The year 2020 began with the advent of the most dangerous virus in terms of fatalities of humans. The panic created by coronavirus gets intensified on knowing the fact that no proven treatment or vaccine is available to date.
Everyone is playing the respective roles in their full capacity to combat with the coronavirus outbreak. Doctors going far beyond the Hippocratic Oath mandate, Federal Government in Australia announced a wage subsidy package to safeguard innocent employees, ridesharing companies such as Uber- are working together with Government to provide services to medical workers and other needful people, companies are allowing their employees with the facility of work from home are many such examples.
The adverse effects are also felt on the financial market seeing the roller coaster ride taken by the prices. Businesses around the globe are wise enough to take precautionary steps and keeping a positive perspective for long-term survival.
Interesting Read: Equity Markets Kick Start Terrific Week Amid Pandemic, Good Days Ahead?
Let’s delve deep into 4 stocks, two each from the consumer discretionary and energy sector: witnessing their recent activities and changes in their outlook due to COVID-19 and oil price.
COE’s Business has no material impact from COVID-19
An oil and gas exploration and production company, Cooper Energy Limited (ASX: COE) had net debt of $77 million and cash of $149 million as on 27 March 2020. The Company has drawn $226 million from a reserve-based lending facility of $250 million whereas $13.5 million of working capital facility is still undrawn.
On 31 March 2020, Cooper Energy provided COVID-19 driven updates for its plans and operations along with Sole Gas Project status, as mentioned below.
- Sole Gas Project status
- As announced on 12 February 2020, the second phase of commissioning is underway for the flow of gas from the Sole gas field to the Orbost Gas Processing Plant. The plant, which is operated by APA Group and has already started the gas supply into the Eastern Gas Pipeline possesses all the capability to meet the requirements from the Sole gas field.
- On 29 March 2020, the sales to market were 21 TJ backed by the production rates which were up to 50 TJ/d. Further, it is expected that variability in the production rates would continue unless a stable commissioning proceeds to the plant production test rate of 68 TJ/day is achieved.
- In view to fight with COVID-19 outburst, the Company had incorporated the work from home facility for majority of its employees. Subsea installations, which are remotely operated through IT systems, are maintaining the Gas Production. All sorts of communications are done using different modes of media available.
- Guidance regarding production in FY2020 remains unchanged incorporating cut in oil production and higher gas production. The capital expenditure is projected to be nearly in the middle of the guidance range of $86 - $93 million for the twelve months ending on June 30, 2020.
WES sailing the COVID-19 wave
A consumer discretionary company, Wesfarmers Limited (ASX: WES) originated its operations in 1914. The Company is headquartered in Western Australia.
WES has a wide range of business operations including -
Sale of 5.2 percent in Coles Group:
On 30 March 2020, Wesfarmers announced the execution of trade for the sale of 5.2 percent of the issued capital in Coles Group Limited (ASX: COL) for a total pre-tax proceeds of $1,060 million. The sale which is expected to be settled on 2 April 2020 will be at a price of $15.39 per share.
After this sale, WES loses the right to nominate a director at COL, as it now will hold less than 10% stake. WES, subject to customary exceptions, will continue to retain a 4.9 percent interest for 60 days from the sale completion date.
Update on COVID-19: As on 25 March 2020, the Company provided an update of its operations in Australia and New Zealand, as follows.
- The Company assured that it would pay its formerly declared interim dividend (fully franked) of $0.75 per share.
- Measures adopted by the State and Federal government in Australia do not entail the closure of retail stores. WES mentioned that its businesses are aiming to ensure continuous availability of services and products with minimal risks to its team members and customers.
- Regarding the New Zealand business, Kmart’s 25 stores had been closed since 25 March 2020. Whereas Bunnings’ 53 locations in New Zealand will be closed to general public they will remain open only to trade customers.
WOR is balancing its position
ASX-listed Energy company, Worley Limited (ASX: WOR) gives expertise in engineering, procurement and construction, delivers projects and extends a broad range of advisory and consulting services.
WOR awarded by Chevron, ETI and Shell:
On 31 March 2020, Chevron Australia Pty Ltd awarded WOR with an extension to its existing services for another two years.
Additionally, WOR announced that it had been awarded contracts for PT Pertamina EP Cepu’s (PEPC) new sulfuric acid plant in Indonesia by PT Enviromate Technology International (ETI) and Shell Global Solutions International BV (Shell). The plant is a part of the Jambaran-Tiung Biru unitized gas field project for PEPC, a subsidiary of state-owned Indonesia based energy company, PT Pertamina (Persero).
Chemetics® had joined WOR as an outcome of the acquisition of the Jacobs Energy, Resources and Chemicals division.
As per the contracts with Shell,
- WOR will provide Chemetics® proprietary Cooled Oxidation Reactor (CORE™) sulfuric acid technology.
- This is interesting to note that, for the first time WOR and Shell would be combining their technologies. Shell’s Cansolv® SO2 capture technology would be used in combination with WOR’s Chemetics proprietary CORE™ technology. This combination would deliver a new type of sulfuric acid plant which aims to specifically optimized for high SO2 concentrations.
- Shell Global Solutions International B.V. has a registered trademark for Cansolv®
Under the contract with ETI,
- WOR will engineer and design a new sulfuric acid plant featuring Chemetics® proprietary CORE™ technology.
- Moreover, WOR will deliver operator training, technical services for plant erection, commissioning and testing.
In these hard times of COVID-19 outbreak added with declining oil prices, the Company is facing challenges to balance with the changing environment.
To maintain the strength of WOR’s liquidity position, the Company had effectively refinanced a significant portion of its working capital facilities which were due for either reconfirmation or renew in the following six months.
WOR following the acquisition Jacobs ECR is a more resilient business. The acquisition has led to expansion in the geographical reach, diversification into various sectors, and increased exposure to operating expenditures of the customers for WOR. Operating expenditure which are historically less fluctuating in periods of industry downturn, form close to 50% of total revenue for the Company.
The Company mentioned that its employees are effectively working from home and they are using the common global platforms that were initially declared in HY 2020.
GEM having positive perspective towards COVID-19:
ASX-listed consumer discretionary company, G8 Education Limited (ASX: GEM) delivers and operates child care services involving developmental of child care and educational centres.
As announced on 31 March 2020, GEM had $135 million of cash and available facilities. Also, the Group holds covenant headroom while maintaining a strong relation with its lenders.
G8 updated the payment date for its dividend distribution from 6 April 2020 to 30 October 2020. Earlier at GEM’s FY 2019 results released on 24 February 2020, a fully franked final dividend of 6 cents per share was declared. This represents a full year payout of 70 percent of lease adjusted NPAT.
Wage subsidy package:
The Company mentioned about the wage subsidy package announced by the Federal Government. Under this scheme, all the eligible businesses would obtain wage subsidies of $1,500 / eligible employee / fortnight. Other key highlights –
- It pertains to part?time and full?time workers.
- The payment for up to six months will be paid to employers
- It applies to casual workers as well working for at least 12 months.
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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.