The sharp decline in energy demand and prices raises many questions about how Covid-19 will affect energy consumption in the medium and long term. Demand is being destroyed at a rapid rate as people cut back on driving and flying, as stores and restaurants shut down, as offices go dark and their employees telework, and factories have reduced operations to protect the health of their workers.
There is another segment of the population that will be hit hard—people who lost their jobs, their businesses, their savings, and for whom post-Covid-19 life will not be easy. Their energy consumption level may not come back soon, and it will largely depend on pace with which the economy is recovering.
The effects of coronavirus pandemic are having a substantial effect on the technology sector also. There has been a disruption in raw material supply, and there is an inflationary risk in products. The launch of new technology like smartphones have been delayed due to problems in the supply chain. Some factories in Asia are reviving. However, the companies are facing many challenges to get their production running at 100% capacity.
However, as the country has now moved to Alert Level 3, there is some headroom for these energy and technology companies as demand is expected to revive back.
Let us have a look at few energy and technology stocks, and what future lies ahead of them.
Z Energy Limited (NZX: ZEL)
ZEL Reports Moderate Rise in Volumes
Z Energy Limited (NZX: ZEL) has reported volume data for the week ended April 26, 2020. The table given below illustrates the key numbers:
Key Numbers (Source: Company’s Report)
Initiatives to Encounter COVID-19
Because of the uncertainty surrounding Covid-19, the company is implementing a series of initiatives with a focus on reducing operating expenses and improving cash flow to support a resilient balance sheet.
- FY20 Final Dividend Cancelled: The company has decided not to pay a final dividend for FY20, and shareholders have already received an interim dividend of 16.5cps during the current financial year.
- Cost Reduction Initiatives: The company is implementing several cost reduction initiatives already planned for FY21 and is developing options to ensure it can endure a sustained impact from Covid-19.
- Non-integrity Capital Expenditure: The company has suspended all capital expenditures not required to maintain safe and reliable operations.
- Working capital facilities: In view of continued volatility in commodity prices and the exchange rate, the company is in constructive dialogue with its banks to increase its working capital facility.
Infratil Limited (NZX: IFT)
Impact of COVID-19 on Different Business Segments
- CDC Data Centres: Expected slowdown in medium-term sales as Government and Commercial clients are affected due to a broader economic slowdown and budget restraints. Significant refinancing has been wrapped up in the month of November 2019 and there are no maturities until November 2022.
- Tilt Renewables: Production from the operating assets is largely covered by the long term offtake agreements with well capitalised counterparties, producing predictable cashflows that are resilient to short term fluctuations in the market;
- Vodafone: There has been a significant impact on roaming as well as service revenues due to prolonged travel restrictions, extended lockdown, and wind down of retail activity;
- Wellington Airport: The government’s measures to monitor COVID-19 are having a direct and dramatic impact on Wellington Airport’s operations.
- RetireAustralia: RetireAustralia is reviewing its FY21 development promises, and also discretionary capex is suspended.
- Trustpower: The national demand for electricity witnessed a fall of approximately 15% as compared to pre-COVID-19 levels.
EROAD Limited (NZX: ERD)
EROAD limited (NZX: ERD) has witnessed growth during the final quarter of FY 2020. Notably, there has been an addition of 3,951 units, leading to an annualised growth rate of 14%. As per the release, in NZ, the company witnessed growth in SMB (or Small to Medium Business) segment throughout a range of industries.
Outlook Unchanged for FY20
The company’s outlook for FY20 is unchanged despite COVID-19 pandemic. However, there has been some delay with respect to finalising contracts with customers. Apart from that, there has been a short-term effect on the new unit growth. This is because of the tight government controls which have been applied. ERD is well placed and happens to be in the robust financial position even though the economic environment is quite uncertain.
In New Zealand, ERD was classified as an essential service and, resultantly, it has continued to carry out operations during the time of Level 4 lock-down.
Plexure Group Limited (NZX: PLX)
PLX has reaffirmed its FY20 revenue guidance (for the year ended March 31, 2020) in the range of $24.5 million to $25.0 million. The company will also record a profit for FY20 and end the year with a minimum of $14.0 million in the bank, subject to customers following normal payment patterns.
So far, energy has been remarkably resilient during the Covid-19 crisis. The impact on the energy sector will depend on the duration and severity of the economic downturn. An industry that can withstand weeks or months of the economic slowdown may not do so well when months turn into quarters, interrupting maintenance and investment decisions when shareholders become restless, and debts need to be repaid.