By Powerscourt on 03/04/2020

Powerscourt Coronavirus Briefing – 03 April 2020

ANALYSIS

US stocks had a strong showing on Thursday, driven by positive performances in the utilities, telecoms and oil & gas sectors. The Dow Jones and the S&P 500 were both up a little over 2%, while the Nasdaq rose by 1.7%. Asian markets were effectively flat overnight with the Nikkei 225, Hang Seng and Kospi all off between 0.1% and 0.7%.

In the UK, the emergency loans scheme for struggling businesses has been revamped in the face of growing criticism. The changes, announced yesterday by Business Secretary Alok Sharma, mean that even companies that have been turned down by banks for commercial loans can apply. However, the Treasury is likely to come under continuing fire for not putting in place restrictions on the interest rates that banks can charge for loans.

In a relatively quiet day for corporate news (so far), Primark owner Associated British Foods has announced this morning that its CEO and Finance Director are temporarily reducing their base pay by 50%, and that the rest of the board are having their fees reduced by 25%. The company confirmed again that it has not seen a material impact in its sugar, grocery, ingredients and agriculture businesses, but that cost cutting measures at Primark are ongoing.

In the FTSE 250, bus company Stage Coach has announced a range of financial and operational measures in response to the pandemic, while  data and analytics business Ascential has confirmed to the market that it is cancelling the Cannes Lions Festival.

Elsewhere, defence giant BAE Systems has become the latest FTSE 100 company to put its dividend on hold. The company has announced this morning that it will defer the decision on the dividend that it announced in February, and will take a view in the coming months based on the “prevailing macro-economic and social conditions.”

On which note, a detailed piece of analysis from Peel Hunt lays bare the extent to which the pandemic has impacted dividends. Of the FTSE 350 and AIM 100 companies, only c.40 have committed to paying dividends, c.120 have cancelled or suspended, c.100 have announced dividends but not yet confirmed they will go ahead with payments, and the rest haven’t yet said what their plans are. The total amount of cancelled dividends in the UK is now over £15.5bn, with the transport, media, travel, leisure and financial services sectors leading the way.

WHAT ARE COMPANIES SAYING?

Consumer and Retail

Arcadia Group

Sir Philip Green, Arcadia Group boss, has furloughed approximately 14,500 of the company’s 16,000 employees, in addition to senior leaders taking a pay cut. It comes after the owner of Topshop and Dorothy Perkins joined a wave of retailers demanding rent cuts after their stores were forced to shut. Arcadia Group brands are still selling online, so warehouse staff must keep going to work. The company confirmed that it had put more stringent safety measures in place as a result.

Associated British Foods

In line with many other companies in the sector, Associated British Foods has today announced that their CEO and Finance Director have requested their base pay be reduced temporarily by 50%. The proposal has been accepted by the board of directors, as well as the additional proposal of bonuses relating the current financial year not being paid to the executive directors. CEO of Primark, Paul Marchant, has also requested that his base pay be reduced temporarily by 50%. Finally, non-executive directors of the ABF board, including the chairman Michael McLintock, have decided their feed should be reduced temporarily by 25%.

 Bunzl

The COVID-19 crisis has brought down Bunzl’s enviable track record of paying a higher dividend in every period for the past 27 years. The FTSE100 provider of essential day-to-day supplies to businesses worldwide has cancelled a final dividend payment of 35.8p per share that, prior to COVID-19 effects becoming clear, it had promised would be paid out in mid-February. The move provides the group with a £119 million cash buffer however, Bunzl is considering whether it could bolster this year’s interim payout to make up for some of the lost shareholder income. It has until August to make this decision.

Fuller, Smith & Turner

The premium pubs and hotels business today confirmed that it has placed the majority of their employees on furlough, retaining a small number in key positions only, in order to maintain critical functions and deliver the year-end financial reporting process. The company also announces they have committed to topping up payments to 80% for those whose wage exceeds the government cap of £2,500 per worker per month. Despite the furloughing of staff, Fuller, Smith & Turner confirmed that they are well financed with a healthy balance sheet and significant liquidity headroom. The Board has taken the decision to not propose a final dividend, thereby preserving further cash, equalling to £6.6 million. Finally, in addition to the 95% of staff placed on furlough, the CEO, Simon Emeny, has announced that he and the Board have taken a 25% reduction in pay to maintain their healthy balance sheet.

Joules

The premium British lifestyle brand this morning announced the completion of the placing announced yesterday, allowing the company sufficient liquidity headroom in a COVID-19-related downside scenario. All directors of the company participated in the placing, subscribing 1,468,750 placing shares in aggregate, equating to 7.8% of the placing. Nick Jones, CEO stated that he was “delighted with the levels of support” from shareholders, reflecting the “broad recognition of the strength of the Joules brand and our business model”.

