JobKeeper and JobSeeker extension

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
21 July 2020, 4:40 PM
Sectors Covered:
Equity Strategy and Quant

JobKeeper 2.0

The government announced today that it would extend the JobKeeper wage subsidy to March 2021. From October, a two-tier system will be introduced with the full-time rate reduced from $1500 to $1200 a fortnight while the casual and part-time rate (<20 employed hours) reduced from $1500 to $750.

The rate then drops further in January through to March 2021 from $1200 to $1000 for full-time employees and from $750 to $650 for part-time and casual workers. The scheme will also impose tighter eligibility tests for businesses that have suffered a sharp drop in turnover.

The extension of the programme will cost the government a further A$16bn in addition to the existing A$70bn budgeted for JobKeeper 1.0.

The government will also extend its JobSeeker unemployment benefit beyond September to December 2020 (the Prime Minister did suggest in Q&A that this would likely be extended).

The payment will be lowered from the current A$1100 a fortnight to A$815 subject to mutual obligation requirements being re-introduced in August. Make sure to tune in tomorrow, Michael Knox will provide more colour on the economic implications in his morning update.

Market implications

As we have mentioned in previous reports, the government was unlikely to march the economy over that fiscal cliff.

Overall, this announcement should be taken as positive news for the market and effectively removes one of the key uncertainties hanging over earnings forecasts going into the August reporting season period (see our recent report Reporting Season Preview for more).

And should provide additional margin and liquidity support for companies in FY21 experiencing a substantial decline in revenue during the COVID period.

Key beneficiaries

Retailers

Overall, we think this is a sensible approach and probably not too far away from the market’s expectations. However, if our interpretation is correct, it does remove a key unknown in that companies who currently quality will be guaranteed further support until the end of September.

We had been somewhat concerned that the Govt would adjust the current scheme prior to its legislated term and have not factored in a full three months of JK support for our eligible retailers in 1Q21.

This clearly provides decent upside to FY21 forecasts, although we have seen the market reluctant to capitalise these stimulus tailwinds for obvious reasons. Setting earnings and consumer spending tailwinds aside, it is obviously a major benefit for retail balance sheets.

Key beneficiaries in our coverage: Motorcycle Holdings, AP Eagers, Adairs, Accent Group, Lovisa, National Tyre and Wheel, Michael Hill.

Banks and Housing

The extension of JobKeeper will be supportive of asset quality and therefore house prices. The government is trying to incentivise businesses to retain employees, and if the government is successful in achieving this then a potential increase in the unemployment rate may be less pronounced; this would be broadly positive for asset quality.

Targeted cash payments to certain households may be temporarily supportive of personal lending credit quality to a mild extent.

Travel

Remains one of the hardest hit sectors from COVID-19 Alan Joyce, Qantas CEO called the extension to JobKeeper as critical for supporting a healthy return of the industry.

With JobKeeper running through most of FY21, this should provide further liquidity support for our travel related exposures (Flight Centre, Webjet, Corporate Travel, Helloworld Travel). We currently anticipate a return to normal conditions in FY23.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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