property

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Steadfast Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Jumbo Interactive Ltd (ASX: JIN) share price is one to watch after the company signed a long-term deal with Tabcorp Holdings Limited (ASX: TAH).

What does Jumbo Interactive do?

Jumbo Interactive is an Australian-based entertainment company and a digital retailer of official government and charitable lotteries.

The group’s flagship service, OzLotteries, is one of Australia’s largest digital retailers with over $150 million in ticket sales per year and over 2 million customer accounts.

Based on the current $13.62 Jumbo Interactive share price, the entertainment group is valued at $850.6 million.

Why is the Jumbo Interactive share price on watch?

Jumbo has finalised and signed a 10-year deal with Tabcorp to extend its current 15-year arrangement. The deal, announced on 29 June, locks in the current partnership across most of Australia until 2030.

That’s good news for investors and we could see the Jumbo Interactive share price on the move in early trade.

This helps build the platform for Jumbo’s plan to expand its lottery sales across Australia as part of its ‘$1 billion vision’ by 2022.

However, the new deal does not permit the sale of Tabcorp lottery products to Western Australian customers (where Tabcorp does not have a license).

Jumbo expects to know by 30 September the prospects of an agreement with Lotterywest regarding a potential solution for Western Australia.

The company’s shares have fallen 9.0% lower this year despite a strong recovery since the March bear market.

The Tabcorp share price is also under pressure after falling 21.2% lower this year.

What does this mean for Jumbo Interactive?

This is good news for Jumbo Interactive in providing some more long-term certainty.

I’d expect the Jumbo Interactive share price to be on the move as investors take in the latest announcement.  This should also underpin sales growth and help build momentum behind the ‘Powered by Jumbo’ software platform.

Despite challenges amid the coronavirus pandemic, Jumbo reaffirmed its FY20 guidance on 29 June 2020. That included higher revenue expectations despite soft net profit and earnings numbers.

More reading

• Tabcorp share price halted ahead of $600 million equity raising
• Why I would buy Nearmap and this ASX mid cap share right now
• Why Tabcorp is the latest “conviction buy” recommendation from this top broker
• 50% off: 2 dirt cheap ASX shares to buy today
• 3 mid cap ASX shares that could generate strong long term returns

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia has recommended Jumbo Interactive Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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On Tuesday the S&P/ASX 200 Index (ASX: XJO) was on form again and pushed notably higher. The benchmark index rose 0.5% to 6,161.4 points.

Will the market be able to build on this on Wednesday? Here are five things to watch:

ASX 200 poised to sink lower.

The ASX 200 looks set to end its winning streak on Wednesday. According to the latest SPI futures, the benchmark index is poised to drop 31 points or 0.5% lower at the open. This is despite it being a reasonably positive night of trade on Wall Street. The Dow Jones fell 0.2% but the S&P 500 rose 0.35% and the Nasdaq jumped 0.75%.

Woolworths result.

All eyes will be on the Woolworths Group Ltd (ASX: WOW) share price this morning when it releases its eagerly anticipated full year results. A strong result is expected from the conglomerate thanks to the strength of its key Woolworths supermarkets business during the pandemic. According to CommSec, the market is expecting a net profit after tax of $1.34 billion.

Oil prices jump.

Energy producers such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could be on the rise today after oil prices jumped overnight. According to Bloomberg, the WTI crude oil price is up 1.8% to US$43.40 a barrel and the Brent crude oil price is up 1.8% to US$45.96 a barrel. Storm driven output cuts have given prices a boost.

Gold price softens.

Gold miners such as Evolution Mining Ltd (ASX: EVN) and Resolute Mining Limited (ASX: RSG) could come under pressure on Wednesday after the gold price softened further. According to CNBC, the spot gold price dropped 0.3% to US$1,933.30 an ounce amid optimism over a trade deal between the United States and China.

Flight Centre to report major loss.

The Flight Centre Travel Group Ltd (ASX: FLT) share price will be in focus this morning when its full year results are released. The travel agent giant is expecting to report a significant loss after tax in FY 2020 because of the pandemic. It has provided guidance for a statutory loss of between $825 million to $875 million. Investors will no doubt be keen to hear about current trading conditions.

More reading

• ANZ-Roy Morgan consumer confidence rises as COVID-19 case numbers fall
• ASX 200 rises, Bingo jumps after reporting
• Afterpay share price leaps 7% today after 3 broker upgrades
• The latest ASX stocks that brokers just upgraded to “buy”
• ASX 200 up 0.7%: Big four banks storm higher, Blackmores disappoints, Xero acquisition

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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With the cash rate tipped to remain on hold for at least a couple of years, it looks as though income investors will have to contend with ultra low interest rates for some time to come.

But don’t worry! Because there are easy ways to beat these low interest rates on the Australian share market.

Two ASX dividend shares that offer vastly superior yields are listed below. Here’s why I would buy them:

Rural Funds Group (ASX: RFF)

One of my favourite dividend shares on the Australian share market is Rural Funds. It is a leading agriculture-focused property company which owns a total of 61 properties across five agricultural sectors including almonds, cattle, cropping, vineyards and macadamias. One of the main reasons I’m a fan of the company is its long leases. At the end of FY 2020 Rural Funds had a weighted average lease expiry of 10.9 years.