Travel & Leisure 

P&O

P&O Ferries has asked the government for a £150 million bailout after plunging into a cash crisis, following demand from passengers all but drying up. The company that operates on Britain’s key import-export crossing between Dover and Calais runs on a business model in which its 8.4 million passengers a year subsidises its income from freight lorries. However, without passenger income, its 40 sailings a day in the Channel and across the North Sea and Irish Sea are losing the company nearly £250,000 per day.

Stagecoach Group

In their effort to deal with the COVID-19 outbreak, Stagecoach Group has committed to providing evening demand responsive transport services for NHS staff between their homes and Raigmore hospital in Inverness. In addition, they are providing depot space to the London Ambulance for commissioning new and recommissioning restored ambulances, and offering NHS shuttle services in Mansfield, Hull and Grimsby. These transport services will play key roles in getting critical workers, such as healthcare and other staff, to work during the crisis and ensuring people access to medical care, food and other essentials.

Healthcare

BioNTech & CureVac

German biotech groups leading the race to develop a coronavirus vaccine have warned that governments will need to ease clinical trial regulations for hundreds of millions of doses to be available by the end of the year. BioNTech and CureVac, based just 200km apart in south-west Germany, are carrying out trials of a potential vaccine on mice and are set to start trials on humans within weeks. However, their progress will depend on regulators such as the European Medicines Agency and the US Food and Drug Administration agreeing to certify a vaccine that had been fast-tracked through three phases of clinical trials.

Industrials

BAE Systems

BAE Systems confirmed this morning that the pandemic had no material impact on financial performance, with the group receiving significant awards recently on the M109A7 self-propelled howitzer programme and other initiatives. However, as the second quarter commences, BAE Systems is beginning to see more significant disruptions and so cost control measures have been implemented to limit the financial impact of disruptions to the business. Despite the strong liquidity of the business, it has decided to defer the decision on the 13.8p per share dividend.

Centrica

The owner of British Gas has cancelled its dividend after the COVID-19 pandemic caused an oil price collapse, hit energy demand from businesses and left customers struggling to pay bills. Centrica announced that it had taken the “prudent” decision to scrap its proposed final dividend for 2019, saving the company £204 million but delivering a further blow to investors who are unlikely to receive dividends from a number of investments. Centrim’s CEO Chris O’Shea, said that it would cut spending and postpone attempts to sell Spirit Energy, the North Sea oil and gas division, which is battling to cover costs after the major fall in oil prices.

Ovo Energy

Ovo Energy has announced that they have furloughed a third of staff after cancelling non-essential meter readings and instalments. Britain’s third-largest supplier has approximately 10,000 employees following the acquisition of SSE’s domestic retail arm in January and are stating that 3,400 of these will be put on furlough and receive 80% of their salary. The cost will be met by the government’s job retention scheme, with Ovo topping up to the 80% level for salaries over the £2,500 per worker per month threshold.

Ryanair

Ryanair this morning released their March traffic statistics, announcing that as a result of the COVID-19 pandemic, traffic has fallen 48% to 5.7m guests, including a number of rescue and medical flights on behalf of various governments. Given the company budgeted for 64,000 scheduled flights, operating over 33,000 is a significant drop in traffic felt across the company. Due to widespread EU government flight bans and restrictions, Ryanair expects to carry minimal – if any – traffic during the months of April and May.

Segro

COVID-19 withstanding, Segro is still in far better shape than their rivals, with boss, David Sleath, agreeing to pay the final dividend that will cost the company a total of £158 million. This is the sort of plan that competitors such as British Land, Land Securities and Hammerson are unable to afford.

Smart Metering Systems

In light of the exceptional and continuing global issues relating to the COVID-19 pandemic and UK government advice banning gatherings, the Board of Smart Metering Systems considers it prudent to delay holding SMS’ AGM until the second half of June 2020, with a precise date announced in due course. As a result, the company has proposed paying a second interim cash dividend to shareholders of 4.58p per share, instead of proposing a final dividend at the now rescheduled AGM.

Tyman

A leading international supplier of engineered components and access solutions to the construction industry has this morning confirmed that the company’s trading performance was in line with expectations until the middle of March. Following this point, trading was progressively impacted by the lockdowns implemented in their markets and Tyman has responded by closing facilities in the UK and Italy. Whilst they entered this period with a robust balance sheet, Tyman is placing their focus on cash preservation and the withdrawal of the final dividend payment of 8.35p per share. This will allow the company to retain £16m in H1 2020. 

XP Power

One of the world’s leading developers and manufacturers of critical power control components to the electronics industry, today issued a trading update outlining the latest impact of COVID-19. XP Power confirmed that all manufacturing facilities are currently operational with manufacturing volumes in China recovering strongly from the lows experienced in February. Trading in Q1 2020 is in line with the Board’s expectations and order intake continues to be strong with all sectors seeing order intake growth and exceptional demand in Healthcare.

