Corporate Australia degeared and set to grow
In the early stages of the COVID downturn, corporate Australia raised equity, cut or paused dividends and reduced capital investment to support balance sheets and cash flow. Since then, ultra-aggressive fiscal and monetary support and stimulus and the early stages of a powerful recovery have further supported business.
In our view, the corporate Australia balance sheet is in the best shape in decades. In 2Q20, the net debt/equity ratio fell 5.5ppts to 22.3%, whilst net debt/gross operating surplus (similar to EBITDA) fell 0.4x to 1.32x, both at least 32-year lows (the data series started in 1988).
Looking ahead, debt capital is inordinately cheap, with interest rates at record lows, and credit spreads back to pre-COVID and, in some instances, pre-GFC levels! In addition, the Federal Government is strongly incentivising investment, employment and research and development (R&D).
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