Powerscourt

By Powerscourt on 30/03/2020

Powerscourt Coronavirus Briefing – 30 March 2020

ANALYSIS

Asian markets have had another turbulent start to the week as investors continue to take stock of the worldwide scale of the pandemic. In Japan, the Nikkei fell 2.68%, while in South Korea the Kospi dropped 0.99% and in Hong Kong the Hang Seng Index also declined 1.29%.

The negative performances kick off a week in which a number of global economic data announcements will be closely watched. Particular attention will be paid to the March US non-farm payrolls this Friday, which are widely expected to be the worst since 2010. There are also labour market updates from Germany, Italy and Japan, as well as inflation data tomorrow from the eurozone.

In the UK, the government warned last night that the lockdown could continue in some form for up to six months, and that further restrictions could soon be imposed. The whole country is now said to be on an “emergency footing”, and government hampers containing food and vital supplies will be delivered to 50,000 people deemed to be the most at risk.

One of the more eye-catching pieces of news this morning is an announcement from the VentilatorChallengeUK Consortium, which is made up of a group of leading industrial, technology and engineering businesses from across the aerospace, automotive and medical sectors. The consortium has been working on plans to produce ventilators on a large scale, and has just confirmed that it has received formal orders from the UK government in excess of 10,000.  

On the wider corporate front, scheduled results announcements are likely to be few and far between this week following the FCA’s request that listed companies adhere to a two-week long moratorium on the publication of preliminary numbers.

However, there are still plenty of unscheduled stock market announcements to digest. Among the more noteworthy is a statement from Easyjet, announcing that it has taken the decision to ground its entire fleet of aircraft indefinitely. The budget airline also says it has repatriated more than 45,000 customers in the last few days, with the last of its “rescue flights” taking place yesterday.

Elsewhere this morning, Hammerson joins a long line of companies to scrap its dividend and withdraw its guidance. The retail property owner also reports that it has received a variety of requests for rent deferrals, monthly payments, and waivers, which it is reviewing on a case-by-case basis.

Continuing the now well-established theme of companies deciding that they cannot sensibly provide any firm expectations for future performance,  Smith + Nephew, the medical technology business, has  withdrawn the guidance that it issued on 20 February, citing the rapid expansion of the virus beyond China.

Finally, here’s an extraordinary fact to start the week: Zoom, the online video conferencing service that some of us had never heard of until a couple of weeks ago, is now worth nearly 50% more than all of the major US airlines combined. 

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Mothercare 

Mothercare, global retailer for parents and young children, has sent home 430 employees in the UK as the coronavirus outbreak is likely to impact its short-term revenue. Key UK head office staff are still working from home but its staff who look after the Boots Mini-Club brand have been furloughed with government support. Mothercare said its experience of going into administration in the UK last year “is proving invaluable” as it deals with the impact that coronavirus will have on its franchisees around the world. A deal to bring Mothercare products into Boots stores in the UK has been delayed and is now scheduled to come to fruition late this summer.

Greencore Group Plc 

Greencore Group plc, a leading manufacturer of convenience food in the UK, is playing a systemically important role in a reset food industry that has become a critical component of the UK infrastructure through this pandemic. Since the UK Government’s escalating measures to combat the outbreak, as announced on 24 March, consumer demand and shopper behaviours have changed rapidly. There has been a marked reduction in demand for the Group’s food to go categories in grocery retail, which has been partly offset by the sustained volume growth in the Group’s other convenience categories. The Group is tightening its food to go production network and furloughing impacted colleagues, using the Government’s Coronavirus Job Retention Scheme. The Group is also working to eliminate non-essential operating costs. In this context and given the ongoing level of uncertainty around the possible duration and impact of COVID-19, the Group is suspending financial guidance for FY20 and the Group’s outlook for FY20 included in our FY19 Full Year Results Statement and FY20 Q1 Trading Update should no longer be considered current.

 John Lewis of Hungerford plc

John Lewis of Hungerford Plc, the specialist manufacturer and retailer of kitchens, bedrooms and freestanding furniture, announced following the call requiring all non-essential retail to close on 23 March 2020, the Board took the decision to temporarily close its showroom estate with immediate effect, continuing to operate remotely, together with instituting an orderly wind down of operations at the Company’s factory facility in Wantage, Oxfordshire and accordingly ceasing production with effect from 27 March 2020. The Company’s immediate focus is on cash preservation. The Company is exploring all available options to mitigate the revenue loss by implementing cost-cutting measures including cessation of capital expenditure and seeking preferential terms from landlords and suppliers. In addition, the Company intends to utilise UK Government support measure.

