By Powerscourt on 31/03/2020

Powerscourt Coronavirus Briefing – 31 March 2020

ANALYSIS

US stocks had a strong session yesterday after healthcare companies announced developments that could help limit the spread of Covid-19 and Donald Trump extended the country’s quarantine guidelines. The Dow Jones closed up 3.19%, the S&P 500 finished 3.35% higher, and the Nasdaq increased by 3.62% on the day. The positive performances prompted an uptick in Asian markets overnight, with the Nikkei 225 rising 0.8%, the Kospi up 1.6% and the Hang Seng up 1.5%.

In the UK, last night’s government news conference gave a glimmer of hope that social distance measures are starting to make a difference. Sir Patrick Vallance, the UK’s chief scientific advisor, noted that hospital admission data suggests that cases are not rising as fast as previously feared and that they are increasing at a constant, rather than exponential, rate. Similarly, the Irish Times reports this morning that restrictions have led to a huge reduction in the growth of new cases. Ireland has been in effective lockdown for two weeks.

The prognosis for the rate at which the UK economy is declining is unlikely to be as reassuring any time soon, and the collapse yesterday afternoon of two high street names – Italian restaurant chain Carluccio’s and rent-to-own operator BrightHouse – served as high profile reminders, as if they were needed, of the economic havoc that the virus will continue to cause for foreseeable future.

However, this morning has seen that rare thing in the current climate – a trading update from a company that has not seen a material change to its current performance as a result of the pandemic. Severn Trent, the water and wastewater company, also provides a further example of the rapidly shifting tone of regulatory announcements, taking the opportunity to outline its financial contributions to groups and charities in the regions in which it operates.

Elsewhere, Smiths Group, the diversified engineering group that is part of the VentilatorChallengeUK Consortium, has this morning become the latest in a long line of companies to scrap its dividend. The company was due to publish its interim results today, but instead has issued a short but effective trading update. Other companies finding themselves in the same position may find it a useful reference point.

There are a number of other Covid-19-related updates from companies across the FTSE 250, including specialist materials manufacturer Morgan Advanced Materials, property development company St Modwen Properties, and valve maker Rotork.

Finally, as all of us try to work out exactly how to interpret evolving government guidelines, a neat – and seasonally appropriate – case study on the scope for confusion is reported on in this morning’s papers. The Association of Convenience Stores has accused UK council officials of being “overzealous” in their attempts to stop convenience stores from selling Easter eggs on the grounds of being non-essential. The story generated enough interest for the Prime Minister’s spokesman to issue a clarification on the matter: “We have set out which shops can remain open. If a shop is allowed to remain open it will, of course, sell whatever items it has in stock.”

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Carluccio’s

The Italian restaurant chain has gone into administration, blaming “challenging trading condition” as a result of the Covid-19 pandemic. It has appointed FRP Advisory to explore its options, which include seeking state support and selling parts of the business. Most of Carluccio’s 2,000 staff will be furloughed, allowing them to access the Government’s Coronavirus Job Retention Scheme, which pays up to 80 per cent of workers’ salaries.

Marks & Spencer

The chain has become the latest grocer to sell food boxes online as part of a national effort to protect the vulnerable and keep supplies moving. It will deliver £30 packages containing 20 items such as pasta, rice, curry, cooking sauces and sweets. M&S will give priority access to customers over 70, identified via its loyalty programme, and will impose a limit of one box per customer.

BrightHouse

The biggest rent-to-own retailer in the UK, employing around 2,400 people across 240 stores, has collapsed into administration. BrightHouse’s stores were also already closed under the government’s coronavirus control measures, but administrators at Grant Thornton said the business would continue delivering smaller items to homes and, where possible, would continue servicing items already in people’s homes.

AA

The British motoring association released a trading update this morning, which states that to date, Covid-19 has not had a material impact on the Group. It also detailed the implementation of a programme of home working, which has enabled the temporary closure of almost all offices.

Imperial Brands

The multinational tobacco company released a statement this morning which detailed the impact of Covid-19 on current trading. The Group states that there has been no material impact on the group to date, with current trading in line with expectations. It is included that the company benefits from a diversified supply chain and factory footprint, which is prioritising the manufacture of major product lines to build contingency stocks.

