By Powerscourt on 20/03/2020

Powerscourt Coronavirus Briefing – 20 March 2020

ANALYSIS

Interest rates have been slashed to their lowest level in 326 years, authorities are being urged to shut down financial markets, the UK Government is expected to say today it will underwrite up to 60% of the average national wage, and President Trump is preparing to send every American a cheque for $3,000.

You know, your average Friday.

Elsewhere in the world of the new normal, businesses are said to be preparing to lay off workers rather than take advantage of Government backed loans because they don’t know how they would pay back the debt.

In particular there seems to be confusion about the Business Interruption Loan scheme with small firms unsure if they will  be liable for the entire sum or just a proportion of it.

More and more businesses are coming forward to support key workers and the vulnerable. The Times publishes a roll of honour today featuring BP, L’Oréal, the Co-Op, Hall and Woodhouse, McDonald’s, Diageo, Spire Healthcare and the Royal Mail.

Marks & Spencer has said that NHS staff and emergency service workers can have exclusive access to its stores for one hour every Tuesday and Friday morning. Among the firms criticised are Sky and BT sport who are not refunding customers despite the absence of live sport.

Next’s Lord Wolfson has said that the chain can survive a £1 billion slump in sales while Uber has said that it too can ride out the storm, despite seeing bookings down 70% down year-on-year.

Several firms moved to halt dividends yesterday, though EasyJet will go ahead with a £174 million pay-out.

WHAT ARE COMPANIES SAYING?

Consumer and Retail

Amazon

Amazon warehouses across the US, France and Italy are facing worker protests as a result of their response to the coronavirus outbreak. The retail giant has tried to run normal shifts despite positive cases, leading workers to accuse them of not taking “their lives seriously”. Christy Hoffman, general secretary of UNI Global Union said “we are facing a deadly virus… if distribution centres are not safe for workers right now, they should be closed immediately.”

Frasers Group

In their statement regarding COVID-19, Frasers Group confirmed that they have been monitoring the COVID-19 outbreak across UK and international businesses and whilst it is too early to estimate the full impact, they expect significant disruption to the business. This disruption including reduced customer footfall and therefore the Group expects it will not achieve the range of guidance of 5-15% EBITDA growth previously given.

Inchcape

Given the ongoing uncertainty around the COVID-19 pandemic, the Board has today taken the prudent decision to temporarily suspend the £150m share buyback programme, launched in February. Inchcape has reported a strong balance sheet and remains committed to its capital allocation policy, however the Board believes this is the right decision during the rapidly evolving COVID-19 situation.

Intercontinental Hotels Group

Keith Barr, Chief Executive of Intercontinental Hotels Group, today stated that “demand for hotels is current at the lowest levels we’ve ever seen. IHG has a robust business model and the measures we are announcing today to reduce costs and preserve cash give us the capacity to manage the business… and support our owners”. The Group has announced many cost reduction measures including substantial decreases for Board and Executive Committee members.

Irish Distillers

Irish Distillers – the makers of Jameson Whisky and part of the global drinks group Pernod Ricard – has announced they will produce and distribute hand sanitising gel to the Health Service Executive, in partnership with Cork firm Mervue Laboratories. Rosemary Garth of Irish Distillers has stated the supply of hand sanitisers is scarce during the coronavirus pandemic, therefore they company will be supplying the gel for free to “those who need it most.”

Marks and Spencer Group

The board of M&S has carefully considered the impact of COVID-19 on their outlook for the next 12 months and is therefore taking steps to secure the balance sheet and future trading potential. The forecast outturn for Group Profit Before Tax has been adversely affected by the outbreak however, it remained within market expectations and in line with January guidance. The Group is preparing for the eventuality that some stores may have to close temporarily however, M&S is confident that their business model of operating parallel Clothing and Food businesses should provide more resilience than some single sector businesses.

Reach4Entertainment

Following the announcement of the Group’s trading update in February, Reach4Entertainment has continued to trade in line with expectations. However, the recent closure of all live venues on Broadway and London’s West End in the past week, means that the Group expects material reductions in trading from March 2020 onwards.

Travis Perkins

Travis Perkins’ trading performance in 2020 has been in line with expectations, however due to the rapidly evolving impact of the COVID-19 pandemic, the Group expects the trading environment to change quickly and materially in the coming weeks. In response to the expected change, the Board is taking prudent action, including the suspension of the proposed full-year 2019 dividend and the pausing of the Wickes demerger in light of extreme stock market volatility. Travis Perkins enters the expected volatility in a strong position and with a robust balance sheet.

Industrials

British Airways

In an effort to cut costs in the wake of the coronavirus pandemic, British Airways pilots are to be hit with a 50 per cent cut to their basic salary for April and May, split over three months. The agreement with unions will see BA’s pilots required to take two weeks of unpaid leave in April and May, and comes a day after Willie Walsh, the chief executive of BA’s owner IAG, took a 20 per cent pay cut for the remainder of his contract. The chief executives of IAG’s other airlines, including Aer Lingus and Iberia, will also be taking a reduction.

 Carnival

In the summary of their first-quarter results, Carnival announced the impact of COVID-19 on net loss is approximately $0.23 per share, including cancelled voyages and other voyage disruptions. In addition to this, cumulative advanced bookings for the remainder of 2020 are meaningfully lower than the prior year at prices that are considerably lower, on a comparable basis, reflecting the impact of COVID-19.

 Ford

Ford has suspended its dividend and drawn down $15.4bn from two credit lines to boost its balance sheet, as the coronavirus pandemic forces it to shut plants in North America and Europe. As the largest drawdown resulting from the pandemic, the $15.4bn is intended to offset the cost of the shutdown, beginning today and lasting until at least 30th March 2020.

