Small-Cap Game Plays Amid Economic & Financial Crisis - LNK, CDA, MCP

  • Apr 27, 2020 AEST
  • Team Kalkine
Small-Cap Game Plays Amid Economic & Financial Crisis - LNK, CDA, MCP

The rising cases of coronavirus across the globe have struck the world economy hard with every nation feeling the impact of the deadly SARS-CoV-2. Most of the Australian businesses have experienced severe implications because of the restrictions imposed by the Australian government on travel and social gathering. People are requested to follow social distancing to prevent the virus spread.

Travel bans have affected the tourism industry substantially. The social distancing norms have led to shutting down of shops, cafes, and theatres, among other places. The extent of damage could also be experienced looking at the stock market. The companies from the airlines’ industry are the most impacted ones.

To support the businesses and workers, the Australian government has injected a  stimulus package and the JobKeeper payment. A total of $320 billion has being pumped into the economy to keep the Australian businesses up and running. Other than this, the companies are also taking initiatives to fight against COVID-19 and their businesses to continue in future.

In this article, we would be focusing on a few ASX-listed small-cap players and see their strategies during this period.

Link Administration Holdings Limited (ASX:LNK)

Link Administration Holdings Limited is the largest provider of services in Australia's superannuation administration industry.

COVID-19 Impact and Strategies:

On 23 March 2020, Link Administration provided an update on the impact of COVID-19 on its business and the response plan. Link Group’s Managing Director John McMurtrie stated that the company acknowledges serious and unprecedented challenges as a result of coronavirus crisis and market volatility. As a result, the company has implemented a response plan for the safety and well-being of its employees, clients and other stakeholders. At the same time, the company aims to ensure continuity of service for its clients.

Mr McMurtrie also highlighted that 80% of the company’s revenue is recurring in nature. The defensive qualities of the Group’s earnings profile would help the company’s operating cash flows during this period of market volatility. However, some of the company’s businesses are impacted due to the market volatility as well as decreased margin income on float balances. Here, in this case, the company feels that forecasting these revenues in quite challenging because the global policy response from the governments seems to escalate.

In such a challenging situation, the company decided to withdraw its guidance.

Group’s Capital Position:

In the present scenario, the Group is well capitalised and has enough undrawn & committed credit facilities to support liquidity. As on 29 February 2020, LNK had $126 million of cash and net debt of $773 million.

The business has taken initiatives to conserve cash and reduce cost, subject to continuing to meet the requirements of its customers.

Stock Information:

LNK shares were trading at $3.280 on 27 April 2020 (at 01:21 PM AEST), up 0.306% from the previous closing price.

Codan Limited (ASX:CDA)

Codan Limited is a technology company that provides technology solutions to its customers that solve customers’ communications, safety, security & productivity challenges in some of the harshest environments around the world.

COVID-19 Impact and the strategies Implemented:

Codan Limited confirmed in its announcement dated 23 April 2020 that the COVID-19 pandemic impacted all its businesses as lockdowns were implemented in various parts of the world.

In March 2020, the Malaysian government suspended all non-essential services and has been extended till April 2020 end. However, the company was able to manage the impact on the production as its contract manufacturers were successful in receiving an exemption from the Malaysian government.

Disruptions have expanded to the global freight industry. Here, some cost got multiplied, and the movement of goods, as well as people, have been restricted because of border closures & lockdowns. Even in such a situation, the company has looked for a way to continue delivering products, when available, to the client.

In April 2020, the company noted a drop in sales, throughout its entire business, of about 20% as compared to its record first-half run rates. The reason for the fall in demand was because of the inability to fulfil demand, especially in the gold markets.

Cash Position:

Cash generation continues to be healthy. The balance sheet got strengthened to ~$70 million net cash after paying the interim dividend of $13.5 million.

Stock Information:

CDA shares were trading at $6.200 on 27 April 2020 (at 01:21 PM AEST), up 9.541% from the previous closing price.

McPherson's Limited (ASX:MCP)

McPherson's Limited is a leading provider of health & beauty, consumer durable as well as household consumable products in Australasia. It operates in Asia, New Zealand and Australia.

Business Performance during COVID-19:

On 23 April 2020, MCP provided its operations and trading update. McPherson's reported strong demand for its essential household products during the period. The company highlighted that as people are restricted to their homes and because of their changed behaviour towards baking, freezing, home cleaning & personal hygiene, a positive initial impact on the Multix and Swisspers brands is seen.

Its six core brands are performing as per the expectation. These brands include:

  • LeWinn’s
  • A’kin
  • Swisspers
  • Manicare
  • Lady Jayne
  • Multix

 

The company confirmed that it did not experience a material impact of COVID-19 on its supply chain and its distribution of products from China being backed by MCP’s teams in Hong Kong as well as Sydney. Other than this, Independent manufacturing facility Aware Group is positively supporting the company to ensure sustainable product supply.

The company noted a significant increase in demand via online mode. On that front, the company is expanding investment in the customers’ online content as well as e-commerce store. The company believes that the present environment is an opportunity to improve accessibility as well as distribution via these increasing channels.

Also, the company’s focus on R&D is now towards the sanitation and immunity industry. In April 2020, the company launched a hand sanitiser product by entering a new partnership with Game On & the Chemist Warehouse licensed Ozguard brand & secured worth $9 million of confirmed orders.

The company is confident about its new initiatives, and it is on track to deliver meet its FY2020 guidance of growth in underlying PBT of ~10% above FY2019.

Response to COVID-19:

The key priority of the company during this uncertain time is the safety and well-being of its people and at the same time, ensure continuity of the business operations. Below are some initiatives to fight against COVID-19:

  • Activation of focussed Rapid Response Team and crisis protocols.
  • Reducing in-person interactions where possible.
  • Smooth transition to work-from-home for most of the team members.
  • Launched support package like technology and hobby allowance. The allowance would be used towards learning a musical instrument, language or restart a hobby.
  • Extended its corporate influenza immunisation program to incorporate the families of its staff.

 

Stock Information:

MCP shares were trading at $2.610 on 27 April 2020 (at 01:21 PM AEST), up 1.163% from the previous closing price.

 


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