How La Niña is impacting Australian shares
With La Niña weather events remaining stubbornly persistent into FY23, investors have been paying particular attention to companies anticipating impacts to production outlook from predicted heavy rainfall.
We are seeing companies release trading updates that are mixed, with many lowering their production outlook based on La Niña weather events set to hit Australia's east coast this summer, which in-turn has caused investors to sharply sell-off such weather-impacted shares across several sectors.
BHP (ASX:BHP) shares fell more than 1% after the mining giant released its September quarter trading update, reporting production results fell short of analyst expectations, with copper production down 11% on the June quarter, iron ore down 1%, metallurgical coal down 19%, energy coal down 3% and nickel up 10% from the prior quarter.
Metallurgical coal was lower due to record wet weather with more than three times the amount of rainfall than the prior year in the quarter according to the company's report.
Whitehaven Coal (ASX:WHC), the 2022 favourite stock, was sharply sold off in October after the company announced a decline in production. WHC noted strong operational performance during the September quarter at the Narrabri underground mine, however the open cut operations were impacted by wet weather and flood related road closures.
WHC also said it is working with councils, developing measures to minimise the impacts of the expected La Niña weather delays, such as flood-related road closures. Despite the bad weather, the company made $1.5 billion cash in the September quarter, benefitting from the lingering global energy crisis.
Australia's largest fresh food producer, Costa Group (ASX:CGC), is also dealing with citrus quality issues over this harvest season due to adverse weather conditions with higher rainfall and cooler temperatures persisting. Pack out rates are expected to come in at 20% below budget amid lower average pricing outcomes and higher costs associated with labour, pest, and disease controls. Investors sharply sold-off CGC shares after the company released a trading update including the revision of earnings guidance on October 17, causing its share price to drop 13.4%.
On a positive note, its avocado business is benefitting from improved pricing after a few years of oversupply in the industry previously causing price pressures.
Insurance providers are also bracing for La Niña weather events to further impact profit margins. Early in November, Suncorp outlined there had been five declared natural hazard events across Australia and New Zealand since the start of the financial year, resulting in over 13,000 claims as at October 31.
The costs are expected to be in the range of $350 million to $410 million, with the extent of the damage still unfolding. Suncorp's natural hazard allowance for FY23 is $1.16 billion, however the company has a comprehensive reinsurance program in place for major events. Despite the impacts of La Niña, Suncorp reaffirmed its FY23 targets in the latest trading update.
Insurance Australia Group on the other hand faced a 41.8% decline in insurance profit from FY21 to FY22 and insurance margin down from 13.5% in FY21 to 7.4% in FY22 due to a higher natural perils cost of $1.12 billion, compared to the company's allowance of $745 million.
So, what does this mean for you and your portfolio? When making investment decisions in the current market for the months ahead, be sure to factor in the company outlook and impacts weather events are expected to have on production then guidance on earnings.
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