Our share market has yet to fell the full impact of the skills shortage, but that could soon change and JPMorgan warns the ASX shares of this company could be most at risk.
The broker’s latest research note on this topic comes after over a quarter of Australian businesses were having trouble finding staff.
The findings from the recent ABS Business Conditions and Sentiment survey found that medium to larger businesses were struggling more to find skilled workers.
Skills shortage pain increasing most in construction
The most impacted roles include hospitality workers, engineering professionals, drivers and building trades.
“The industries most impacted include: Accommodation and Food Services, Utilities, Manufacturing and Construction with the Construction industry seeing the biggest increase in difficulties over the past six months,” said JPMorgan.
“In Dec-20, only 18% of Construction respondents reported an inability to recruit staff compared to 32% in Jun-20.”
Early signs of stress can be seen among some ASX engineering and constructions shares. They have been underperforming the S&P/ASX 200 Index (Index:^AXJO) recently while the rest of the market is unperturbed.
ASX shares feeling the jobs squeeze
For instance, the NRW Holdings Limited (ASX: NWH) share price has halved since the start of 2021. Meanwhile, the Monadelphous Group Limited (ASX: MND) share price and Emeco Holdings Limited (ASX: EHL) share price have fallen 24% and 11%, respectively.
In contrast, the ASX 200 has rallied 11% over the same period.
But the ASX shares that is most negatively impacted by skills shortages and potential wage rises aren’t in this group, warned JPMorgan.
The ASX shares most at risk from skills shortage
The broker reckons that the Downer EDI Limited (ASX: DOW) share price has most to lose. In fact, JPMorgan is so concerned that it downgraded the Downer share price to “underperform” (equivalent to “sell”) due to this risk factor.
The market may not have woken up to this threat. The Downer share price is up around 5% since January and has gained more than 30% over the past year. That’s materially ahead of the other contractors listed in this article.
Perhaps Downer’s greater exposure to infrastructure construction explains its outperformance. But if JPMorgan is right, the gap between the Downer share price and the sector could shrink substantially in the coming months, if not sooner.
Are there ASX buying opportunities?
This raises the question about whether now is the time to be selling Downer and buying one of the laggards.
Coincidentally, the analysts at Macquarie Group Ltd (ASX: MQG) reiterated their “outperform” recommendation on the Emeco share price on the same day JPMorgan downgraded the Downer share price.
Macquarie’s bullish call on Emeco comes as the company successfully raised $250 million via senior secured notes at 6.25%.
It also helped that management reiterated its FY21 operating earnings before interest, tax, depreciation and amortisation (EBITDA) guidance of $235 million to $238 million.
Macquarie’s 12-month price target on the Emeco share price is $1.30 a share.