The market closed higher last week on hopes of an imminent easing in coronavirus restrictions. The S&P/ASX 200 Index (ASX: XJO) finished the week up 2.78% as Scott Morrison announced a staged reopening of the economy.
Treasury has estimated the coronavirus shutdown is costing the economy $4 billion a week. The economic hit is due to a combination of unemployment, productivity loss, and a drop in consumption.
The unemployment rate is predicted to hit 10% by June. But a recovery in GDP growth is expected by the end of the year, limiting the fall in GDP to 6% over 2020. Unemployment is predicted to improve slightly to 9% by the end of the year.
Market conditions remain challenging given COVID-19 uncertainty and the unknown speed of recovery. Nonetheless, ASX travel shares soared as Morrison announced “some” interstate travel would be permissible under stage 2 of the 3-step plan to reopen the economy.
If all goes well under Morrison’s 3-step plan, 850,000 people will be back in work and around $9 billion pumped into the economy in about 8 weeks’ time. As restrictions ease, we take a look at the ASX 200 shares that fell the most last week.
Inghams Group Ltd (ASX: ING)
Shares in Inghams Group fell 6.5% last week to close the week at $3.19. Last Monday, Inghams refused to draw conclusions around FY20 trading results given changes in volume and channel mix.
COVID-19 restrictions have had an impact on the food supply chain, and there have been volatile conditions in poultry markets. Inghams had to swiftly realign its operations to manage social distancing requirements at its facilities. This has created additional inefficiencies and costs and led to the suspended production of some products.
COVID-19 restrictions caused a temporary surge in retail sales in March and early April but since then, store traffic has decreased and shopping behaviours shifted. Out of home consumption of poultry products has been negatively impacted. Customers supplying hospitality and tourism industries have significantly reduced purchases, leading to weaker conditions in wholesale markets.
Inghams is closely managing its working capital and inventory, and remains focused on debtors and cashflow collection. In some circumstances where customers have experienced difficulties, Inghams is working to support them. The company is supported by its lenders and has significant headroom in its covenants.
Orocobre Limited (ASX: ORE)
Orocobre shares ended last week 6.5% lower at $2.03. Its Olaroz lithium facility stopped production during the March quarter due to Argentinian COVID-19 restrictions. The shutdown, combined with planned maintenance, resulted in 21 days of lost production.
Production for the quarter was down 11% on the prior corresponding period due to the shutdown. March quarter product pricing was also below that of the December quarter with continuing weak demand and aggressive competitor behaviour. Sales revenue was down 32% QoQ to US$12.1 million.
The existing challenges in the lithium market were compounded by the spread of COVID-19 which impacted operations throughout the supply chain. Future demand rests on increased appetite for electric vehicles, with Orocobre confident in its long-term prospects given government emission targets and European carbon emissions penalties.
Alumina Limited (ASX: AWC)
Shares in Alumina lost 6.2% last week, finishing the week at $1.525. The price of aluminium has declined 17.7% since the beginning of 2020, and is expected to decline further over the next 12 months.
In the March quarter, Alumina reduced cash costs of production by $1 per tonne. Daily production was in line with that of the previous quarter. The average realised alumina price was also broadly in line with the previous quarter despite a decline in the spot price towards the end of the quarter.
To preserve cash in the current environment, Alumina has put growth capital expenditure on hold for the rest of 2020. This will reduce spending by $30 million, with Alumina looking to save a similar amount on non-critical sustaining capital expenditure.
Qantas Airways Limited (ASX: QAN)
Qantas shares closed last week down 6.1% at 3.40. A dispute with Perth airport over alleged unpaid aviation and rental fees has led to the airport issuing Qantas with termination notices. Qantas said the notices amounted to eviction notices and could result in operations at the airport stopping within a fortnight.
“We understand Qantas needs to keep trading and that the significant profits it is generating from these lucrative FIFO flights are crucial to them,” Perth Airport Chief Executive Kevin Brown told the Sydney Morning Herald. “But paying nothing while using all of the airport’s services is no longer an option.”
Qantas has struck deals with most airports around Australia and is in negotiations with others. Perth Airport is the exception. Qantas is currently operating around 350 services a week through Perth airport, most headed to Western Australian resource projects.
National Storage REIT (ASX: NSR)
The National Storage REIT finished last week down 5.9% at $1.59. National Storage announced a $330 million equity raising during the week. A $300 million placement was conducted at $1.57 per stapled security, which was a 7.1% discount to the last closing price. A further $30 million will be raised under a security purchase plan.
Proceeds from the raising will be used to strengthen the balance sheet, replenish investment capacity and provide additional funding flexibility. National Storage says it has $120 million of acquisition and development opportunities under active consideration.
Self-storage markets in Australia and New Zealand are fragmented. National Storage believes the COVID-19 pandemic may provide additional acquisition opportunities over the next 12 to 18 months. With strengthened liquidity as a result of the capital raising, National Storage says it will be in a strong position to capitalise on these opportunities.
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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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