 Mercedes

Engineers from a Mercedes Formula 1 team and University College London have helped to develop a new breathing aid for coronavirus patients which delivers oxygen to the lungs without needing a ventilator. Forty of the new devices have been delivered to ULCH and to three other London hospitals. If trials go well, up to 1,000 of the CPAP machines can be produced per day by Mercedes-AMG-HPP, beginning in a week’s time. The Medicines and Healthcare products Regulatory Agency (MHRA) has already given its approval for their use.

 

Travel & Leisure 

EasyJet 

EasyJet, the European low-cost airline, announced that as a result of the unprecedented travel restrictions imposed by governments in response to the coronavirus pandemic and the implementation of national lockdowns across many European countries, the company has today, fully grounded its entire fleet of aircraft. At this stage there can be no certainty of the date for restarting commercial flights. It has now written to all 9,000 of its UK based staff, including 4,000 cabin crew trained in CPR, to ask for volunteers to staff the new hospitals like that at the Excel centre in the Docklands.

Signature Aviation 

Signature Aviation plc, a market-leading provider of global aviation support services, announced that the Signature and the Engine Repair and Overhaul (ERO) businesses, are essential critical infrastructure providers and remain both open and trading. There is a material decline in flight activity across the network of on average 65% per day. Whilst flight activity has started to show a material decline, its non-fuel revenues representing approximately one third of revenues are largely unaffected by COVID-19. In addition, the ERO business continues to operate as expected and has not seen any adverse impact of COVID-19 on revenues so far this year. It is taking the decision to suspend the final 2019 dividend that was proposed with our full year 2019 results on 3 March 2020. The Board will review this decision again later in the year as trading conditions become clearer.

 

Industrials

VentilatorChallengeUK Consortium 

VentilatorChallengeUK Consortium, a consortium of significant UK industrial, technology and engineering businesses from across the aerospace, automotive and medical sectors, have now received formal orders from the Government in excess of 10,000 units. The consortium will now accelerate production of an agreed new design.

Gemsfields Group Limited

Gemfields is a world-leading supplier of responsibly sourced coloured gemstones. All but critical operations at the Kagem emerald mine in Zambia have been suspended. Gemfields’ operations in Mozambique, including the Montepuez Ruby Mine, are poised to implement similar suspensions. Exploration projects in Madagascar have been suspended. Gemfields’ offices in London and Jaipur are closed, with personnel working remotely. In 2019, some 93% of Gemfields’ revenue was derived from 6 gemstone auctions. Widespread travel restrictions dictate that Gemfields cannot presently host auctions. Due to the prevailing levels of uncertainty, Gemfields is unable to provide reliable guidance as to when it might be able to host its next auctions.

Atalaya Mining Plc

Atalaya is an AIM and TSX-listed mining and development group which produces copper concentrates and silver by-product at its wholly owned Proyecto Riotinto site in southwest Spain. The Spanish Government issued a new royal decree on 29 March 2020 implementing enhanced measures to protect the people from the coronavirus. The Royal Decree stipulates that only employees from a short list of essential industries are allowed to continue working from 30 March 2020 to 9 April 2020, inclusive. Mining has been excluded as an essential industry and consequently the Company’s Proyecto Riotinto site is required to halt its operations until 10 April 2020.

Kier Group Plc

Kier Group plc, a leading construction and infrastructure services group, announced its management and staff will be taking a cut in their salaries for three months. The group that maintains UK highways and provides facilities management services to the National Health Service said trading from January 1 to now has been in line and has about 80 per cent of its sites operating. Many of its services have government support while employees in the main are deemed key workers. It is about 6,500 employees, including the executive committee, and the board will take a cut in base salaries of between 7.5 per cent and 25 per cent in their base salaries or fees for a three-month period beginning on April 1.

Novacyt

Novacyt, Anglo-French coronavirus testing group, said it has sold and received orders for more than £17.8m of its research-use only Covid-19 tests. Primerdesign, the group’s molecular diagnostics division, on Friday received its largest single order of £1.4m from a new customer in India.

Drägerwerk 

One of the world’s largest makers of ventilators, Drägerwerk, has warned that global demand for the machines that help severely ill coronavirus patients to breathe will outstrip supply, despite being on course to quadruple production this year.

