Assessing COVID-Induced Business Impact – RWC, IVC, RDC, WES, SGR

The COVID-19 pandemic has taken a toll over most of the businesses across the globe. Businesses are pro-actively taking steps to curb the increasingimpact ofcoronavirus.Citing the amplifying uncertainties,Australian, as well as international companies, are undertaking measures like deferring dividend payments, standing down employees, curbing capital expenses, raising capital to ensure liquidity and withdrawing earnings guidance.

Let us take a look at the latest developments with some of the ASX-listed stocks.

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On 25 March 2020, Reliance Worldwide Corporation Limited (ASX:RWC)reported sales for the months of January and February 2020 in line with expectations and strong orders from customersto date. The manufacturing facilities and distribution centres of RWC located in Australia, US and the UK are fully staffed and operational, and its channel partners remain in trade and serve end?use customers in Australia and the US.

Notwithstanding this strong performance, the Company has withdrawn its formal earnings guidance for FY2020,considering the uncertainty surrounding the potential effects of COVID?19 on future operations and financial performance.

Moreover, the Company has deferred the payment of itsFY2020 interim dividend until later in the yearand intends to pay the same on 9 October 2020 in conjunction with the payment of any final dividend for FY2020. The decision has been made in view of the need to prudently manage cash resourcesin current times of high ambiguity.

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All non?essential capital expenditure has been haltedto optimise cash flow during this time of significant uncertainty,and RWCis likely to considerincreasing finished goods’ inventories to ensure customer demand in the event of one or more plant closures is continuously met along with minimal cash impacts.

On 26 March 2020 (AEDT 02:11 PM),the RWC stock was trading at a price of $2.245, inching upward by 15.722% from its previous close, with a market capitalisation of $ 1.53 billion.

Consumer discretionarystock,InvoCare Limited (ASX:IVC) has been actively engaged in monitoring the unprecedented and fast-evolving impact of COVID-19 on its business as well asthe trading environment and has implemented a pandemic management plan which encompasses:

  • Minimisation of the health risk to its employees and client families
  • Adherence to the current Government guidelines on social distancing
  • Activation ofits reserve mortuaries to ensure that cases of COVID-19 are kept separate from its core business
  • Implementation of operational changes that are required to maintain business continuity

With measures been implemented across the Group’s operations in Australia, New Zealand and Singapore, IVC attempts to abide by the guidelines and mandates issued by the Governments in these countries.

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The impact of the measures restricting social gatheringhas started to become visible on IVC’s core business,and its inability to provide a full range of services is likely to further impact business performance. IVC finds it difficult to provide a full range of services, which shall impact business performance.

The impact on the business is difficult to quantify,and the Company is taking a conservative approachto relieving the unknown burden on the business,includingdeferral of non-essential capital expenditure and hiring freeze, workforce optimisation.

The IVC stock was trading at a price of $10.095 on 26 March 2020 (AEDT 02:24 PM), advancing further by 2.696%,with a market capitalisation of $ 1.15 billion.

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A responsible entity ofRedcape Hotel Group (ASX:RDC), Redcape Hotel Group Management Ltd has provided a market update, unveiling the closure of 32 pubs located in New South Wales and Queensland in response to Stage 1 Government restrictions on social gatherings. The Company is working to restrict the impact of the same on staff as well asmaintaining connections with communities.

The 16 retail bottle shop outlets and accommodation at two of its hotelsshall remain open in line with the current restrictions. Acknowledging the devastating impact of the closure of its pubs on its people, the Group looks forward to standing down most of its permanent staffin order to secure the business as well securing the maximum number of jobs for the future.

RDC is one of Australia’s leading pub and hotel operatorswith a portfolio comprising of 32 quality hotels, owning most of its assets while having only limited commitments to third party landlords.

The RDC stock was trading at a price of $0.595 on 26 March 2020 (AEDT 02:34 PM), up by 19% intraday with a market capitalisation of $276.1 million.

Being one of Australia's largest listed companies,Wesfarmers Limited (ASX:WES)hasmultiple businesses like Bunnings, Kmart, Target and Officeworks and Industrialsbusiness. All the businessesof Wesfarmers (except industrial business) across Australia are currently operating under or near standard trading hours, and operations ofindustrial businesses remain continuous.

These businesses are operational with a view to ensure undisturbed availability of products and services whilediminishingrisks to team members as well as customersthrough online channels.

However, the Kmartstores located in New Zealand would be closed while Bunnings’53 locations would continue to be open and accessible to trade customers but not forthe general public. This decision was taken following the New Zealand Government’s measures to restrict the operation of ‘non-essential’ services.

Wesfarmers has a limited business from New Zealand,and revenue from its NZ operations representsaround 8%of the Company’s total annual revenue, and revenue from Kmart NZconstitutes less than 3% of the total annual revenue of WES.

The Company acknowledges the impact of the prevalent COVID-19 on the stakeholders in its business as well as outside. WES alsolooks forward topayingitsearlierannounced interim dividend (fully franked) of $0.75 per share on 31 March 2020.

On 26 March 2020 (AEDT 02:41 PM), the WES stock was trading at a price of $35, up by 4.759% from its previous close, with a market capitalisation of $ 37.88 billion.

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Australia’s gaming, entertainment and hospitality company,The Star Entertainment Group Limited (ASX:SGR)is also feeling the heat from the COVID-19 spread and the uncertainties in the business environment.

Following the directives announced by the New South Wales and Queensland Governments, SGR’s immediateresponse in compliance with the same has led to ceasing the gaming activities from 23 March 2020.

Moreover, SGR has closed food and beverage, banqueting and conferencing offeringswith the limited exception of in-room dining services for hotel guests, while hotel accommodation services continue to be open in a decreased capacity in current time.

While the business of SGR is said to take a hit from the shutdown of the casino properties, the Company is taking measures likelowering operating costs and reducing capital expenditure to minimise impacts as well as conserve liquidity.

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

Moreover, SGR plans to temporarily stand down over 90% of its approximately 9,000 employees, including senior management.The Company believes that the current situation is a unique scenario and is beyond its control. However, SGR is focused on taking necessary measures to protect the business while counting the considerable human impact onits workforce.

The SGR stock was trading on 26 March 2020 (AEDT 02:46 PM)at a price of $ 1.925, up by 18.827%, with a market capitalisation of $ 1.49 billion.

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