By Powerscourt on 02/04/2020

Powerscourt Coronavirus Briefing – 02 April 2020

ANALYSIS

Each of the three major Wall Street indices fell more than 4% yesterday following dire warnings on the extent of the US death toll from President Trump. Overnight trading in Asia was more mixed, with the Hang Seng fractionally up by 0.7%, the Nikkei 225 down 1.5% and the Kospi rising by 1.1%.

In the UK, the bank-bashing rhetoric in yesterday’s daily Downing Street press conference harked back to the credit crunch, with Business Secretary Alok Sharma taking the opportunity to warn the banking industry that it would be “completely unacceptable” to unfairly refuse loans for coronavirus-hit firms. There have been widespread reports of banks apparently refusing to give loans or offering unreasonably high interest rates. Mr Sharma suggested that the banks still owe a huge debt of gratitude to the UK public for the bail-out over a decade ago: “Just as the taxpayer stepped in to help the banks back in 2008, we will work with the banks to do everything they can to repay that favour and support the businesses and people of the UK in their time of need.”

Following the theme of supporting struggling business, Land Securities, the FTSE 100 commercial property owner, has said this morning that it has established a rent relief fund of £80m to help its customers that are most in need, with a particular focus on Food & Beverage outlets and SMEs.

Elsewhere, Centrica has outlined a range of cost-cutting measures and says that it has started to see increased energy demand from residential customers as more people work from home. It is also slashing its dividend and delaying over £100m of restructuring spend.

There are also Covid-19 related updates from Segro, National Grid, and Bunzl.

Finally, Zoom, the videoconferencing app that has suddenly become the must-have technology for companies, communities and families around the world, is coming under increasing scrutiny for perceived weaknesses in its data security and privacy measures. Zoom is now ranked as the number two and number one app in the UK and US, respectively, but doesn’t offer end-to-end encryption and has been found in the past to have vulnerabilities which allow hackers to remove attendees from meetings, create spoof messages and to take over shared screens. The fact that Boris Johnson recently tweeted a picture of himself chairing a Cabinet meeting using Zoom – complete with ID number and names of the meeting participants – shows just how quickly we need to get wise to the basic risks associated with using such technology, as essential as it is proving to be.

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WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Bakkavor

Following an encouraging start to the new financial year, the COVID-19 outbreak has created significant operational challenges that have led to increased volatility in daily order levels and some disruption to labour availability at the UK’s leading provider of fresh prepared foods. Bakkavor expects the UK, which represent approximately 90% of Group Adjusted EBITDA, to experience a reduction in orders across all categories, but most notably in salads and food-to-go products. In China, the outbreak had a significant effect on Bakkavor’s business in the early months of this year, however this situation has stabilised with many customers reopening stores and sites resuming normal service.

Benchmark Holdings

Benchmark announced this morning that whilst they are experiencing short-term challenges from COVID-19, they continue to have strong fundamentals. The company expects a negative impact on earnings with consumption across  number of their products having dropped in most markets.  

British American Tobacco

The world’s second-biggest cigarette maker has made claims of a “significant breakthrough” in the race to find a vaccine for the coronavirus. The FTSE100 company stated it would be ready to start production of 3m doses of a vaccine in the next three months, significantly faster than their rivals who are expecting to take at least a year. BAT plans to begin human trials as soon as possible and is currently running pre-clinical tests and holding urgent talks with US drug authorities to fast-track permissions. The treatment is being developed by the company’s health division, Kentucky BioProcessing, which previously came up with a drug to combat Ebola.

 Camellia

In response to the COVID-19 pandemic, Camellia issued a trading update, reassuring investors that it retains a strong balance sheet with substantial cash liquidity, amounting to £86.7m in cash. Similar to many other companies, the Board has decided to recommend against a final dividend in order to maintain the financial stability of the company. However Camellia has confirmed that a special dividend will be declared alongside the interim dividend once there is more clarity around the pandemic. In terms of operations, the business continues to work as normal, with the exception of India. This is due to the national shut down which occurred earlier in March and included all tea estates.

M&S

Frontline workers at Marks & Spencer are being given a 15% bonus whilst others are being offered voluntary furlough on full pay. The week prior, M&S closed 31 shops that only sold clothing and home products, leaving 900 stores and food halls, as well as their online business, open. In addition to offering bonuses to frontline workers, the group has provided shop workers with plastic face shields and workers who were pregnant, over 70 or with health conditions were already on leave for 12 weeks on full pay.