 

Financials & Real Estate 

ABN AMRO  

ABN AMRO has taken notice of the recommendation of the European Central Bank (ECB) to credit institutions under ECB supervision to conserve capital and refrain from making dividend payments and perform share buy-backs until at least 1 October 2020 in order to support the economy in an environment of heightened uncertainty caused by COVID 19. At the recommendation of the ECB, ABN AMRO has decided to keep the initial proposal for distribution of the dividend for the financial year 2019 but make the actual payment conditional to the reassessment of the situation once the uncertainties caused by COVID 19 disappear (and, in any case, not before 1 October 2020). In addition, ABN AMRO will not pay an interim dividend in August 2020. Together with the incidental loss at ABN AMRO Clearing, the Bank expects to record a loss in Q1 2020.

Purplebricks Group Plc 

Purplebricks Group plc, the UK’s leading hybrid estate agency, announced that since the Government’s restrictions on movement were implemented, the Company has seen a weakening in vendor and purchaser activity. Purplebricks has undertaken a cost base assessment and has instituted a number of cost-saving measures, including reducing supplier costs and overheads. All TV and radio advertising has been suspended and online marketing costs have significantly reduced. The Company also be using the Government’s COVID-19 Job Retention Scheme and are currently assessing how to implement. Given the recent impacts Purplebricks now expects revenues to be below expectations for the full year to April 2020. It is too early to predict the impact on The Company financial performance for the 2021 financial year until the impact of COVID-19 on the housing market becomes clearer.

Glenveagh Properties plc

Glenveagh, a leading Irish homebuilder, announced that the Group affected an orderly and safe closure of all our construction sites in line with updated Government guidance to combat the spread of COVID-19.

AIB Group Plc

Allied Irish Banks (AIB), announced that it is no longer its intention to seek shareholder approval for the payment of the final dividend for 2019 declared on 6 March 2020 and the relevant AGM resolution is being withdrawn, given the recommendation of the European Central Bank issued on 27 March 2020.

Bank of Ireland Group 

In light of the evolving COVID-19 pandemic and following the recommendation of the European Central Bank (ECB) of 27 March 2020 on dividend distributions for all significant institutions during the COVID-19 pandemic, the Group will not be proceeding with this proposed dividend. The Group will assess dividends at a future date, the earliest of which, in line with the ECB’s recommendation, would be 1 October 2020.

Numis Corporation Plc

Numis is expected to report revenue approximately 10% higher than the first half of the prior year.  The six month trading period commenced during a period of elevated political uncertainty and ended with global markets suffering significant declines in reaction to the COVID-19 pandemic. Investment Banking revenues are expected to be marginally below the comparable period.  Whilst is too early to predict the timing of a recovery in the Investment Banking pipeline, Numis is committed to supporting its corporate clients.

Hammerson Plc

Hammerson plc, a major British property development and investment company, announced that COVID-19 will have a material impact on the Group in 2020. The Group decided that it is no longer appropriate to recommend the final dividend of 14.8 pence per share for the financial year ended 31 December 2019.  The resolution relating to the proposed 2019 final dividend will consequently not be put to a shareholder vote at the AGM on 28 April. It received a variety of requests for rent deferrals, monthly payments, and waivers, which we are reviewing on a case-by-case basis, taking into account the business model and risk profile of the occupier, alongside the aid made available by the relevant governments.

DE Shaw 

Blue-chip manager, De Shaw is raising $2bn in the first fundraising for its flagship vehicle in seven years in a bid to capitalise on opportunities thrown up by market turmoil.

 

TMT

Smith + Nephew

Smith and Nephew, the medical technology group, withdrew the full-year financial guidance it issued on February 20. It assumed then the impact from Covid-19 outbreak would be “normalised” early in the second quarter. The group expects underlying first-quarter revenue growth to be down about 8 per cent compared with the same period a year ago. It forecasts second-quarter revenue and its first-half trading margin to be “substantially down”.

Bidstack Group Pls

Bidstack, the native in-game advertising group, noted that restrictions on movement and cancellation of live sporting events is leading to the video games industry witnessing increased number of active users daily. As a result of the increase in games consumption, Bidstack’s virtual out of home environment, with its global reach and ability to engage committed sports and video games fans through native in-game advertising, is currently experiencing high levels of inbound demand from advertising agencies and has received some exciting and unexpected commercial opportunities.

 

IN THE NEWS

Coronavirus: Oil price collapses to lowest level for 18 years – BBC

Normal UK life may not return for 6 months – Financial Times

City groups in discussions to help struggling UK businesses – Financial Times

Trump extends social distancing in US until April 30 – Financial Times




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