A string of automotive-related ASX companies should be beneficiaries of the temporary cut in fuel excise as households reliant on car usage are more inclined to head out on the road again, after being spared a combined $3 billion hit to their own budgets.

Stockbroking house UBS says the government’s decision to halve the 44.2c-per-litre fuel excise for six months should drive the price of petrol back below $2 per litre, and ASX companies with a direct link to the number of kilometres travelled by motorists should benefit.

Car parts companies such as Bapcor, which owns the Autobarn, Burson and Autopro chains, and GUD Holdings, which sells Ryco oil filters and air filters, are expected to be among the winners.

UBS equity strategist Richard Schellbach said other companies including listed car dealership groups should benefit from demand for vehicle servicing and from continued strong appetite by buyers for new and used vehicles.

There are long delays in deliveries for some models because of supply chain disruptions which are beefing up profit margins.

They include Eagers Automotive, the largest car dealership group in Australia with about 200 showrooms, and Autosports Group, which has more higher-end car brands in its stable including BMW and Audi.

Mr Schellbach said fuel companies Ampol and Viva Energy should also be beneficiaries from an expected increase in “vehicle kilometres travelled”, with the cut in excise to offset a material portion of the sharp increase in fuel prices over the past months.

Super Retail, the group which owns the big Supercheap Auto retail chain along with sporting goods group Rebel and outdoor equipment chain BCF, is also considered a potential winner from the overall federal budget.

Inventory levels an ‘asset’

MST Marquee senior research analyst Craig Woolford said at a broad level Super Retail stands out as a “strong buy idea” for investors. Across all of its retail brands, its higher inventory levels that it built up as a buffer against supply chain disruptions are a plus.

“The market is concerned about its elevated inventory. However, with strong sales trends and ongoing risks in sourcing product from China, Super Retail’s inventory position is an asset, not a liability,” he said.

He has a 12-month price target of $14.10 on Super Retail.

Macquarie analysts said the halving of the fuel excise for six months is expected to cost the government $5.6 billion. They are assuming the household sector will represent about $3 billion of this reduction, “with commercial motorists seeing the rest”.

The federal government on Tuesday in its budget announced an excise cut to 22¢ a litre for petrol and diesel, down from 44¢ a litre. It marked the most significant change to excise since then prime minister John Howard’s indexation pause in 2001.

The upfront cost of the cut is $5.6 billion, but this is reduced by $2.7 billion in diesel excise rebates the government does not have to refund to miners, fishers and farmers.

Labor is expected to give its blessing to the excise cut. Any extension beyond September 28 would require the winner of the federal election expected to be held in May, to put forward new legislation.

But a potential medium-term negative for vehicle dealers looms from mid-2023 when a short-term pandemic measure previously introduced to stimulate purchases under the broader instant asset write-off scheme comes to an end.

That instant tax deduction scheme means that businesses will need to be using new equipment by June 30, 2023, to claim full expensing.

Some analysts say the instant asset write-off measures triggered a pull-forward of demand as tradies in particular raced out to buy new utes.

Ord Minnett pointed out that the scheme was still in operation until mid-2023, and potential beneficiaries of it still being around for a further 14 months are four-wheel drive parts group ARB Corporation, and Eagers Automotive, which on Wednesday announced it was acquiring for $205 million a dealership group in Canberra owned by WFM Motors, the private company owned by Eagers’ largest shareholder Nick Politis. Mr Politis owns 27 per cent of Eagers. Ord Minnett also listed Viva Energy as a winner from the fuel excise cut.

Extracted in full from: The ASX stocks set to win from the fuel excise cut (afr.com)

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