Pets at Home

Given their designation by the UK Government as an “essential retailer”, Pets at Home have been able to continue providing pet products and healthcare services deemed essential but have had to close a number of non-essential services. Whilst nearly all First Opinion veterinary practices and all Specialist Referral centres remain open, the company does anticipate a reduction in customer revenues which is expected to have a negative impact on normal levels of Group turnover as they look toward the new financial year.

SSP

The FTSE250-listed SSP, which owns brands such as Upper Crust and Ritazza, said it has drawn down funds under the Bank of England’s COVID-19 financing facility, however it did not disclose the amount. The funds received as well as proceeds realised from its GBP216 million placing will be used to strengthen its balance sheet while the company deals with widespread travel bans across the globe and the significant impact this has had on passenger numbers.

 

Travel & Leisure 

Moneysupermarket.com

In their Q1 and COVID-19 update, Moneysupermarket.com announced that their TravelSupermarket operation traded well at the start of the quarter but weakened significantly from mid-February. Since the travel ban implemented as a result of the COVID-19 pandemic, TravelSupermarket and travel insurance have materially weakened due to a slowdown in consumer demand and lower product availability. However, the Board has determined that their strong balance sheet, led by their other markets, will allow them to pay the proposed dividend for 2019.

 

Industrials

BP

BP is bracing for a $1bn financial blow in its first-quarter results and plans to cut its spending by a fifth this year to weather “the most brutal” oil market rout in decades. The oil giant told investors it would cut its annual spending budget by almost a quarter, to $12bn, to protect the financial health of the company during the coronavirus pandemic. This will include a $1bn cut in spending on its US shale projects. BP revealed its billion-dollar impairment the day after Royal Dutch Shell warned investors of their own financial losses, raising questions amongst investors over whether major oil companies will be able to afford to keep paying out dividends to investors, pension funds and individual shareholders.

British Airways

British Airways will suspend 36,000 workers as the coronavirus pandemic grounds most of its flights, with up to 80% of engineers, head office, cabin crew and ground staff furloughed. British Airways stopped all flights out of Gatwick Airport on Wednesday, becoming the latest carrier to stop serving the UK’s second-busiest airport due to collapsing demand. It is also no longer flying from London’s City airport.

Coro Energy

The Southeast Asian focused upstream oil and gas company has this morning released an update in relation to global oil prices, stating that coronavirus, coupled with the recent dispute with Russia and Saudi Arabia, has led to a significant drop in oil and gas prices across the industry. Given the pre-production nature of Coro’s assets, coronavirus has had a limited direct impact but the disposal of the company’s Italian assets is anticipated to be delayed.

Norish

In order to mitigate the financial impact of COVID-19 and protect the Company’s cash position during the coronavirus crisis, the Board of Norish have agreed to a 20% reduction in salaries for a three-month period. In addition to this, the Board has decided to cancel the final dividend of 1.9 eurocents per share in respect of the year ended 31 December 2019.

Safestore Holdings

In line with UK Government guidance relating to storage and points of delivery facilities, Safestore announced this morning that all UK stores remain open due to the important support they provide to small businesses and companies engaged in key supply chains including healthcare, food industry suppliers and infrastructure support. Safestore’s trading performance has seen limited impact from the coronavirus crisis since the company’s AGM earlier in March and plans to pay out a final dividend in the beginning of April.

Tertiary Minerals

Tertiary Minerals has this morning announced their entrance into a share subscription deed with Precious Metals Capital Group LLC, a US based institutional specialist investor. The proceeds from the subscription will be used by the company to fund ongoing exploration and ensure that it has sufficient working capital for the foreseeable duration of the COVID-19 pandemic. Managing Director Richard Clemmey commented that the recent impact of COVID-19 on the markets and investment outlook has been “substantial” and he is therefore pleased to gain additional funding that will “further strengthen the company’s cash position and provide additional working capital”.

United Oil & Gas

In response to the ongoing COVID-19 pandemic, United Oil & Gas have taken multiple proactive measures to reduce near-term Capex commitments whilst the current oil-price is so uncertain. Measures include the deferral of Italian and Egyptian capex, expected to improve cash flow and reduce Capex estimates.

Virgin Atlantic

Airbus, Rolls-Royce and Heathrow Airport have come together to urge ministers to rescue Virgin Atlantic as talks over a £500m state bailout balance on a knife-edge. The trio have lobbied Transport Secretary Grant Shapps to take immediate action to save the 36-year-old airline, stressing the important role Virgin plays in supporting the aerospace industry as it battles with lockdowns and travel bans across the Western world. The intervention came as easyJet hired Credit Suisse and Goldman Sachs to explore raising cash from investors.

