The release of the government’s carbon tax has had brokers rushing to calculate the impact on stocks. Much of it would already be priced in, of course, but now that it is (semi) official the effect on fundamentals needs to be assessed. Deutsche Bank says the impact on FY13 earnings will be modest for many carbon-intensive firms, though some sectors (airlines, steel, building materials, chemicals) face a material impact. AGL Energy is placed to benefit in FY13 via electricity prices.
Deutsche estimates that the effect in 2012-2013 on net profit after tax (NPAT) of the steel makers will be -9.3% for Bluescope and -3.3% OneSteel. But this will be almost completely offset in the first four years:
We expect BSL and OST FY13 NPAT to be negatively impacted by -9.3% and -3.3% following the introduction of the $23/t Carbon price (-$27M post-tax for BSL and -$12M for OST). Given SGM has minimal Scope 1 & 2 emissions in Australia (~320k) we expect the impact on FY13 NPAT to be minimal (~0.1%). Steel is a highly emissions-intensive industry and as a result we expect it to receive significant shielding (94.5%).
Further, while detail is limited, we believe the $300m assistance could be more than enough funding to fully compensate BSL & OST in the first four years of the carbon price, thus reducing the impact (potentially) to zero.
Surprisingly, the Government also advised that it will provide assistance worth $300 million (over four years) to the Australian Steel Sector to encourage investment, innovation and productivity which is expected to lead to a further reduction in carbon emissions. While specific details were not provided, the government indicated that it will increase the free permits allocated to steel from 2016-17 onwards.
In the building products sector, a number of stocks will be affected, with CSR the hardest hit:
We expect BLD, CSR, FBU and ABC FY13 NPAT to be negatively impacted by -4.8%, -8.8%, -2.2% and -0.5% respectively following the introduction of the $23/t carbon price by -$17.3m, -$13.3m, -$14.5m and -$0.84m (post-tax) respectively, assuming no pass through (which is the worst case scenario in our view).
Given the broad array of products in each company’s portfolio, the level of assistance ranges from 94.5% for emissions intensive trade exposed sectors (such as cement) to zero assistance for products (such as timber).
Some clean energy companies will benefit, although the government’s puritanical zeal in only supporting “renewables” rather than what works will limit any positive impact:
The $1.2b Clean Technology Program is designed to support companies and businesses that are emissions intensive and trade exposed but may find it difficult to pass of costs due to prices being set in global markets. Companies and businesses that do not meet the “emissions-intensity trade exposed” thresholds are expect to be provided other forms of support.
Of the $1.2b outlined by the Government we expect Australian Building material companies to be impacted by the $800m Clean Technology Investment Program. Grants will be to manufacturers to support investment in low pollution technologies and processes.
In all, the announcement should not affect share prices too much, given that the policy has been so heavily anticipated and the impact has been softened, at least in the short term. But it will only make it harder to avoid Dutch Disease, the two speed economy.