As we have previously written, investors need to keep an eye on company announcements for further clarity on near-term impact from COVID-19 as Feb-20 updates/commentary were largely redundant by the end of February. In this regard, we have been keeping up with the recent ASX company announcements across a diverse range of companies to get a better handle on the impact to company operations.
Key points for consideration from what we have seen so far:
(1) China. Activity in China is slowly returning to normal levels, with production and distribution channels opening up again.
(2) Freight. Freight and supply chain disruption remain a key issue, especially given the reduction in airline movement. As we have previously highlighted, cost pressures may emerge as a result of sourcing issues due to supply chain disruption.
(3) Work from Home (WFH). Enforced WFH in certain regions (U.S., Europe, UK) is resulting in employees unable to access company sites (e.g. labs, critical infrastructure). Most of the enforced WFH are expected to last until end of March at the very least.
(4) Amazon. Amazon has said to its suppliers, it is prioritizing household staples, medical supplies and other high demand products. This will clearly come at the expense of other companies’ revenues.
(5) Landlords. Retailers appear to be seeking concessions from landlords (shopping centres / Westfields). Retailers with significant market power like Michael Hill and Premier Investments are likely to be well placed to get concessions but others may also demand rent reduction. Unibail-Rodamco Westfield has noted it is in discussion with tenants. Further, landlords such as Westfield are impacted by enforced government closures in Europe and the U.S.
(6) Retailers. Retailers with global footprints are having to close shops due to government enforced measures. Most closures are until end of March or April.
(7) Withdrawing guidance. Unsurprisingly, most companies have withdrawn their previous guidance and were unable to provide any colour on the impact to earnings given the uncertainty on near-term trading. Hence, investors are unlikely to get any visibility on the potential impact on earnings until companies report in August 2020 (or companies are forced to provide a market update before August reporting season if the materiality of the impact to their earnings becomes such that the management team must inform the market due to the listing rules).
(8) Dividends. Some companies have cut dividends, whilst others have suspended dividends already announced at the recent reporting update.
(9) Australian housing market. From the commentary, it appears the Australian housing market was clearly rebounding before this uncertainty. However, COVID-19 has likely disrupted this in the near-term.
(10) Pricing. Some companies are halting contracted price increases which were about to come into effect. Others are providing more value at current pricing to retain clients.
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Investment Manager / Director at BanyanTree Investment Group
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