Combined with periodic rent increases and its high quality tenants, which include Treasury Wine Estates Ltd (ASX: TWE), I believe Rural Funds is well-positioned to grow its distribution at a consistently solid rate over the next decade. In FY 2021 the company intends to grow its distribution by 4% to 11.28 cents per share. Based on the current Rural Funds share price, this equates to a very attractive 5.1% yield.

Telstra Corporation Ltd (ASX: TLS)

Another ASX dividend share to consider buying right now is Telstra. Times have been hard for the telco giant over the last few years, but things are starting to improve greatly now. This is thanks to the easing NBN headwind, the simplification of its business, its cost cutting plans, and the arrival of 5G.

And while the pandemic is going to weigh on its performance slightly because of the loss of roaming revenue, I remain confident the company is well-positioned to return to growth in the near future. In the meantime, I’m optimistic that Telstra will change its dividend policy and continue to pay a 16 cents per share dividend in FY 2021. Based on the current Telstra share price, this will mean a generous fully franked 5.2% dividend yield.

More reading

• 3 ASX dividend shares that have increased their payouts in 2020
• Rural Funds share price rises on FY20 results
• What are dividend shares and how do you find them?
• ASX 200 Weekly Wrap: Blue chips, earnings drag ASX lower
• Why I would buy CBA and this top ASX dividend share

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED, Telstra Limited, and Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Big ASX banks Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) may soon ask borrowers to consider selling if that seems like the best decision.

What’s going on?

According to reporting by the Australian Financial Review, Commonwealth Bank has said that its most leveraged borrowers could be encouraged to downsize the family home or sell multiple investment properties. CBA is worried about borrowers who look as though they don’t have good prospects to return to work due to COVID-19.

CBA isn’t going to force people to sell their house too quickly, but it wants to have a good understanding of a borrower’s situation. The head of CBA’s retail bank, Angus Sullivan, said risky borrowers may need an “alternative solution path”.

He told the AFR: “If you had a lot of debt from [buying at the peak of the market] and you were in a difficult position from an employment perspective, [downsizing] would be exactly the type of solution that would be worth having a discussion about.”

The biggest ASX bank is expecting that most borrowers will return to making payments by the end of 2020, even if it’s just repaying interest. 

This follows on from the NAB CEO (Ross McEwan) commenting that some property owners may be better off selling early and taking equity out of their homes before it disappears.

What does this mean?

Banks like CBA are profit-making enterprises. They need to manage their loan books and minimise losses where possible.

Property fire sales won’t help things, but banks aren’t going to give borrowers holidays forever either.

The CoreLogic home value index has shown national house prices steadily dropping over the past few months. At 31 July 2020, national prices had fallen 0.6% over the month and 1.6% over the prior three months. The fall was most pronounced in Melbourne with a 1.2% drop over the month.

This type of fall isn’t going to wipe out the built-up equity on people’s properties, but if prices do keep falling then the banks may become more worried.

Collectively, the big ASX banks of CBA, NAB, Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have provisioned billions of dollars for the potential losses caused by COVID-19 impacts.

Wise advice from a finance guru

Personal finance expert Scott Pape – also known as the Barefoot Investor – recently sent out a message to his many thousands of email subscribers which included the following section:

‘My hunch is that the banks are betting that the overwhelming majority of their customers will get through this. Yet they also know a small number of their customers won’t, and so they (well at least Ross McEwan) are turning up the heat on them.

My advice?

Please don’t misquote me: I am not saying you should sell your home.

What I am saying is don’t be a frog … if you were in hot water before COVID hit, don’t just sit there bubbling away.

We’re still early on in this crisis, and you have more options than you think. And if you want someone independent (and free!) to walk beside you and carefully lay out your options, call the National Debt Helpline on 1800 007 007 and speak to a financial counsellor (like me) immediately.

The last word goes to McEwan:

“We’ve seen in other crises around the world, when people try to hold on they end up walking away with nothing.”’

Foolish takeaway

It will be very interesting to see what happens over the next six to twelve months. A safe and effective vaccine could really boost the outlook for people who work in impacted industries like airlines, tourism and venues. It would also help confidence for the broader economy. 

But if banks like CBA see that a growing number of borrowers aren’t going to be able to afford to stay in their homes then there could be more pressure put on them to sell.

People waiting to buy a home may be hoping for lower house prices. But as we saw during 2018 and early 2019, falling house prices can impact consumer confidence and spending.

I wouldn’t want to buy bank shares today, though CBA is my preferred pick of the big four due to its stronger balance sheet and higher-quality.

More reading

• ASX 200 up 0.7%: Big four banks storm higher, Blackmores disappoints, Xero acquisition
• 3 ASX shares that could give investors a stock split in 2020
• What are dividend shares and how do you find them?
• 6 ASX giants pay $1 billion for ripping off customers
• Here are the highlights of this ASX reporting season

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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