The Wrap: Dividends, Retail, BNPL & Business Travel

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Weekly Broker Wrap: Dividends; retail; BNPL; banks and business travel.

– Australian dividend growth outpaces the rest of the world
– Which retail sectors will benefit from Black Friday sales?
– BNPL winners and losers 
– When will business travel fully recover?

By Mark Woodruff

Australian dividend growth outpaces the rest of the world 

BHP Group ((BHP)) will be the world’s biggest dividend payer in 2021, distributing $25.6bn in combined payouts from the UK and Australian divisions. 

This comes as Australian dividends are expected to show record growth of 60% in 2021, a rate around four times faster than forecast for the rest of the world, according to the Janus Henderson Global Dividend Index.

Banks were instrumental in this performance, after restoring dividends towards pre-pandemic levels, as were miners after capitalising on high commodity prices, explains Janus Henderson. More than 60% of Australia’s third quarter payouts were contributed by miners, after a tripling of year-on-year dividends.

Banks were assisted by the lift in prudential limits and lower-than expected loan impairments. The final dividend for Commonwealth Bank ((CBA)) was only down -12.5% from its pre-pandemic level, with ANZ Bank ((ANZ)) close behind. Meanwhile, payouts for National Australia Bank ((NAB)) and Westpac ((WBC)) are expected to be only -15% lower than pre-pandemic levels.

Of course it should be noted Australia’s relative payout strength reflects a rebound from a low base as Australian companies were among the worst hit last year. In Japan and the US, companies did not cut dividends by as much and consequently their payouts showed less growth than the global average.

Which retail sectors will benefit from Black Friday sales

Despite potentially less discounting during the end-of-year trading period, due to supply chain issues and inflation, ANZ Bank economists expect sales will be strong.

They expect improved labour market resilience and strong household deposits will result in end-of-year spending on retail more similar to elevated 2020 levels than the pre-covid years. Additionally, due to lingering reticence post recent reopenings, travel dollars will still be partially allocated towards retail.

To get a grip upon changing patterns for end-of-year non-food retailing spend, the analysts compare Cyber Monday and Black Friday. After exceeding Boxing Day spending for the first time last year, Black Friday is expected to the biggest retail sales day. Cyber Monday sales, which tend to be around 66-75% of Black Friday spending, are expected to be within the same range.

Potentially, last year's data may provide some clues as to which retail sector stocks may benefit this year. Along with last year’s pronounced jump in electronics spending on Black Friday, women’s fashion and hobby store purchases also boosted sales growth, points out ANZ.

[Black Friday is the day after Thanksgiving in the US, and Cyber Monday is the following Monday when online retailers offer discounts. A la Halloween, these US-specifc shopping events have insuinuated themselves into Australia via the influence of Amazon et al, and snapped up by local retailers as another promotional opportunity – Ed]

BNPL winners and losers 

Looking at the BNPL sector on a global basis, US-based Affirm Holdings has the highest gross merchant value (GMV), according to data compiled by Citi.

However, PayPal is catching up given its expanding geographical presence. The company generated GMV growth of 39% (the highest quarter-on-quarter rate), partly due to the launch of Pay in 4 in Australia. The company also intends to launch in Spain and Italy during the December quarter.

Meanwhile in the US alone, Affirm continues to have the higher GMV, after September quarter merchant sales of US$2.7bn, which compares to US700m and US460m for Zip Co ((Z1P)) and Sezzle Inc ((SZL)), respectively.

Shop Pay, powered by Affirm and available to all eligible Shopify merchants in the US, is driving Affirm’s growth, resulting in a material increase in active merchants for the September quarter. Moreover, Split Pay (Affirm’s Pay in 4 offering) has increased to around 12.5% of merchant sales in the September quarter from 6% in FY21.

Affirm has 102,000 merchants integrated as of September, compared to 44,000 for Sezzle and 17,000 for Zip Co. Also, given Affirm’s focus on larger-ticket items, the company’s spend per customer is double that of Zip Co and Sezzle.

While Zip Co’s app downloads and website visits in the US rose month-on-month in October, Citi feels this is arguably a weak performance when considering the step-up in marketing required to rebrand from Quadpay to Zip. That being said, Zip’s 2Q AGM trading update points to a better than expected start. 

While Afterpay’s ((APT)) US website visitation growth continues to slow, to 9% from 14% in September, active app users continue to increase. The latter increased by 5% month-on-month in October. According to Citi, this points to traction for the ‘Shop Anywhere’/Virtual card which allows app users to transact at non-integrated retailers.

When will business travel fully recover?

The world’s largest business travel association is predicting a surge in 2022 global business travel spending. A full recovery by 2024 is also expected, a full year earlier than previously thought.

The latest report from the Global Business Travel Association (GBTA) points to a 38% jump in spending in 2022, as recovery and pent-up demand kicks into a higher gear.  

The expected 14% rebound in 2021 business travel spending was slower than the GBTA forecast last February, due to pandemic surges, variant introductions, uneven vaccination rates and mounting supply chain challenges. 

The same factors may impact on the current forecast, acknowledges the association, along with rising labour shortages and inflation. There’s also the potential for a lagging recovery in Asian markets and broad adoption of remote working models. 

Long term cuts to, or elimination of, business trips is another threat, along with increased sustainability practices and policies for business travel. 

In terms of regions, during 2021 North America led with business travel rising by 27%, while Latin America, Middle East and Africa (MEA) and Asia-Pacific (APAC) all experienced 15% to 20% growth. While initially lagging in 2021, business travel demand in Europe is set to outpace most other parts of the world this year.

Meanwhile, a recovery in Asia Pacific has been held back by slower border re-openings and not at all helped by a downgrade to China’s expected growth rate.

According to the GBTA, corporate travel managers will now have to balance duty of care with rising costs, sustainability priorities, and new considerations on the return on investment (ROI) of business travel.

Nonetheless, a GBTA poll of 400 global business travellers provides cause for optimism. It revealed that 86% of respondents feel travel is needed to accomplish business goals, while 81% predict their level of domestic business travel in 2022 will be greater than, or match pre-pandemic levels.

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