During earnings season many S&P/ASX 200 Index (ASX: XJO) shares have proven to be surprisingly resilient. The two sectors below have had to shoulder a lot of the financial burden of the coronavirus pandemic. For instance, banks have had to comply with the directives of the Australian Prudential Regulation Authority (APRA). Moreover, shopping centres have been bound by the mandatory code of conduct. This situation is unique to Australia.
Consequently, these ASX 200 companies are selling at absurdly cheap prices. However, there are signs that investors have begun to take advantage of them.
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Shopping centres
Scentre Group (ASX: SCG) hit the news today due to a stand off with Mosaic Brands Ltd (ASX: MOZ) over rent. The ASX 200 REIT has shuttered all of the Mosaic brand stores in its centres. This reveals a few interesting facts. First, the industry is becoming increasingly hard-line in its opposition to turnover based rentals. Second, it is beginning to assert its right to make a profit for shareholders. In addition, I feel that investors also believe it is time to get the show on the road again.
For example, the Vicinity Centres (ASX: VCX) share price rallied by 5.98% on Friday. This tells me that investors are willing to spend money on bargain assets, even though there is still a long way to full recovery. The REIT posted an FY20 statutory loss of $1.8 billion due to devaluation of property. Consequently, it currently has a price-to-earnings (P/E) ratio of 4.6. In addition, the company has a net tangible asset (NTA) value of $2.29 per security. This is almost double its Friday closing price of $1.33.
One final piece of important information is the recent cancellation of its interim FY21 dividend. However, previously it had a trailing 12-month dividend yield at this price of 12.14%. A dividend that had grown this steadily by 10.6% per year on average.
Personally, I think Vicinity Centres is easily the best ASX 200 shopping centre share at its current price. Over a 3-year period, I believe this company will see a rise in share price and a reinstatement of the dividend.
An ASX 200 Bank
Suncorp Group Ltd (ASX: SUN) is Australia's 6th largest bank based on total assets, on total deposits it ranks 8th. However, banking accounts for approximately 27.8% of its FY20 revenues, insurance services drive the remainder. This ASX 200 share booked a 32.8% decline in cash earnings. This was due to a reduction in insurance profits of 34% and banking profits down by 33.5%. The root causes of this were lower revenue from invested funds and coronavirus impacts to banking.
Yet, on Friday the company saw its share price rocket up by 11.05%. Again we see investors looking for bargains that appear to be too good to be true. Nevertheless, even with a reduction in cash earnings, its statutory net profit after tax was $913 million versus $175 million in FY19. This was due to an FY19 impairment for losses on the sale of its subsidiary Suncorp Life & Superannuation Ltd. While still lower than FY18, it is a lot better than expected.
As a diverse provider of financial services, Suncorp has several areas in which it can grow. This, to me, justifies a high price to earnings ratio of 22.81. Its full year dividend for FY20 dropped by 55%. Although understandably lower than the company's previous trailing 12-month dividend yield of 7.25%, it still managed to deliver a full year yield of 3.7%.
I like this ASX 200 company for a couple of reasons. First, the company's expense ratio, similar to an operating margin, is high and consistent. Second, the banking element is only 27.8% so it is not carrying as much of the financial burden of coronavirus unlike the 4 large banks. Third, the impact to insurance came principally from investment losses, not from higher payouts. As such its risk management in underwriting seems to be about right.
Foolish Takeaway
These are just two of the ASX 200 shares that investors are buying up while they are at historically low prices. In both cases, the underlying business remains strong, and in both cases the companies have recorded lower than expected damage from the pandemic. While everything can be impacted by a market-wide crash, ASX 200 companies see less share price volatility than smaller growth shares.
Last, and most importantly, buying these companies at a low entry price means higher dividend yields when they are reinstated fully. However, be quick to act. These shares are already starting to rise.
