The coronavirus pandemic has changed the way we live, work, and shop. Restrictions are starting to lift, but normality may still be a while away. Our habits have changed, and some of these changes may be permanent.
While in lockdown we've seen significant increases in online shopping, demand for remote working solutions, and home cooking. This has impacted consumer spending patterns and the way we interact with businesses. Some companies are better positioned for this shift than others.
Certain products and industries are seeing increased demand. In some cases, these increases may be sustained. Suppliers of these products and services will benefit from these tailwinds in the months to come.
So where do you invest if you want to survive (and thrive) in the coronavirus pandemic? We took a look at recent changes to find 4 ASX shares that are leveraged to these trends.
Coles Group Ltd (ASX: COL)
First it was panic buying, then it was baking challenges. The major supermarkets have been the major beneficiaries of coronavirus buying trends. Along with competitors Woolworths Group Ltd (ASX: WOW) and Metcash Limited (ASX: MTS), Coles has benefited from a surge in sales.
In the March quarter, Coles reported a 12.4% increase in total sales which reached $9,226 million. Supermarket sales were up 13.1% which marks the 50th consecutive quarter of comparable sales growth for supermarkets.
Liquor was negatively impacted by bushfire smog over capital cities and floods in January and February, before seeing the impact of COVID-19 later in the quarter. Still, liquor sales increased 7.2% over the quarter to $740 million.
With the outbreak of the coronavirus pandemic, demand for online shopping surged, putting pressure on supply chains. Coles has leased 2 high-tech sheds in Sydney and Melbourne as it looks to automate its supply chain and speed up home deliveries.
Last year, Coles entered a service agreement with Britain's Ocado Group to bring an online grocery platform, fulfilment technology and home delivery solution to Australia. Online fulfilment automation is expected to improve customer service and reduce waste, as well as support employment opportunities at a time when many businesses are cutting or delaying investment.
Zip Co Ltd (ASX: Z1P)
Buy now, pay later services have seen demand continue unabated through the coronavirus pandemic. Afterpay Ltd (ASX: APT) competitor Zip reported an 81% increase in monthly revenue in April, while customer numbers increased 66% to 2 million.
Zip Co focuses on acquiring prime and near-prime customers with a revolving line of credit to finance their retail purchases. Merchants offering Zip include Amazon, Chemist Warehouse, Optus, Bunnings, and Big W. Merchant numbers increased 50% year-on-year in April, reaching 23,100.
In April, monthly transaction volume increased to $181.6 million, an 86% increase year-on-year. Zip has reported that the start of May looks to be considerably stronger again by comparison to April. Managing Director Larry Diamond said, "our product differentiation and penetration into purchases for online, the home, and everyday categories, delivered robust transaction volume."
Zip believes its success is due to the defensive nature of its model, which plays in many categories that customers are spending in. Its exposure to online has helped the business, as has the platform's ability to allow users to pay bills and make purchases across groceries, retail and home.
Ramsay Health Care Limited (ASX: RHC)
Healthcare is non-negotiable, especially in the current environment. Ramsay Health Care is one of the largest hospital operators in Australia. Operating nearly 500 facilities across 11 countries, Ramsay Health Care has expanded its capacity significantly in the last couple of years.
The hospital operator has finalised deals with the Queensland and Victorian Governments to make facilities available during the coronavirus pandemic. In return for maintaining full workforce capacity at its facilities, it will receive net recoverable costs for its services.
Private hospitals took a revenue hit when the government cancelled certain elective surgeries. Under the new agreements with state governments, Ramsay Health Care will break even on earnings before interest and tax (EBIT).
Ramsay Health Care undertook a capital raising in April in the face of an uncertain operating environment. The healthcare company raised $1.4 billion via a placement and share purchase plan. Proceeds of the raising were used to partially repay revolving debt facilities.
Ramsay Health Care performed strongly prior to the COVID-19 pandemic, with revenue increasing 22.5% to $6.3 billion in H1FY20. Core net profit after tax (NPAT) of $273.6 million was recorded, up 3.4% on the prior corresponding period. Earnings per share increased 3.7% to 132.5 cents.
Non-urgent elective surgeries are resuming following the lifting of the government ban on 27 April. In the longer term, Ramsay Health Care is likely to benefit from trends including the aging population and increased healthcare spending.
Xero Limited (ASX: XRO)
Xero provides cloud-based accounting software to small and medium businesses. Although many of its customers will have suffered in the downturn, they still have tax obligations so will continue to require accounting software.
Xero's product is sticky and boasts over 2 million subscribers. It is operating in an industry where structural growth is being driven by regulation and a broad-based shift to the cloud. Increased remote working is also likely to hasten this shift to the cloud. This could push more potential clients towards Xero's solutions.
Xero releases its full-year financial results this month which will provide more clarity on how it has been impacted by COVID-19. The company was well-positioned prior to the crisis with a self-funding business model and strong balance sheet.
Xero has established itself in a dominant Software-as-a-Service position in Australia and New Zealand. It also has a growing presence in the UK and US. Prior to the pandemic, Xero was seeing healthy growth in subscriber numbers. While this may slow in the near term, long term structural factors still work in Xero's favour.
