Marcus Bogdan: Reporting season and four stocks

Marcus Bogdan, Portfolio Manager of the Switzer Dividend Growth Fund (Quoted Managed Fund) recently spoke to Peter Switzer on Switzer TV to discuss reporting season, and four stocks that have performed well.

Watch the full interview here:

Video Transcript

Peter Switzer (PS): Well, it’s reporting season and Marcus Bogdan, who is the Fund Manager of the Switzer Dividend Growth Fund, has four stocks he wants to look at. They’ve reported recently and they’ve all done pretty well, which probably explains why the unit price of Switzer Dividend Growth Fund has gone up. Marcus. Good to see you, mate.

Marcus Bogdan (MB): Good morning, Peter.

PS: Let’s go through them now. The big one of course was CBA, which I guess you have a fairly significant holding of that in the fund. How good was that report? The market liked it.

MB: Well, all of the reports were better than expectations which was incredibly pleasing, but you’re absolutely right. CBA is really the bellwether for the Australian market. Historically it’s always traded at a premium to the other three banks. And the result was a justification, I think, of that premium. It is Australia’s largest bank, but it delivered above-system growth for mortgages, business lending, and deposit growth. It was an extraordinary performance by them from a volume perspective. Now net interest margins are still under pressure, and they did decline, and we expect further declines in the second half of this year. But the underlying volumes, and I think this is illustrative of how strong the economy is, is that you’re still seeing strong mortgage growth, a recovery in business lending, and household deposits still being incredibly robust. And that’s on the backdrop also, of the banks being in a very strong capital position and CBA have bought forward a $2 billion buyback which they’re now initiating. We expect, given this strength in their capital position, that further buybacks will be appropriate in the future period. So strong result by CBA underpinned by a dividend yield of around 4% fully franked and justification of the premium that CBA trades to the other banks.

PS: So is that $5 billion worth of dividends between the interim dividend and the buyback. You know, which is good news for a fund like yours. Let’s go to Suncorp now, because that was one earlier in the reporting season, but it was a real good one as well, wasn’t it?

MB: It is. Suncorp is a mixture of both a general insurer and a bank, and both volume and margins were better than expected. They’re on a pathway of recovery. They still need to do more on the cost side, but they are definitely leading on the insurance and the reiteration of the insurance margin was pleasing. And again, they also provide investors with a very attractive dividend yield of around 5% fully franked.

PS: Yeah. Let’s roll onto Macquarie, which is, you know has been an unbelievable achieving bank. I guess from your point of view, its dividend’s not as strong as other ones, but its growth is unbelievable, isn’t it?

MB: Yes, and I think importantly the medium and to longer-term prospects of Macquarie look particularly encouraging because they have pivoted towards financing green energy. This is one of the true growth themes in the next couple of decades and they were early movers on this. They bought a bank in the UK called the Green Investment Bank which is one of the largest providers of capital and finance to green energy. They are incredibly well-positioned. We’ve had various international agencies suggesting that, you know, green energy will be increasing, quadrupling in size over the next couple of decades. I think Macquarie will continue to be a beneficiary of that. The result was incredibly pleasing. It was a record quarter for the bank. It’s benefiting from strong underlying markets. And you’re right. The dividend yield is around 3%, but I think that will be accompanied by, you know, long-term underlying growth which will drive those dividends higher into the future.

PS: And it might be a small percentage but still lots of dollars.

MB: Yeah, indeed. And importantly, it’s the direction of travel which is so important in the companies that we look at. We want to be invested in companies that are growing their earnings because that then translates into them growing their dividends over time as well.

PS: Okay. The final one is one of your beloved Melbourne institutions, namely NAB, and I know that Paul Rickard’s been, you know, calling it the bank that he thought had the most likelihood of improving in the near term, and it’s done pretty well.

MB: It has. They reported this morning and like CBA they delivered a result which was above market expectations and really illustrated, you know, strong volume growth and also market share gains. They’re Australia’s largest business bank and they provide a dividend of 5% fully franked with a very strong capital position, sustainable payout ratio. We believe that that dividend will also improve into 2023.

PS: People watching this, you know who might not be invested in the fund, they really want to get value out of this from the point of view is, are these companies still worth buying? Do you think over the course of 2022 the CBA share price will creep back into the hundreds and NAB will, you know, get itself into the thirties? Do you think that’s likely to happen over the course of this year?

MB: Well, I think the banks will be underpinned by further illustration of earnings growth. Credit quality, importantly, remains benign, better than expected. I think investors will continue to be hungry for sustainable dividends, especially for those companies that can deliver dividend yields of four or five percent. Importantly, we believe that they are sustainable by both CBA and NAB, and so that dividend yield will be a much greater component of your overall return.

PS: I noticed you avoided the prediction on price, but I took that as being “yes”.

MB: Yeah. Well, we’ve just added to NAB in the fund. So yeah, we’re positively disposed towards them.

PS: Okay mate. Fantastic. One last thing, when you talk about that, I did like Matt Collins’ commentary, which basically said the bank sees two strong years, 22, 23, house prices rise in the first, 4-7%. They fall in the second. But the fact that you’re talking two strong years of growth, it’s going to translate into better company profits and better share prices. That’s not too long a bow to pull, is it?

MB: No, it’s not. I mean, we’re still expecting to see that growth and importantly, the capital positions of the banks are very, very sound and the payout ratios are now far more sustainable, around 70%. So, giving you the confidence around the delivery of those dividends over the next couple of years.

PS: Okay, mate. Good to see you. Thanks for joining us.

MB: Thanks, Peter. Cheers.

PS: That’s Marcus Bogdan, of the Switzer Dividend Growth Fund and Blackmore Capital

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