Developments in Industrial Stocks Amidst Covid-19 Pandemic - DOW, CWY

  • Mar 25, 2020 AEDT
  • Team Kalkine
Developments in Industrial Stocks Amidst Covid-19 Pandemic - DOW, CWY

The past three months have been a challenge for almost everyone and a nightmare to many. This has not passed and still holds as we see more and more amplification of the covid-19 outbreak and the risks that it unboxes each day.

We are inching towards the end of the third month of the year 2020, and the impact of the Covid-19 pandemic does not look like easing anywhere in the world. The world has nearly come to a halt with lockdowns in major economies across the globe and stricter restrictions on the physical movement of the people by the governments.

These lockdowns and stricter restrictions imply the closure of borders and a halt in any type of unnecessary movement. These restrictions have resulted in a partial grounding the businesses across borders and increasing validation of the approaching recession.

Numbers Pre-coronavirus Outbreak

Before the severity of the Covid-19 outbreak in Australia, import price index had risen 0.7% during the December 2019 quarter and 1.4% through the year 2019. During the quarter, there was a rise of 1.6% in the machinery specialised for particular industries, an increase of 0.4% in the road vehicles as well as 3.8% increase in petroleum, petroleum products and related materials.

Moreover, a decline of 6.5% in the fertilisers (excluding crude) and a fall of 5.5% in the plastics in non-primary forms offset the increase in the above-mentioned items.

In the present scenario of high uncertainty and widening impact of the coronavirus infection, circumstances are likely not to remain the same or could even worsen. Although the governments globally have announced major fiscal stimulus packages, yet there is looming uncertainty of a global financial and economic crisis.

Interesting Read: COVID-19 Impact: 9 Stocks under Spotlight

Businesses, especially international businesses like travel, tourism, hotel and related businesses and industrials businesses, both domestic as well as global, have taken a severe blow due to coronavirus pandemic. Companies are forced to rollback earnings guidance, defer their dividend payments, cut flight schedules, cancel international flight schedules, stop manufacturing, cut salaries and much more to ensure their survival for the longer term.

DOW Defers Interim Dividend Payment

Talking of some instances from the other industrial stocks, Downer EDI Limited (ASX: DOW), which is a leading provider of integrated services in Australia and New Zealand, has deferred the payment of its interim dividend of total $83 million until September 2020.

Citing the uncertainties around the impact of the COVID-19 virus, Downer EDI Limited made the prudent decision to now pay the interim dividend of 14 cents per share, unfranked on 25 September 2020 to shareholders on record as on 26 February 2020.

The company believes that the decision to defer the dividend payments is prudent in the current extraordinary environment created by COVID-19. Along with having a robust balance sheet, DOW has availability of significant liquidity, secure headroom in its debt covenants. The company has $50 million of debt facilities falling due in the subsequent 12 months that can be redeemed using current, committed lines of credit.

 Moreover, DOW believes that the demand for the services offered by the company shall continue to be strong, given that its business is primarily government and critical infrastructure dominated. DOW employs globally-leading insights as well as solutions to design, develop and nurture assets, infrastructure and facilities and has a global business expanding across multiple continents.

Related: Earnings guidance likely to fade away this decade; BSL, NEC, RDC, DOW, BLD

Moreover, the company has also withdrawn its earnings guidance for the FY20 in times of high uncertainty around the impact of the COVID-19 outbreak. Although the company is believed to have a solid financial foundation and a strong pipeline of ongoing work, the business is implementing a range of cost reduction initiatives across the organisation.

On 24 March 2020, the DOW stock settled the day’s trade at a price of $2.730, down by 2.5% with a market capitalisation of $ 1.67 billion.


CWY Suspends FY20 Guidance

Another industrials stock, Cleanaway Waste Management Limited (ASX: CWY), Australia’s leading total waste management, industrial and environmental services company, has made a prudent decision to suspend its earnings guidance. The decision has been taken as an effect of the increasing uncertainty in the market around the impact of COVID-19, particularly across the SME segment.

Related: Industrial Stocks Suffer From COVID-19 Woes, But Stay Calm Amid Turbulent Market

However, the current financial performance of CWY for FY20 was in line with the company’s internal forecasts and FY20 earnings guidance and CWY had not witnessed any significant change in volumes across any of its operating segments till date.

However, the company anticipates the impact of the evolving COVID-19 situation and increasing uncertainty on its SME segment of C&I waste volumes. On the other hand, the demand for other services, such as health, municipal collections and related post-collections services is anticipated to remain strong.

Despite the in-line performance, the company has decided to suspend the earnings guidance but has confirmed its progress towards the payment of its interim dividend of 2.0 cents per share scheduled to be paid on 3 April 2020 to shareholders on record as on 4 March 2020.

CWY boasts a robust financial performance as well as significant liquidity on hand, with more than $357 million of committed financial headroom accessible at the end of February 2020 under current banking facilities.

Moreover, the weighted average maturity across CWY’s debt facilities increased to approximately six years, with the issue of long-term notes in the US Private Placement market.

Interesting Read: Is the Australian health care sector prepared for COVID-19 pandemic

With the ability to bounce back from difficulties, the CWY business is taking measures to ensure the safety and welfare of its employees and customers in the wake of the current situation.

On 24 March 2020, the CWY stock settled the day’s trade at a price of $1.505, up by 5.614% with a market capitalisation of $2.92 billion.

In a nutshell, businesses are becoming increasingly prone to the effects of coronavirus pandemic. Even though businesses may look like to be neutralising the effects of the decreasing demand for their products and services in the short run, the question about the duration of the current slowdown remains unanswered.

Related: Infrastructure Positioning in Australia; What do Stocks Say Amidst Covid-19 Crisis

Also, companies offering a diverse range of products and services may look to be less affected by the pandemic, yet we are currently seeing the implementation of many a vigilant measure from the businesses. Industrial stocks are no exception to this since we have seen unfavourable developments across several industrials sector companies.

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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

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