Volga Gas

Other than the significant downturn in international oil prices, Volga Gas confirmed today that their operations have seen little direct impact from the COVID-19 pandemic, allowing them to focus on implementing measures to ensure the safety of employees and contractors.

Wizz Air

In an announcement regarding passenger and CO2 emissions statistics for March 2020, Wizz Air announced that as a result of the COVID-19 pandemic and subsequent travel restrictions, the company has had to reduce its capacity by 34% year-on-year for the month of March. The largest low-cost airline in Central and Eastern Europe also confirmed their involvement in a number of rescue flights throughout the month of March from Germany to Ukraine, Malta and Croatia to North Macedonia, as well as from North America to Hungary, enabling a number of stranded passengers to come back to their home countries.

88 Energy

In light of the Australian Governments ban on public gatherings as well as social distancing rules, 88 Energy has announced that they will not be hosting a physical Annual General Meeting, meaning that shareholders will not be able to attend in person. The AGM will be made available via webcast and proceed as normal on 6 March 2020.

 

Financials & Real Estate 

Finncap

Senior Executives at City stockbroker Finncap, have had their salaries cut by up to 92.5% as the industry braces itself for the difficult trading period ahead. The company’s executives have agreed to reduce their monthly pay packets by between 44% and 92.5% for the next three months while four non-executives, including chairman Jon Moulton, have agreed to forgo their fees altogether over the same period. In solidarity with the executives, employees have been asked to take part of their salaries in stock options, whilst others are furloughed. In a statement, the company said the trading environment “has never been more uncertain” however the company has a strong balance sheet that they believe makes them well placed to weather the storm.

 HSBC

Following pressure from the Bank of England to cancel its dividend for the first time in 74 years, a debate has reignited at HSBC regarding whether it should redomicile to Hong Kong. HSBC was one of five UK-based lenders that agreed to withhold 2019 dividends, a move which is particularly damaging for HSBC which generates more than four-fifths of its profits from Asia, despite being headquartered in London. Hong Kong investors reacted with anger to the decision to withhold dividends, with shares falling 9.5% in London and Hong Kong trading, wiping £8bn from its valuation. One director from HSBC stated that withholding dividends “should be a decision for the board to take” and that the company should not be in the UK with calls for redomiciling increasing.

Taylor Wimpey

Taylor Wimpey has become the first of Britain’s big housebuilders to announce pay cuts for its executives, stating that for the period of the government-imposed lockdown, salaries and pensions of executive directors would be 30% lower. It has also scrapped the executive team’s annual bonus and a 2% pay rise that had been due to come into effect yesterday. This policy will be reviewed by the remuneration committee if the lockdown continues beyond June 30.

 Watkin Jones

The UK’s leading developer and manager of residential for rent announced their pre-close update for the half-year ending 31 March 2020, stating that the Group’s trading remained strong through the first half of the year. The only disruption experienced by COVID-19 occurred towards the end of March 2020 and as such, the Board expects to report revenues and earnings for H1-2020 in line with expectations. Due to the uncertainty around impacts caused by the pandemic, the Board has found it appropriate to withdraw financial guidance at the current time.

WH Ireland Group

Despite the progress made in returning WH Ireland Group to profitability, February and March of this year experienced a loss as market levels and corporate activity were affected by the COVID-19 pandemic. In the last few weeks, the impact of COVID-19 on the company’s corporate and institutional activity has been notable, with the reduction in market levels reducing Wealth Management income. As a result, WH Ireland does not expect to achieve monthly profitability in the beginning of the new financial year.

 

TMT

M&C Saatchi

In the first two months of 2020, trading was in line with the Board of M&C Saatchi’s expectations, however the impact of COVID-19 became recognisable in March, with a reduction in activity in several markets. The company stated in an announcement this morning that it’s clear that COVID-19 will continue to have an impact on the business however, it is too early to accurately predict exactly how significant that impact will be. M&C are taking wide-ranging action to mitigate the financial impact and currently maintain a strong liquidity position in anticipation of a further deterioration in the business environment.

 Sky

Jeremy Darroch, boss of Sky, has pledged to donate at least six months of his salary to charities helping people affected by the pandemic. Earning more than £1 million in basic pay, his first donation of £100,000 will go to the National Emergencies Trust, founded in 2017 after the Grenfell Tower fire. Chairman and Chief Executive Brian Roberts is also set to join Mr Darroch in giving away his salary for at least the next six months. Mr Roberts is the son of Comcast’s founder and therefore his action has incited a wave of other Comcast executives to join him and Mr Darroch in their pledge.

 

IN THE NEWS

Oil prices rise on hopes of a price war truce – BBC

Half of UK companies seek to furlough staff over coronavirus – Financial Times