The ASX sectors booking big profits thanks to government COVID-19 stimulus
Government stimulus measures such as JobKeeper have sent company profits up 15 per cent in the June quarter, the largest quarterly rise since 1975.
This is in sharp contrast to market expectations, with economists predicting a 6 per cent drop.
A handful of sectors saw particularly large gains including industries significantly hit by COVID-19 restrictions.
This was also despite total real business sales declining 9.4 per cent and weak consumer confidence.
The hospitality and entertainment sectors were among the biggest affected sectors by COVID-19 restrictions. However, they witnessed profit spikes of 86 per cent and 84 per cent respectively.
But not all stimulus recipients were in a hibernation mode through the crisis.
The construction sector was an example of this. It provides the most full time jobs in Australia and has the most businesses on JobKeeper.
Additionally, 98 per cent of the industry’s businesses are small to medium-sized enterprises, more than any other industry.
A handful of small caps such as SRG Global (ASX:SRG) and Acrow Formwork & Construction Services (ASX:ACF) have surged from their pre-COVID lows, having been able to win several new contracts as restrictions eased.
Both companies will pay dividends to their shareholders and Acrow’s net profit after tax rose by 20 per cent.
While SRG did not compare its results to the prior year, its underlying earnings came in at $20.5m and it is expecting this to rise to $38-$42m in the next financial year.
Professional services saw a 55 per cent rise in profits. This sector on the ASX is only small and includes companies like accounting firm network Kelly Partners (ASX:KPG).
The company saw a 16 per cent rise in FY20 revenue and a 45 per cent increase in its post-tax profit.
The sectors with the biggest gains included administration services with a 121 per cent profit rise and “other personal services” with a 253 per cent gain.
These positive figures fuel hope that Australia’s second-quarter GDP figures won’t be as bad as predicted.
The GDP figures will be released at 11.30am AEST on Wednesday and it is all but certain that a heavy contraction will be recorded. According to surveys in recent days, economists are expecting a 6 per cent drop.
NAB was initially predicting a 5.8 per decline, but that forecast has improved slightly to a 5 per cent contraction.
A 5 per cent contraction would still be the biggest hit to GDP since World War Two and there are fears the economy may contract further in the September quarter.
Economist Kaixin Owyong said while the profits data hit home how much of a difference stimulus had made, withdrawing stimulus may be difficult.
“It highlights concerns that the recovery in Q4 may waver as government support is withdrawn,” she said.