Heathrow

Whilst Heathrow remains committed to staying open and enabling passenger services and cargo operations to continue, the company announced today that it expects the financial performance to be significantly impacted. A number of safeguarding actions have been implemented to protect the financial resilience of the business and steps have been taken to reduce operating costs, cancel executive pay, freeze recruitment and review all capital projects. Heathrow will continue to provide regular trading updates through their monthly business and traffic commentary, as well as regulatory reporting.

Highland Gold Mining

In their update this morning on COVID-19 policies and measures, Highland Gold Mining confirmed no employees have tested positive for the virus, however the creation of a COVID-19 taskforce has begun. The taskforce will provide the Company with information on protecting themselves against infection as well as on available medical services and regional hotlines set up by the Russian government.

Serinus Energy

Serinus Energy plc has instituted increased health monitoring of operations staff in both Romania and Tunisia and increased cleaning and disinfecting of operational workstations and staff hygiene protocols. The company has also adopted a work from home policy where possible, given the advice of local government and health authorities.

Financials & Real Estate

Bank of England

On Wednesday, the Bank of England released a market notice stating that their Covid Corporate Financing Facility would offer cheap finance to companies that make a “material contribution to the UK economy”. However, in a recent letter to Andrew Bailey, the British Retail Consortium stated that “most retailers do not satisfy the criteria” meaning that the Bank of England’s rescue package of loans will not help the majority of retail businesses in the UK.

Euronet Worldwide

Ria Money Transfer, a subsidiary of Euronet Worldwide ang global leader in the money transfer industry, confirms that money transfer services “will remain active” amid the current COVID-19 pandemic. In their COVID-19 update, CEO of Euronet’s Money Transfer Segment, Juan Bianchi, stated: “We are here to reassure you that you can count on us and our services during this trying time.”

Foxtons Group

London’s leading estate agency today issued an update on the impact of COVID-19 on the company, stating that the business performance has been in line with the Board’s expectations however, the Group does anticipate an inevitable material disruption to trading in the coming months.

IG Group

IG Group’s reported revenue jumped by almost a third in the first quarter following “unprecedented” market volatility as a result of the coronavirus pandemic. June Felix, chief executive of the London-headquartered trading platform stated: “There are extraordinary times… driven by a significant increase in active clients,” especially in the last week of February. IG Group reported revenue of £139.8m in the three months to February 29, up 29 per cent from the same quarter the year before.

Investec

Whilst the Group expects the effects of COVID-19 on global market to negatively impact their fourth-quarter operating performance, Investec confirmed this morning that there will be no business disruption that will have a significant impact on the Investec Group’s operations, whether for COVID-19 or otherwise.

Land Securities Group

Mark Allan, the incoming Chief Executive Officer of Land Securities Group is now confirmed to be bringing forward his start date as a result of his personal plans for his time between roles being disrupted by COVID-19.

LXI REIT

LXI REIT, the specialist inflation-protected very long income REIT, today stated that they recognise it is too early to quantify the impacts of the COVID-19 pandemic, however the company has not yet been directly impacted and “draws comfort” from the Group’s robust balance sheet and high-quality portfolio. They remain well placed to navigate the prolonged period of uncertainty and to mitigate the risks presented.

Maven Capital Partners

The parent company of Maven Income and Growth announced their Annual General Meeting will still be going ahead amidst the coronavirus outbreak however, the location has been moved from London to Glasgow. The company also stated that strict measures would be in place to assist with social distancing measures, such as no beverages served at the event and no presentations from managers.

Rightmove

The UK’s largest property portal today provides a further update on the evolving COVID-19 situation, stating that the speed of the slowdown in the UK housing market has been significant. Notably, the number of property transactions failing to complete in recent days and lively changes in tenancy behaviour, may put further pressure on estate and lettings agents.

UK Mortgages Ltd

In their interim results statement, UK Mortgages stated that the emergence of the coronavirus outbreak will “undoubtedly” impact their wider supply chain and global growth. Prior to the outbreak, the near term outlook had looked broadly supportive for the RMBS market however, the company expects that the pandemic will ultimately affect all markets for some time, and a recovery may take a “considerable” amount of time.

TMT

CMC Markets

CMC Market, a global provider of online trading and institutional platform technology solutions, announced that the Group has been implementing changes in working practices in response to the COVID-19 outbreak. For example, all employees have the ability to work from home in order to support the business and reduce the spread to the wider community during this time.

Sabien Technology Group

In Sabien Technology Group’s interim results, the Group announced that their previously proposed acquisition of PDHSA remains subject to a number of pre-conditions, due diligence and the market impact of COVID-19. While they were unable to provide certainty at this time regarding the success of the acquisition, the Group confirmed that it has been proceeding as envisaged to date.

Slack and Microsoft

Slack and Microsoft have reported significant jumps in the number of new users and business from their workforce collaboration platforms, as the coronavirus crisis reignites one of the software industry’s fiercest rivalries. Slack’s group messaging app has experienced a net increase of 7,000 paying customers since the beginning of February and Microsoft has announced that the number of people using its rival Teams service on a single day this week reached a record of 44m.

Ströer

In their first quarter trading update, the out-of-home advertising company based in Germany announced they are “optimally prepared in every respect for the far-reaching consequences anticipated from the coronavirus crisis.” Following a strong first quarter, they observed a significant impact from the coronavirus crisis on their OOH campaign business however, Ströer do not expect the disease to have any further negative impact on the medium-term business forecast for 2021.

IN THE NEWS

Train services to be cut amid falling demand BBC

Queen urges country to be strong in face of coronavirus crisis The Times

Wage boost and tax cuts for workers hit by coronavirus The Times