On Tuesday evening treasurer Scott Morrison will divvy up hundreds of billions of dollars to help stimulate the economy.
Which ASX small caps might benefit?
Here’s a quick overview based on what we know so far:
A tax on small beer kegs is expected to be given the flick.
“Craft brewers and distillers will no longer pay additional tax, allowing them to compete on fairer terms with large beverage companies,” Morrison foreshadowed last week.
That could benefit small ASX-listed craft brewer such as Gage Roads Brewing (ASX:GRB) which makes the likes of Atomic Pale Ale, Sleeping Giant IPA and Small Batch Lager.
Gage, which is valued at about $73 million, brought in $15.3 million in receipts last quarter for $2.1 million positive cashflow.
Another benificiary could be brewer Broo (ASX:BEE) which makes premium lagers and draughts — and also plans to build the “world’s greenest brewery” in the Victorian regional centre of Ballarat.
Even cannabis play Creso Pharma (ASX:CPH) could benefit via its plan to make cannabis-flavoured beer.
The government is expected to provide $50 million in seed funding to kick-start an Australian Space Agency.
It hopes to stimulate Australian players to invest in the space industry – which is said to be worth $420 billion globally.
That could benefit existing ASX-listed space stocks such as Sky and Space Global (ASX:SAS).
Sky and Space is launching a fleet of miniature “nano-satellites” into orbit by early 2019 to provide text, call and instant message communication in regions along the equatorial belt that do not have good connectivity.
Luxembourg satellite maker Kleos Space could also benefit after opening a Canberra office ahead of an $11 million IPO and ASX listing expect this month.
Kleos’s satellites will gather and sell data that allows countries to “guard borders, protect assets and save lives by delivering global activity-based intelligence and geolocation as a service”.
High-tech parts manufacturers such as Quickstep (ASX:QHL) could also benefit.
While miners are not expecting handouts on Tuesday night, the Budget should bring positive sentiment to resources stocks thanks to their impact on the national bottom line.
“I think one of the themes is probably going to be an upward revision to revenue, and one of the drivers there will be commodity prices have been probably better than the government forecasts have been expecting,” UBS commodities analyst Lachlan Shaw told Stockhead this week.
“From that point of view higher prices should drive better profitability in the mining sector and better profitability will in turn drive better taxation receipts for the government.”
“If the government comes out with a more constructive view on world growth — or they come out with a more constructive outlook for the resource sector overall and commodity prices — then obviously the smaller producers more often than not have higher leverage into those types of macro drivers,” Mr Shaw said.
Expected tax cuts for middle and lower income earners could bring much-needed good news for small cap retailers and luxury goods makers.
“[In] this year’s Budget we will be delivering tax relief to put more money back in the pockets of middle to lower income Australians,” Morrison said last week.
Small cap retailers have done it tough in recent times, especially since the arrival of Amazon.
Late last year three listed ASX small cap retailers — Pental (ASX:PTL), McPherson’s (ASX:MCP) and Baby Bunting (ASX:BBN) — announced profit downgrades in the space of a few days and luxury brand Oroton (ASX:ORL) went broke.
Extra money in purses and wallets could be good for fashion stocks Gazal (ASX:GZL), Kathmandu (ASX:KMD), Noni B (ASX:NBL), Specialty Fashion Group (ASX:SFH) and luxury goods makers such as Atlas Pearls (ASX:ATL).
It could also help businesses as diverse as furniture maker Nick Scali (ASX:NCK), entertainment services such as Indoor Skydiving (ASX:IDZ) and foodie stocks like oyster farmer Angel Seafood (ASX:AS1).
Road and rail
Stocks involved in providing transport infrastructure could benefit from big spending announcements in road and rail.
Infrastructure spending is expected to be around $25 billion.
Projects include $5 billion towards a rail link from Melbourne’s Tullamarine airport to the city, $5 billion to upgrade Queensland roads including the Bruce Highway and $1.7 billion for West Australian roads.
These projects could benefit ASX small caps in a variety of areas from steel manufacturers to tiny bollard maker Saferoads (ASX:SRH).
“The on-going focus on infrastructure is positive for civil engineering companies, building material suppliers, infrastructure managers and operators,” the Commonwealth Bank said in its Budget preview.
Bad news for biotechs
On the negative side, more than a dozen ASX-listed small cap biotechs will lose out if the government goes ahead with a proposed overhaul of R&D refunds, says industry lobby group AusBiotech.
Morrison has flagged an overhaul of the R&D tax incentive scheme in the Budget, capping annual refunds at $4 million and lifetime claims at $40 million for companies with less than $20 million turnover.
That would immediately punish as many as 13 ASX-listed biotechs which have claimed more that since January 2017, says Australia’s peak biotechnology industry association AusBiotech.
Small caps that could be affected include Bionomics (ASX:BNO), Benitec (ASX:BLT) and Kazia (ASX:KZA). Full list here.
Not good for Oil and Gas
In another possible negative impact, the Budget could introduce changes to taxation of energy companies which may mean oil and gas producers pay more under changes to the Petroleum Resources Rent Tax.
Deductions under the tax are expected to be tightened, though existing projects would be exempt.
Separately, there could be new laws on fracking “to compensate farmers by giving them a share of profits if gas is found on their land”, says the Commonwealth Bank.
South Australia last year raised the idea of a 10 per cent royalty for farmers who open their property to gas exploration.
The Northern Territory government last month reversed a ban on unconventional gas exploration such as fracking — but imposed 135 separate conditions. (Bans remain in place in other States).
The red tape will delay Territory-focused unvonventional gas explorers by at least another year.
Gas explorers that could be affected by any new rules include Blue Energy (ASX:BUL), Empire Energy Group (ASX:EEG), Armour Energy (ASX:AJQ) and Baraka Energy (ASX:BKP).
On Tuesday night stockmarket investors should also look out for:
New spending on aged care is aimed at helping the elderly to stay in their own homes for longer. That could benefit healthcare stocks such as medical technology providers and health industry recruiters and trainers.
Company tax cuts
Small caps with up to $50 million revenue will get a tax cut from 30 per cent to 25 per cent over the next decade. But it remains to be seen if the government wil push through tax cuts for bigger companies.
“There’s a chance we’ll see some further changes around that legislation and if that then gets through the Senate that’s pretty obviously beneficial to all businesses in Australia,” UBS analyst Lachlan Shaw told Stockhead this week.
“Any agreements from the Senate to push through company tax cuts will probably benefit small to medium businesses first.”
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