- Higher Iron ore prices with the largescale resumption of the China construction activities have positively impacted the mining players.
- Australian miners such as Maca Limited and the associated project developers like Monadelphous limited witnessed stock appreciation as the Chinese supply concerns grow with trade disruptions from COVID-19 battered Brazil
- NSW opening gaming venues and the expected improvement in the trade activities is expected to impact The Star Entertainment Group positively
Australian stock on the opening day of June echoed the positive sentiments on the economic recovery eluding global turbulence over the recent racism-stained civil unrest in the US. Taking a significant step towards the financial reboot, Australia started its second phase of lockdown easing, thereby providing further growth prospects to the economy.
The green shoots following the relaxations were evident on the stock market, and the S&P/ASX 200 rose by 1.1% to close at 5,775 points. The index moved up a further 17.9 points (+0.31%) to 5,837 points on 2 June 2020 (at 3:12 PM AEST). Meanwhile, the mining players remained at the forefront on Monday to cash in on the optimistic market sentiments. S&P/ASX 300 Metals and Mining rose by 3.34% on the trade on 1 June 2020. However, the sub-index dropped slightly by 0.14% on 2 June 2020 (at 3:13 PM AEST).
At the same time, other sectors such as hospitality and entertainment sectors as well as the activities associated with the real estate sector which remained dormant in the strict lockdown conditions can further see a significant rise in the activity. The government’s federal policies, along with the businesses evolution, would principally determine the movement of the Australian economy.
While the concentration remains fixated on the interest rate policy, the stamp study is under the constant radar as the speculators monitor Australian government move to stimulate the economy. Reserve Bank of Australia stayed rooted concerning its opposition to the negative interest rate. RBA governor, Philip Lowe has also ruled out the possibility of the further slashing down the interest rate.
Amidst the growing speculations around the economy and the increasing confidence with the business reopening, let us look at the stocks which remained in the limelight.
The Star Entertainment Group Limited (ASX:SGR)
Australian gambling and entertainment company, The Star Entertainment Group Limited announced the opening of its businesses and activities which remained closed during the COVID-19 restriction. It comes with NSW opening the gaming venues, the demand for which is expected to rise to post the revival in the travel sector.
Reopening The Star Sydney
The consultation with the NSW Government led to the opening of the private gaming rooms and up to 12 food and beverage venues of ‘The Star Sydney’ withing the complex’ casino area from 4 PM on 1 June 2020. The reopening plans comply with the NSW government measures and involve the social distancing and other health and safety measures in place with the limit of 500 members.
The group previously in April reported that its operating expenses would remain at $10 million per month from April 2020 until the lockdown is lifted. For June, The Star Entertainment group estimates the operating expense to reach around $20 million due to the staffing cost and the cost of the goods sold for Sydney.
Agreement for Gaming Tax
Moving along in strategic direction, the company also reached a deal with the NSW government on gaming taxes applicable to The Star Sydney until the end of FY2041. While the current regime of the gaming taxes would apply to FY2021, the new 20-years agreement would commence in FY2022. As per ‘The Star Sydney, FY2022 to FY2041’ gaming tax, a flat 10% including GST would continue to be charged for the all rebate gaming revenue.
The new structure comprises flat rates of tax (including GST and RGL) as a percentage of revenue. For Non-rebate Table games revenue, a flat tax of 29% and for the Non-rebate EGM revenue a flat tax will apply over FY2022-2041 as 32% for FY2022-2024 (3 years inclusive).
The shares of SGR were trading at $3.095 on 2 June 2020 (at 3:07 PM AEST), an increase of 1.809% compared to the previous close. The stock has generated a return of 11.36% in the past month.
MACA Limited (ASX:MLD)
Australian mining service provider MACA Limited continued to deliver outstanding performance owing to the proactive work collaboration with its clients, suppliers, and employees during the COVID-19 disruptions in operations.
The iron ore prices typically surged with the robust demand from China. The low supply in the China iron ore port against the rising demand for the resumed construction is regarded as the potential cause for the price escalation. Meanwhile, Brazil, which is one of the significant suppliers of iron ore, is grappling with skyrocketing COVID-19 cases, affecting the supply of the resources.
Moreover, MACA in the wake of scope growth and additional minor contract awards expects the revenue for the year ending 30 June 20 to exceed by $800 million. The company expects EBITDA to lie between $110 million and $114 million before the impact of impairment and forex impact from the closure of Brazilian Operations, which was announced previously in January.
The shares of MLD were trading at $0.905 on 2 June 2020 (at 3:07 PM AEST), a decline of 5.236% compared to the previous close. The stock has generated a return of 24.03% in the past month.
Monadelphous Group Limited (ASX:MND)
Contracts Secured in Mineral and Mining Sector
Australia-based project and infrastructure developer, Monadelphous Group Limited kickstarted its operations with the easing in the lockdown restrictions.
The government-backed support in infrastructure development is expected to provide support to the company. Meanwhile, the company highlighted securing contracts worth $150 million with the resources and energy sector. In Western Australia’s Pilbara region, the company has secured three new works with Fortescue Metals Group, Rio Tinto, and BHP.
Furthermore, appointment as Engineering Panel to BHP’s WAIO Site for another two-years term and a new three-year contract at Newcrest Mining’s gold mining operations on Lihir Island provide further robustness to its integration with the mining players. Another four-year contract has been awarded to the company for continuing electrical and mechanical maintenance along with turn around services in coal seam gas market in Queensland would further strengthen its growth in the mining sector.
Pandemic Impact on Performance and Fee
The constraints amidst COVID-19 affecting the company’s services and worksites. The supply chain issues in the Engineering Construction division of the company affected the substantial resources construction projects. Meanwhile, many potential new construction award dates have deferred owing to the pandemic.
The company remains unable at providing definitive revenue guidance for the financial year ended 30 June 2020 due to economic disruptions and the vast degree of uncertainty. However, the company confirms that if the current extent of the activity continues, it would be able to make revenue like the previous corresponding period.
Grappling with the effect of COVID-19, the company’s directors have agreed for reduction of 30% in their fee for the next six months while the Executive and General Management teams will make the salary reduction between 10-20% during the same period.
The shares of MND were trading at $11.910 on 2 June 2020 (at 3:07 PM AEST), an increase of 0.168% compared to the previous close. The stock has generated a return of 23.21% in the past one month.
NOTE: $ denotes Australian Dollar, unless stated otherwise.
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.