Financials & Real Estate 

Cenkos Securities

In light of the request from the FCA and FRC for listed companies to delay reporting of their financial results, the Board of Cenkos Securities has decided to defer the announcement of their audited results, despite confirming the audit is substantially complete. When released, the company anticipates the results to be in line with the trading update issued on 18 February 2020, reporting a small profit for the year ended 31 December 2019.

 Land Securities

One of the country’s biggest commercial property owners, Land Securities, has cancelled its interim dividend after it received on 65% of the rent it was due last month. The company, whose assets include the Nova office building in west London and Trinity Leeds shopping centre, said that it had received £79 million of the £121 million of quarterly rent due on March 25, meaning that only 41% of rent due was paid. Land Securities announced that it had set up an £80 million relief fund for tenants in need however Martin Greenslade, Finance Director and acting-CEO, warned that bigger well-capitalised businesses need to pay their rent, with the relief aimed at “SMEs who have less access to financial assistance”.

Nationwide Building Society

Nationwide Building Society has announced their decision to halt plans to enter the UK business banking market as it prioritises supporting its members through the immediate and long-term financial implications of COVID-19. The impact of the pandemic has meant that entering the business banking market is no longer commercially viable and, as a consequence of this decision, Nationwide will cease activity directly related to its proposed market entry and return the £50 million grant funding it was awarded from the Banking Competition Remedies’ Capability and Innovation Fund, as announced in May 2019. The financial implications of this decision will be disclosed in Nationwide’s preliminary full year results for 2019/2020, with current expectations of cost being in the region of £70 million.

Santander

On 23 March, Santander communicated their decision to cancel the interim dividend for the fiscal year 2020, despite meeting the capital requirements to maintain their current dividend policy, the company announced this morning. Following their announcement of the cancellation of the interim dividend, Santander confirms that the European Central Bank issued a recommendation that all European banks preserve capital by cancelling the payment of dividends against 2019 and 2020 results, thus allowing the bank to follow this recommendation as well.

TMT

Ascential

Ascential today announced that the Cannes Lions Festival (including Awards) will not take place in 2020, due to the COVID-19 pandemic. The revenue from the festival, awards ceremony and associated events comprised of just over half the total revenue earned in the Marketing Segment in 2019. Therefore, Ascential will be making prudent adjustments to the overall cost base of the group, including withdrawing the proposal of a 2019 final dividend of 4p per share, announced in February 2020.

MediaZest

Prior to the outbreak of COVID-19, the audio-visual systems integrator, MediaZest, was experiencing improved trading from this first half of the financial year. However, results for February and March have been materially adversely impacted by the COVID-19 outbreak, as clients begin to defer projects and close stores and offices. Several projects scheduled to fall in February and March are now no longer going ahead, leading the Board to expect revenue to be lower than forecasted, at approximately £300,000 in aggregate with a modest net profit at operational level. At this time, MediaZest isn’t able to assess the extent to which the pandemic will affect forthcoming trading and financial performance, however they acknowledge that the situation is evolving rapidly and they will plan accordingly as best they can.

 Softbank

The office space provider Wework has been plunged into further trouble following Softbank’s removal of their offer to buy $3 billion of extra shares. Softbank, the Japanese technology investor, said that it had terminated the deal agreed in October that would pull Wework from the brink of insolvency. The deal was on top of the $10.5 billion Softbank had already invested in the company and involved a $3 billion tender offer for existing shares, including $970 million for the shares of the company’s ousted CEO, Adam Neumann. Softbank cited “multiple, new and significant” criminal and civil inquiries into Wework, as well as its failure to restructure a joint venture in China as the reason behind pulling the deal.

TT Electronics

Given the significant uncertainty surrounding the COVID-19 pandemic, TT Electronics’ Board has announced today that the company will be withdrawing both guidance for 2020 and the proposed 2019 final dividend, allowing it to retain £8.0m of cash in the business. The group confirmed they entered this period of uncertainty in a strong financial position with £60.2 million of cash and £66.8 million of undrawn headroom on its £180 million committed RCF facility. To date, all of the facilities remain open, save for three small facilities in Malaysia, Tunisia and Barbados, and therefore TT Electronics has seen limited disruption to trading.

IN THE NEWS

Google reveals travel habits during the pandemic – BBC

Stocks slip as data shows China’s economy still hurting from COVID-19 – The Guardian

Banks hit back at wave of criticism over lifeline business loans – The Daily Telegraph

Thirteen business groups call for ministers to end coronavirus confusion over whether firms should close – The Daily Telegraph