Lens on 3 ASX stocks amid COVID-19 pandemic: RAC, GMA, WOR

  • May 20, 2020 AEST
  • Team Kalkine
Lens on 3 ASX stocks amid COVID-19 pandemic: RAC, GMA, WOR

Australia is one of the few countries that has successfully dealt with the coronavirus pandemic. By adopting various preventive measures and imposing necessary restrictions, the country was able to flatten the virus curve. However, the pandemic has been detrimental for the economy, and it could take more than a year to recover from the COVID-19 induced economic downturn.

The Aussies have started on the road to recovery with the easing of lockdowns and removal of restrictions. The Australian businesses have handled the situation in their own way through several initiatives to keep their business running while ensuring employee and customer safety. Further, with renewed optimism driven by favourable news on the vaccine development front is likely to boost the confidence of governments and citizens all over the world.

Let us look at the recent activities of three ASX-listed companies – Race Oncology, Genworth Mortgage Insurance and Worley Limited.

Race Oncology Limited (ASX:RAC)

Healthcare provider, Race Oncology is a speciality pharmaceutical company with a primary cancer drug asset called Bisantrene in Phase II/III. Bisantrene is a cancer chemotherapy drug molecule that had been developed for the treatment of ovarian and breast cancer and acute myeloid leukaemia.

As part of the Company’s ‘5-Path’ strategy, RAC is following Bisantrene combination therapies in solid tumours such as breast cancer and others. Race Oncology aims to discover new cancer treatments which will have an enhanced efficacy and safety.

Entered a Research Program:

On 14 May 2020, Race Oncology notified the market that it had collaborated with The University of Newcastle for a preclinical research program. The lead of the project will be Nikki Verrills, Associate Professor, and cancer researcher from the Hunter Medical Research Institute.  This research program aims to recognize groupings of present drugs of breast cancer with Bisantrene, which can have a significant reduction of severe side effects.

Restructuring of Management:

The Company announced that Dr Peter Molloy had resigned from his role as Chief Executive Officer and Managing Director, effective as of 20 May 2020.  Race also provided the information that Dr Daniel Tillett, Chief Scientific Officer and Dr John Cullity, Chairman will step into the temporary roles of Chief Operating Officer and Executive Chairman, respectively.         

Activity in March Quarter:

Cash and cash equivalents were $2.56 million as on 31 March 2020, as compared to $1.55 million on 31 December 2019.

RAC used the net cash of $0.67 million in quarterly operating activities. In March 2020, the Company raised funds worth $1.69 million.

Stock Performance: On 20 March 2020, RAC shares closed the day at $0.350, a decrease of 7.895 per cent as compared to the previous close. The stock has generated a 1-month return of 35.71 per cent. The Company’s market cap is $43.93 million, and the Company has ~115.59 million outstanding shares.

Genworth Mortgage Insurance Australia Limited (ASX:GMA)

Financial sector player Genworth Mortgage Insurance Australia Limited is a provider of LMI (Lenders Mortgage Insurance) in the residential mortgage lending market in Australia.

Supply and Service Contract Update:

On 20 May 2020, GMA notified the market about its Supply and Service contract with National Australia Bank:

  • National Australia Bank instructed that following the process of Request for Proposal, GMA’s Supply and Service contract will expire on 20 November 2020 and will not be renewed. The Bank issued this RFP in February 2020 for its LMI requirements.  
  • Further, GMA mentioned that it had lately renewed contract with CBA, which is its largest customer. This renewal is for an additional three years, effective from January 2020.

COVID-19 Impacted Financials:

The Company was affected by COVID-19 as seen in its first-quarter results for the period ended 31 March 2020. GMA made allowance in its financials for the anticipated increase in future claims and has write-down of $181.8 million of DAC (Deferred acquisition costs). Key highlights as follows:

  • Statutory net profit after tax recorded a loss of $125.6 million as compared to a profit of $47.8 million in 1Q FY 2019.
  • Underlying NPAT had noted a loss of $103.2 million as compared to a profit of $22.3 million in 1Q FY 2019. While excluding the impact of coronavirus, the underlying NPAT was $24.1 million as compared to $22.3 million in 1Q FY 2019.
  • Net earned premium was $75.4 million, an increase of 3.4 per cent on pcp.
  • New insurance written increased by 18.5 per cent on pcp, to $6.4 billion.

Fitch Ratings is Lowered to ‘A’ (Strong):

Subsequently, on 13 May 2020, Genworth notified the market that Fitch ratings had downgraded the IFS (insurer financial strength) rating to ‘A’ (Strong) from ‘A+’ (Strong) for its operating subsidiary, Genworth Financial Mortgage Insurance Pty Limited.

Fitch mentioned that as compared to other Australian companies in LMI market, it ranks the business profile of GMA as 'Favourable'.

GMA assured that it has a strong capital position with a cash and investment portfolio of $3.1 billion, as at 31 March 2020. Also, PCA (Prescribed Capital Amount) ratio on a Level 2 basis was 1.78 times.

Stock Performance: On 20 May 2020, GMA shares closed the day at $2.12, an increase of 4.95 per cent as compared to the previous close. The stock has generated a 1-month return of -0.98 per cent. Genworth’s market cap is $833.28 million, and the Company has ~412.51 million outstanding shares.

Worley Limited (ASX:WOR)

Energy company Worley Limited is into the business of providing EPC (engineering, procurement, and construction) services. The Company also offers a range of advisory and consulting services and delivers projects.

Two agreements with BP International Limited:

On 20 May 2020, Worley Limited and BP International Limited announced that they have entered in two global framework agreements having a term of two years. These agreements aim to offer the services to global offshore developments of BP.

The first agreement is for conceptual engineering. The services provided under this agreement will allow BP to evaluate the feasibility of projects. WOR will deliver concept selection and development services such as appraisals, and studies (for technical definition and feasibility).  

The second agreement is for FEED (front-end engineering design) and early engineering services. WOR will provide services such as further technical definition, engineering design, project execution development and planning of project performance targets.

London and Houston offices will be involved in the implementation of these services along with the support from WOR’s global integrated delivery offices.

Business update during COVID-19:

  • In April, WOR extended its working capital of $480 million via credit approval for a further 12 months. To further improve its liquidity, the Company secured an additional $465 million (in 12-month facilities) by working with its banking partners.
  • WOR has reduced the workforce by 5 per cent, from 59,000 to 56,000, as on 31 January 2020 and 31 March 2020, respectively.
  • Revenue drawn from the Chemicals sector is 37 per cent, an increase of less than 10 per cent. (further detail is provided in the chart below)

Stock Performance: On 20 May 2020, WOR closed the day at $8.91, a decrease of 2.195 per cent as compared to the previous close. The stock has generated a 1-month return of 32.22 per cent. Worley’s market cap is $4.74 billion, and the Company has ~ 520.39 million outstanding shares.

$ refers to Australian dollar unless stated otherwise.


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