 

Travel & Leisure 

Easyjet

Sir Stelios Haji-Ioannou has written to the non-executive directors of Easyjet threatening to remove them from the board unless they cancel an order for £4.5 billion of aircraft from Airbus. Having reportedly attempted to persuade the airline’s board to cry “force majeure” on the 107-plane order during the coronavirus crisis (which has forced the grounding of the entire Easyjet fleet) the company’s founder and 34 per cent shareholder has made public a letter to the directors.

British Airways

The flag carrier of the UK is grounding all flights from Gatwick Airport as a result of the coronavirus pandemic, with the airline’s managing director at the airport reportedly informing staff via email last night.

 

Industrials

Aston Martin

The carmaker has opened a $100m credit line after warning the business will run out of money, under its current spending plans, within 12 months. This follows shareholders on Monday approving a £500m rescue package backed by Canadian billionaire Lawrence Stroll. The new inventory financing facility will be available from May.

Energy UK

The trade body for electricity and gas supplies has reportedly approached the government about a loan scheme worth up to £100m as utility companies report than customers are cancelling direct debit payments. This would allow energy companies to offer payment holidays to households and businesses struggling to settle bills as a result of the coronavirus pandemic.

Severn Trent

In their trading update, the water and wastewater company announce that in addition to increasing communications to customers and actively promoting their range of existing social tariff and vulnerable customer schemes, they are committing £1 million to support groups and charities impacted the most by Coronavirus in the region.

Smiths Group

The group reports that trading to the end of March was affected to some extent by early COVID-19 disruption, but shares that all sites in China have now reopened and are operating at close to normal levels.  It is included that they have adopted measures to reduce cost and conserve cash including hiring freezes, cancellation of discretionary expenditure and postponement of non-essential capex. It is also included that Smiths is making a significant contribution to meeting the global demand for ventilators and other critical care devices.

Rotork

The British-based valve maker released an update this morning, announcing that given the high level of uncertainty around COVID-19, actions are being taken across the Group, including a recruitment freeze, postponing salary increases including for the Board, restricting discretionary spending and drawing on government wage replacement schemes (where these exist) and flexibility within the workforce. The Board has also made the decision to cancel the final dividend.

Morgan Advanced Materials

The global manufacturer announced this morning that it has taken a number of actions to mitigate the impact of COVID-19. These include reductions to capital expenditure other than for vital health, safety and environmental matters, a temporary hiring freeze for all but the most critical roles, and a curtailment of discretionary expenditure.  The Board members have agreed to a 30% salary reduction, effective 1 April, for the rest of the financial year.

Royal Dutch Shell

The oil giant released an update this morning, stating that it expects “significant uncertainty” in regards to prices and demand for oil, gas and related products. It is included that a further update will be provided in the first quarter results announcement at the end of April.

 

Financials & Real Estate 

Galliford Try

One of the UK’s leading construction groups has released an update on COVID-19, in which they share that they are working with the NHS and others to assist and support them in increasing capacity. It is included that sites that remain operating do so under strict parameters. In terms of managing the costs of the business, the Group shares that it will make use of the Government Coronavirus Job Retention Scheme and other measures announced in response to the pandemic. 

St Modwen Properties

The British-based property investment and development business released an update this morning, announcing that it is pausing on all housebuilding and onsite marketing activity. It includes that over 200 employees (approximately a third of the company’s workforce) have been placed on furlough, utilising the Coronavirus job retention scheme. All salaries are to be topped up for those on furlough, to ensure everyone is paid their normal salary in full and, at the same time, the Board has voluntarily agreed to accept a 20% reduction in pay and fees. The Board has also cancelled its final dividend for 2019.

 

TMT

Samsung

The South Korean technology group has reported its first coronavirus infection at one of its chip factories. The South Korean technology group confirmed this morning via a spokesperson that production at the plant will largely continue as normal, with a group of staff who were in contact with the infected worker now self-isolating.

 

IN THE NEWS

Dealmaking grinds to a halt on coronavirus impact – The Financial Times

£75m airlift for Britons stranded on holiday – The Times

Oil prices could turn negative as world runs out of storage – The Daily Telegraph