Powerscourt

By Powerscourt on 08/04/2020

Powerscourt Coronavirus Briefing – 08 April 2020

ANALYSIS

That was a short rally. After two days of gains, US markets ran out of steam Tuesday afternoon. The Dow Jones Industrial Average, up 940 points (4%) at lunch, closed marginally down. Investors having seen signs that the pandemic was slowing, couldn’t find the exit strategy and so focused on longer-term economic impact. The S&P closed down 0.2%, the Hang Seng 1% and the CSI 0.5%, while the Topix added 0.5%. In the UK this morning the FTSE 100 opened down 1.3% and the FTSE 250 down 1.05%.

Also in the UK, concern remains for Prime Minister Boris Johnson who has spent his second night in intensive care. At yesterday’s daily press conference, foreign secretary Dominic Raab described Johnson’s condition as stable and clarified that he was not using a ventilator. Raab’s wooden performance reminded viewers of his lacklustre leadership campaign and just why he flopped in that contest.

Raab, in his first outing as de facto acting PM had the unenviable position of announcing the highest daily death toll the UK has seen so far, of 854 deaths. He took questions which could have been designed to test the limits of his personal authority. The UK Government’s Chief Medical Adviser Chris Whitty admitted the UK should learn lessons from Germany, which had got ahead in testing.

In company news, Tesco reported full year results including a dividend 58% higher than the previous year. The company estimates that COVID-19 will have a negative impact of between c.£(650)m and c.£(925)m largely offset by the benefits of food volume increases, business rate relief in the UK and good management.

Housebuilder MJ Gleeson announced a £16.4m placing to ensure the Company is well placed to rapidly meet pent-up demand from the first-time buyer market as and when COVID-19 restrictions are lifted. Novacyt, which announced French approval of its COVID-19 test on Monday, today announced a new collaboration with AstraZeneca, GSK and the University of Cambridge to set up a new testing laboratory at the university.

Finally, the EU president of the European Research Council and the EU’s top scientist Mauro Ferrari has resigned after his idea to build a coordinated European programme to combat COVID-19 was rejected by the ERC Scientific Council as too ‘top down’. He now plans to set up an international research initiative to fight COVID-19 from the US.

 

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Tesco

In its preliminary results statement, the supermarket outlines three specific challenges it faces: “First, the significant change in buying behaviour of our customers.  Second, the impact of the virus on our colleagues and thirdly, helping the more vulnerable in society, as defined by the UK Government.” The company noted that “more normal sales volumes” are being experience now and that it has recruited more than 45,000 people in the UK in the last two weeks. CEO Dave Lewis said “COVID-19 has shown how critical the food supply chain is to the UK and I’m very proud of the way Tesco, as indeed the whole UK food industry, has stepped forward.”

 Asos

The online retail giant yesterday raised almost £250m through a share placing. The company’s announcement stated that it is in a “robust” financial position, having had a strong half year to the end of February, but that it “wants to ensure it can weather and exit the current trading environment in a position of strength”, noting the uncertainty around duration and impact of the virus.

L’Oreal

The French cosmetic company’s Garnier brand will switch from production of one of its most popular products to production of hand gel which will be provided free to essential retail staff at supermarkets and pharmacies. L’Oreal chairman and CEO Jean-Paul Agon said “In this unprecedented crisis, it is our responsibility to contribute to the collective effort in every way possible”.

Heineken NV

The Dutch brewer described the coronavirus containment measures as constituting a “major negative macro-economic development”, which “is having a significant impact on Heineken’s markets and on its business in 2020”. The company expects the impact to be worse in the second quarter, after an expected consolidated volume decrease of about 4% in the first quarter. It withdrew all guidance for 2020.

 

Industrials

Lufthansa

The German airline yesterday announced it is to decommission more than 40 planes and close its discount arm Germanwings. The company said that “it will take several months until the global travel restrictions are completely lifted and years until the worldwide demand for air travel returns to pre-crisis levels”.

