Size can matter with carbon tax

It’s become colloquially known as ‘Carbon Sunday’ after the ALP bucked traditional trend, announcing its carbon tax to the nation on a Sunday, ahead of a five-week parliamentary break.

Now I’m not an expert on parliamentary technicalities, but this move effectively means the carbon tax will be discussed in the media but not debated in parliament until mid-August.

Each person can and will make up their own mind, but I know as a tax payer that I expect better from both sides of parliament.

Both sides of parliament are paid to manage the affairs of the nation, not make a critical decision and then leave it hanging in limbo for more than a month.

However, parliamentary timing is not the focus of this article, rather I want to look at the companies on the ASX that will be most affected by the Government’s new carbon tax.

I want to make this point clear. What was announced on Sunday was not just a carbon tax, rather it was a significant restructure of the Australian taxation system.

As always, the devil is in the detail, and that detail includes a $23 per tonne starting price for carbon from July 1, 2012, a trebling of the tax-free threshold to $18,200 from July 1, 2012 (increasing to $19,400 the next year), and enough concessions and compensation packages to confuse analysts for the next month.

Initial reactions from stockbroker UBS is that BHP and Rio will not suffer a major impact as a result of the carbon tax.

This is not through the design of the tax, but rather because of their globally diversified suite of assets.

According to UBS, earnings per share impact for BHP will be about one per cent in 2013 through to 2015, while the impact on Rio will be 2 per cent in 2013 and 2014, moving to 3 per cent in 2015.

Greater impacts are expected on the smaller miners, particularly those with single commodity, Australian-based exposure to coal, LNG and to a lesser extent iron ore.

Companies on this list include New Hope Corporation (NHC), Macarthur Coal (MCC), Whitehaven Coal (WHC), Santos (STO), FMG and Atlas Iron (AGO).

It’s worth noting that while commodity prices stay high (thanks largely to Chinese demand) the carbon tax is less of an issue for miners, but should prices materially fall then the impact of this production-based tax will be harder felt.

Investment bank Goldman Sachs notes that emissions-intensive, trade-exposed companies (which the tax was originally designed for) have largely been insulated from the impact in the first five years through compensation packages.

This is supportive for OneSteel (OST), BlueScope (BSL), Alumina (AWC), Caltex (CTX), Adelaide Brighton (ABC) and CSR (CSR) in the near-term.

Energy utilities AGL Energy (AGK) and Origin (ORG) are expected to also dodge a bullet because they are able to pass through the carbon price to their retail businesses.

The winners from the carbon tax come in two categories. In the first are the green energy companies such as Ceramic Fuel Cells (CFU), Carnegie Wave Energy (CWE) and a bunch of geothermal energy hopefuls.

In the second are companies that are going to benefit from the raising of the tax-free threshold, which include our retailers (JB Hi-Fi, Myer and David Jones) and suppliers of essentials such as supermarkets (WOW and Wesfarmers), although you’d want to be a little bit careful with Wesfarmers because it does have exposure to the coal industry.

For more information, contact Cameron Bartram at Sentinel Stockbroking on 9225 0028 or email cbartram@sentinelgroup.com.au

Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time.