Australian companies’ profits to be boosted by US tax overhaul

Australian firms with US exposure are set for a $600m profit bonanza following Donald Trump’s tax overhaul.

James Hardie, whose CEO Louis Gries is pictured here, stands to be a big winner from US tax reforms.

Dozens of Australian companies with US exposure including BlueScope Steel, Computershare, Ansell and James Hardie are set for a financial windfall from the round of corporate tax cuts to be signed into law by Donald Trump after being passed by Congress.

At the heart of the most sweeping overhaul of the US tax rules in more than 30 years is a cut in the corporate tax rate to 21 per cent from 35 per cent.

Brokerage Credit Suisse has calculated that profits of ASX200 companies could benefit by around $620 million a year from the cuts, with companies ranging from Macquarie, Amcor and Incitec Pivot among the winners.

Manufacturing major BlueScope Steel today issued a profit upgrade, helped by higher steel prices and increased sales in Australia, sending its share to a record high of $15.73 in early trade.

But the company, which has major operations in the US, also said that it expected US tax reform to benefit its US earnings through a lower federal tax rate.

BlueScope said it expects a seven per cent decrease in the federal tax rate on its US earnings in the current financial year and 11 per cent in subsequent years.

Computershare said today it expects the proposed US tax reforms to be associated with a one-time benefit to statutory net profit after tax this financial year, but another implication could be the elimination or reduction of certain existing tax deductions.

Elsewhere, healthcare manufacturer Ansell said it’s likely to benefit by around $US3-5 million annually in financial 2019 “primarily as a result of lower direct tax expense”.

And financial services group Navigator said it expects to “benefit significantly from a lower US corporate tax rate” once it rolls off its current round of tax losses.

CLSA analyst Andrew Johnson has ranked ASX-listed Australian corporates by net benefit from US tax cuts after taking into account US capex spending and US tax paid.

He calculates building materials group James Hardie to benefit the most, given 80 per cent of its earnings are paid in the US. This is followed by Reliance Worldwide and Sims Metals Management.

Morgan Stanley said Aristocrat would be a large beneficiary of US tax cuts as it derives about 65 per cent of its earnings from the US, although it only pays US tax on 36 per cent of its group earnings.

“Whilst we view the tax cuts as highly beneficial to ALL, this benefit will also help their competitors IGT and Scientific Games,” Moran Stanley analysts said in a report.

The Business Council of Australia says the US tax reforms mean Australia can no longer leave its top company tax rate “frozen in time” at 30 per cent.

“The decision by the United States to slash its federal company tax rate from 35 to 21 per cent underlines the urgency for Australia to boost competitiveness to continue to attract new jobs and investment and power a growing economy,” said BCA chief executive Jennifer Westcott.