Exxon

The oil and gas multinational shared yesterday that it will cut its capital spending for 2020 by $10bn. CEO Darren Woods said “We haven’t seen anything like what we are experiencing today… Our objective is to continue investing in industry-advantaged projects to create value, preserve cash for the dividend and make appropriate and prudent use of our balance sheet.”

Grafton

The builders merchant announced that its CEO and CFO are temporarily reducing their base salaries and pension contributions by 20%, as well as suspending their bonus scheme. The company deemed the actions “appropriate given that the Covid-19 virus will lead to a material decline in revenue and profitability over the coming months”.

Novacyt

The biotechnology group announced a collaboration with AstraZeneca, GSK and Cambridge University to “support the national effort” for testing for COVID-19. The group also announced that its test has been listed as eligible for WHO procurement under the emergency listing process, a process which aims to expedite the availability of unlicensed products to people affected by a public health emergency.   

 

Financials & Real Estate 

Barclays

The bank announced a £100m covid-19 community aid package for charities working to support vulnerable people. Barclays had already made available free everyday banking and overdrafts to 650,000 small businesses. CEO Jes Staley said “We want to do more to back the communities in which we live and work, and to provide help to those who have been hardest hit by the consequences of the coronavirus pandemic.”

Aviva

The insurer announced it has cancelled its 2019 final dividend payment, a move it says will increase the estimated group capital ratio by c.7%. “In light of the significant uncertainties presented by COVID-19, the Board agrees with our regulators that it is prudent to suspend dividend payments at this time.” The company also noted initiatives to support customers including free car breakdown cover and enhanced home insurance cover for NHS workers.

Investec

The dual-listed banking and wealth management group released a statement yesterday noting the guidance of the PRA in relation to large UK banks and dividends, as well as that if the Prudential Authority of the South African Reserve Bank recommending that no distribution of dividends should take place in 2020. The company said its board will “consider the guidance as well as the interests of all stakeholders, and will advise shareholders accordingly in due course.

Unibail-Rodamco-Westfield

The commercial property company announced this morning that it has implemented partial activity measures in various countries “to protect its employees, preserve employment where possible and to allow a swift return to full capacity as soon as health and safety conditions permit”. The group’s senior management team and board have reduced their salaries/fees by 25% during the period of partial activity “as a sign of solidarity with all employees”.

Unite Group

The UK’s largest owner, manager and developer of purpose-built student accommodation updated on the valuation of its two specialist funds and joint ventures with investment partners. Both saw small like-for-like valuation decreases, which Unite said was “driven by the impact of Coronavirus, which has led to an anticipated reduction in income resulting from the Company’s previously announced decision to forgo rent for students who choose to return home”.

Derwent London

Property investor and developer Derwent announced that 73% of March rents had been received, with 6% now paying monthly and another 12% on agreed payment plans. The company has temporarily paused construction at its three major development sites and is offering “increased support” for its occupiers most in need.

MJ Gleeson

The housebuilder announced a proposed non pre-emptive placing of shares, expected to raise approximately £16.4m. The company said the net proceeds were “to ensure the Company is well placed to rapidly meet pent-up demand from first-time buyer market as and when COVID-19 restrictions are lifted”.

 

Regulatory  

Financial Conduct Authority

The FCA announced a series of measures to help companies raise funding through capital markets while retaining investor protection. Measures include ability to apply for waivers to ensure shareholder approval can be sought without the need to hold a general meeting. Interim CEO Christopher Woolard said “Our aim is to help companies to raise money quickly and effectively, while ensuring they respect the needs of investors, both current and future. We think this package strikes that balance.”

 

IN THE NEWS

The UK economic fallout from coronavirus in numbers – Financial Times

Eurozone split over coronabond plan – The Times

A billion workers to lose out as coronavirus ravages jobs market – The Telegraph

Wage bailout plan to save jobs may cost up to £40bn – BBC News

 




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