Economy And ASX 200 Stocks: Is Stay-At-Home the Best Bet As A Sector?

Summary

• COVID-19 had a significant impact on Australian GDP, which is expected to contract by another 4% in 2020.
• Amid these challenges, a few segments got an opportunity to demonstrate continuous business momentum like technology, online services, digital transactions etc.
• Education services provider IDP Education Limited noted a year-on-year increase in its EBIT by 11% and NPATA by 3%.
• JB Hi-Fi witnessed a year-on-year growth of 11.6% in revenue and 30.5% in EBIT.

A recent report released by the Reserve Bank of Australia on 7 August 2020 highlights Australia amongst those nations that witnessed a low level of infection rates. However, it got escalated in fresh outbreaks. The report was a study on the comparative analysis of countries from various locations and Australia concerning the management of COVID-19. When compared to the rest of the world

RBA pointed out multiple reasons that showcased business activity is not likely to bounce back entirely after lockdowns end.

• Some activity restrictions generally remain even after the strictest lockdown measures are lifted.
• Some people continued to practise some social distancing more than what is required.
• The deficiency in demand and a general rise in uncertainty prompt people as well as firms to be more careful in terms of making spending decisions. Hence demand remains weak for some time.

This lasting impact of the pandemic on uncertainty and demand implies prolonged and uneven improvements beyond the first couple of months. Hence, considerable time may be required for the global GDP to go back to the levels prevailing before the pandemic. RBA expects that global GDP to contract by more than 4% for the year 2020 before improving by ~6% in 2021. Further, the prevailing situation in Victoria would reduce growth in September 2020 quarter, thus prolonging the time to recover.

Source: RBA

The contraction in demand also reflected poorly on the labour market with employment declining over 850,000 in April and May 2020. Amongst these, there were a few who regained jobs in June. Seeing the present scenario, RBA expects this downward trend with RBS expecting the unemployment rate to increase in 2020.

Because of the closure of international borders, Australia’s international trade was impacted. RBA projects that the Business investment to be weak in the near term and will require time to regain. Dwelling investment would also be weak in the upcoming period. Weak demand for housing is already influencing the market for rental housing. Because of this, many people changed their living arrangements to save money during the lockdown period.

Amid these challenging situations, Businesses and companies that have been able to serve the population via online mode have mostly demonstrated a resilient business performance during the pandemic. Such sectors include hardware and software technology, digitisation, financial technology, and online solutions provider of various services. These sectors enabled people to perform their jobs from their homes. Majority ASX 200 sectors apart from the above sectors faced challenges during the period.

On that note, let us take a look at a few companies which performed well amid COVID-19 pandemic.

IDP Education Limited (ASX: IEL)

Education services provider IDP Education Limited listed under ASX 200 index reported a drop in its revenue by 2% YoY to A$587 million in FY2020 ended 30 June 2020. However, the EBIT increased by 11% YoY to A$107.8 million. NPATA increased by 3% to A$70.4 million in its FY2020 results. By the end by 30 June 2020, cash position stood at A$307 million.

Source: ASX update

Some Key Points in FY2020:

• Accelerated digital strategy delivery. It resulted in an industry-leading virtual counselling ^ event platform.
• IELTS Indicator was rolled-out during the period. IELTS Indicator is an online IELTS test to assist pupils progress applications during the time in-centre testing was postponed.
• Student placement volumes increased 3% to 51k. The result was supported by a 28% rise in the multi-destination volumes.
• The balance sheet of the company got strengthened with A$254 million equity raised, coupled with A$175 million working capital facility.

As international travel was restricted, the demand for international education remained strong.

Stock Information:

On 24 August 2020, IEL shares closed at A$19.390, up 5.209% from the previous close. IEL has a market cap of A$5.13 billion and 278.34 million outstanding shares.

ALSO READ: How Has COVID-19 Pandemic Altered the Education System?

JB Hi-Fi Limited (ASX:JBH)

The ASX 200 listed retailer of home consumer products, focusing on consumer electronics, software, whitegoods and appliances, JB Hi-Fi Limited noted significant 11.6% growth in revenue from ordinary activities to A$7.9 billion in FY2020. The underlying EBIT increased by 30.5% to A$486.5 million and underlying net profit after tax by 33.2% to A$332.7 million. Underlying EPS grew 33.2% to 289.6 cps. JBH declared a final dividend of 90 cps, up 76.5% as compared to the previous corresponding period. The total dividend for FY2020 increased by 33.1% to 189 cps.

Source: ASX update

Key highlights during FY2020

• Throughout the COVID-19 period, the company focused on an absolute commitment to health, safety and wellbeing of team members.
• Online sales across the Group increased by nearly 50% YoY to A$600 million.
• Continuous investment was made to improve digital and online capacity and capability. It includes the launch of a new platform for JB HI-FI in Australia.
• Continued to expand the Group’s Commercial businesses product & service offering.
• Investment in the supply chain and logistics was done constantly, comprising three new Home Delivery Centres.
• Published its sustainability report.
• Launched recyclable and user-pays plastic bag options at JB HI-FI stores. It resulted in a 72.5% drop in plastic bag use and the removal of 59 tonnes of plastic waste.

Did You Know: JB Hi-Fi Profits Rose As People Work From Home

Stock Information:

On 24 August 2020, JBH shares closed at A$51.46. The shares soared up by 1.021% from its previous close. JBH has a market cap of A$5.85 billion and around 114.88 million outstanding shares.