Afterpay Touched by Bank Rotation

Was last week a one-off reshuffle of investor sentiment towards financials, or has there been a deeper transition in the market with the big banks firmly back in favour and those once high flying fintechs on the outer, led by the top darling of them all, Afterpay Touch?

With four major banks reporting results last week – ANZ, Westpac and NAB, plus investment bank, Macquarie Group, banks were always going to be at the forefront of investor thinking last week.

But it was the bank not included in this week’s reports – the Commonwealth – that grabbed all the attention on Friday by hitting a new record high of $94 in trading and closed 1.1% higher at $93.92.

That left the CBA up nearly 5.5% for the first week in May and more than 14% for the year to date.

Contrast that strong performance to that of Afterpay – up to mid-February, a market leader. Since then it has become something of a laggard as the interim results and a series of updates about offshore (US) and Australian expansion left investors increasingly underwhelmed.

That saw the shares sold off this week – down nearly 19% last week including a 4.1% fall on Friday.

Friday’s close of $95.38 was the lowest the shares have been since midway through last September and the weekly fall of 18.9% accounts for nearly all of the 19.2% slide year to date.

But in the past three months the shares have fallen by around 36%. Afterpay touched a seven-month intraday low of $92.18 in trading on Friday.

Westpac shares had a good week – up 4.4% for the week (after Monday’s 5% gain, it was weaker over the rest of the week). But Westpac shares have bounced back in 2021 by nearly 35% as it recovered from its poor year in 2020.

Shares in ANZ (down 3.4% for the week) and NAB (up just 0.45% over the week), didn’t fare as well as the CBA or Westpac. Macquarie shares also fell over the week by 1.27% (but are up 14.4% for the year so far) despite reporting a jump in final and full year dividend after a 10% rise in earnings for the year to March to $3.1 billion.

The big four banks and Macquarie have easily outperformed the wider market so far this year – the ASX 200 is up just 7.7%.

The big difference between the big banks (including Macquarie) and Afterpay is that so far in 2020 (and since last November in fact) they have given shareholders capital appreciation and a return to interim dividends, or increased payouts, with the promise of more to come later this year.

The CBA has a third quarter trading update slated for next Wednesday and analysts now say that based on the results from Westpac, ANZ and NAB, the Commonwealth can easily afford a high second half dividend after paying a $1.50 a share interim.

With the way the three banks brought some of last year’s loan loss provisions back into their P&L accounts gives the Commonwealth scope for a similar move this half after adding to its reserves at December 31.

There’s probably a lot more strength left in the CBA share price, but the May 12 third quarter update this week will be a big test.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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