The New Criterion: charred and singed ASX-listed stocks count the cost of the bushfire catastrophe

With the prolonged bushfire crisis now abated thanks to the efforts of Mother Nature and tireless firefighters, now’s the time for investors to ponder the effect of the nation’s biggest firestorm on their listed exposures.

In terms of direct ramifications, a handful of stocks have emerged singed, if not charred and have already pointed to significant asset damage and/or loss of revenue. Of course the insurers will bear the brunt of the costs, which economists put at anywhere between $5 billion and $100bn.

At the last reckoning, affected property owners had lodged 8500 claims worth $700 million, with this tally certain to rise. But the impost for the insurers is likely to be less than an equivalent ‘lesser’ event such a major vehicle-denting urban hailstorm or cyclone.

This is because most of the bushfires damage happened in sparsely-populated communities or national parks.

In early January pure-play insurer Insurance Australia Group (IAG) pointed to a total ‘natural perils’ bill of $400m for the December half, mainly attributable to the fires. Bancassurer Suncorp Group (SUN) estimates a tab of $315-345m.Bear in mind that the insurers pass on much of the risk through complex reinsurance arrangements.

Utility companies – notable the owners of the ‘poles and wires’ assets have not escaped unscathed. But as Standard & Poor’s notes, the damage is likely to be insured and minor compared with the value of their total coverage.

We’re yet to hear from the Victorian based Ausnet Services (AST), the main listed ‘poles and wires’ exemplar. In the small cap retail sector, Mosaic Brands (MOZ, formerly Noni B) disclosed that its half-year earnings would be affected because 8 per cent of its 1386 stores were in locations directly affected by the fires, with 32 per cent in regional areas “where consumer confidence has been particularly fragile.” Mosaic shares plunged 16 per cent in response to the surprise admission. Super Retail Group (SUL) chimed in with news that turnover within its ‘outdoorsy’ BCF (Boating Camping Fishing) and Macpac divisions had fallen in a heap as the NSW fires raged in the last two months of the December half. Also the owner of the Super Cheap Auto and Rebel outlets, the company guided to first half underlying earnings of $114m, down 8 per cent. The owner of the nation’s biggest campervan rental fleet, Apollo Tourism and Leisure (ATL) said it would be “challenging” to reach last year’s $14.7m profit, after domestic last-minute bookings dried up. “The global media reporting of the Australian bushfires will also impact forward bookings,” the company intoned. Arguably, the ASX-listed ‘biggest victim’ status goes to the Kangaroo Island Plantation Timbers (KPT), which saw 95 per cent of its timber wiped out. The company is in voluntary suspension as management works out recovery strategies, such as turning fire damaged trees into much needed fence posts. Kangaroo Island is also problematic for ferry operator Sealink Travel (SLK). While the company’s operations are well diversified these days, on RBC Capital Market’s estimates the company still derives 16 per cent of core earnings from its legacy Kangaroo Island service. The company-owned Vivonne Lodge also was damaged and with the island’s koala population almost wiped out visitors are likely to be deterred for some time. Sealink also faces dwindling patronage on its Captain Cook cruises, given most of Sydney’s famed monuments have been shrouded in smoke haze. In the affordable accommodation sector, Ingenia Communities (INA) expects its earnings to be “materially affected” because of lower than forecast home sales at its Lake Conjola residential property on the NSW south coast, on which two houses were lost. Ingenia also operates three holiday resorts and expects a $2m revenue hit from loss of trade (this is likely to be covered by insurance). Rival operator Aspen Group (APZ) has two resorts on the southern coast and expects a $500,000 loss of net operating income. Horticulturalist Costa Group (CGC) and its rural landlord Vitalharvest (VTH) had already been suffering problems flowing from the drought and poor berry crops. The fires around Tumbarumba (southern NSW) damaged a packing shed at a farm accounting for 6 per cent of the parties berry plantings. Vitalharvest says it will work closely with Costa to assess the damage and “provide further update when required.” Costa holders can only hope it doesn’t result in another profit downgrade, given the company issued four of them last year. Speaking of fruit, the wine sector is also vulnerable. Australian Vintage (AVG) reports the Adelaide Hills fires damaged one of its three properties in the premium grape growing region, with a likely 200 tonnes lost and some infrastructure damage as well. But given the blazes destroyed one-third of the premium region’s vines, the company counts itself lucky. The broader question is how much the crops in the affected regions will be unusable because of smoke taint, which is what happened in the Yarra Valley after the Black Saturday fires. Bega Cheese (BGA) reports it is likely to lose 1.9 million litres of milk because of the fires, but that’s a splash in the bucket given it processes one billion litres annually. And agri stalwart Elders (ELD) expects to suffer from lower rural merchandise sales and thus reduced commissions on livestock sales, albeit offset to a degree by higher sales of rebuilding materials such as fencing supplies. As the December half reporting season looms, we’re likely to see a trickle of disclosures from companies that have not yet been able to assess the damage. No doubt some companies will use the disaster as an excuse for pre-existing underperformance. As is always the case with natural disasters, investors need to be more wary of the indirect, less tangible flow-on effects. At the macroeconomic level, the ‘S’ word will be notably absent from politicians’ discourse leading up to the May budget, with treasurer Josh Frydenberg declaring that it’s too early to tell whether the bushfire measures will extinguish the previously flagged surplus. Monetary policy wise, the impact on regional areas and sectors such as tourism gives the Reserve Bank board much to ponder at its February 4 meeting. But the prospect of another rates cut is far from clear cut, with booming share market and property conditions pointing to a ‘wait and see’ stance. As for consumers, broker JP Morgan suggests that many shoppers will stop spending on the discretionary stuff out of sympathy for the victims. “During periods of national disaster, consumer sentiment can be negatively impacted as consumers are unwilling to spend when others are struggling,” the firm says. The tourism sector is also one to monitor as regional authorities scramble to attract the visitors that hitherto have been warned off as ‘rubberneckers’. Keep an eye on the travel stocks exposed to inbound tourism such as skydiving operator Experience Co (EXP) and Gold Coast theme park operators  Village Roadshow (VRL) and Ardent Leisure Group (ALG).

On a positive note, the increased public spending –such as the government’s $2 billion relief fund – could stimulate regional economies. So too could the need to rebuild houses, roads and bridges, to the benefit of building material suppliers such as CSR (CSR), Boral (BLD) and Brickworks (BKW).

At a policy level, expect to see funds flowing to companies promoting renewable energy and other eco-friendly practices. Coal stocks will be on the nose, especially with institutional investors such as the giant Blackrock which has just announced it will shed $500m of actively-managed thermal coal exposures.

While the PM has reiterated his support for our thermal coal industry, don’t expect him to grace the floor of parliament with another carboniferous lump in a hurry.

Many companies won’t wait for Canberra’s led and will scramble to develop – and enunciate – their sustainability policies.

As with every cloud, it looks like even devastating smoke plumes will have a silver lining.

 Tim Boreham edits The New Criterion