Powerscourt

By Powerscourt on 09/04/2020

Powerscourt Coronavirus Briefing – 09 April 2020

ANALYSIS

As we head into quieter news days over Easter/Passover, global stock markets have diverged. In the US the Dow Jones Industrial Average closed 3.4% higher after five consecutive days of encouraging “new case” data in the US. In Asia, the Topix fell 1.6% after a three-day run of gains, the CSI rose 0.3%, and the Kospi 1.2%. Market participants said they struggle to interpret coronavirus growth data. In the UK the FTSE 100 traded around 5,810 early, up 7.5% since last Friday, April 2 while the FTSE 250, seen as more representative of the UK domestic economy, traded at 16,270, 15% ahead of the close on Friday. Today is the last day of trading before the long Easter weekend – the market reopens Tuesday next week, April 14.

Staying in the UK, the message about Boris Johnson was easy enough to understand: Chancellor Rishi Sunak described him as ‘improving’ at the daily government press briefing and talked of him sitting up in bed and engaging positively.

Numbers of UK deaths continue to rise, passing the record of the previous day, but testing has increased and there are signs that the numbers being admitted to hospital and those being taken to intensive care are levelling off. With nearly three weeks of lockdown behind us, the hope is that deaths will also soon start to fall. The first government review of lockdown, required by coronavirus legislation every 21 days, is due soon. The approach will be discussed at today’s meeting of COBRA (UK government crisis committee) but government has made it clear it doesn’t have information it needs.

A number of news outlets say there will be at least another three weeks of lockdown, taking us to approximately Monday May 4 which would normally be the UK May bank holiday. Powerscourt thinks the UK government will want some easing that week, if at all possible. Why? The bank holiday has been moved to Friday May 8 to celebrate 75 years since VE Day which marked the end of WWII in Europe. The symbolism will be hard to resist for a beleaguered government.

On the London Stock Exchange companies continue to make announcements on the impact of COVID-19 and in some cases how they have secured extra funding to carry on. Today The Restaurant Group announced that it has raised £57m in a placing to allow it to weather the crisis and be well positioned for ‘normalisation’. Redrow announced that it has been confirmed as an eligible issuer for the Covid Corporate Financing Facility with an issuer limit of £300m, and that negotiations with its six relationship banks were progressing well for an additional £100m of headroom.

Research by The Link Group has shown that amid these calls for cash and credit, the worst-case scenario for dividend payment in 2020 is a 53% fall. More than 40% of British companies have cancelled dividends to a value of £28.2bn with a potential £24bn more at risk.

We will continue to publish this wrap over the Easter weekend, albeit there will be much less news

 

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Diageo

The drinks company said containment measures across the globe are having a “significant impact” on the performance of its businesses. It highlighted the hit to on-trade channels, but noted that in both the US and Europe there has been “some pick-up” in retail stores, thought “it is unclear whether this will be sustained”. The company has postponed its return of capital programme and withdrawn guidance. It also noted that it is donating alcohol for more than eight million bottles of sanitiser. CEO Ivan Menezes said “We will continue to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand”.

 The Restaurant Group

The Wagamama’s owner has modelled a scenario that assumes restaurants and pubs will remain closed until the end of June, with phased reopenings through to the end of the year. On these assumptions the group would see a decline in like-for-like sales of c.45% in 2020. The company has taken a number of cash-preserving actions but nonetheless sees a placing of up to 20% of the company’s ordinary shares as “in the best interests of shareholders and wider stakeholders”. The group has confidence in the longer term given its “diversified set of brands”.

Heineken

The brewer announced that, as well as making commitments not to carry out “structural layoffs” and to support its most vulnerable suppliers, it is donating €15m to the Red Cross. CEO Jean-Francois van Boxmeer said “For over 100 years the Red Cross has worked tirelessly to save lives around the world. Now more than ever, we want to offer them our support in the work they do to help the most vulnerable beat Covid-19.”

Naked Wines

The online wine retailer said that since containment measures were put in place demand has increased in all of its markets, particularly the US. The company highlighted that wine production processes have been “largely unaffected” and the company will continue to meet increased demand “to the extent it is safe to do so”. CEO Nick Devlin said the company is working hard to “bring a moment of normality and enjoyment into homes without necessitating a visit to a store” and that the company is “well placed to meet the challenges of a changing consumer environment”.

 

Travel & Leisure 

Tui

Travel company Tui announced it has taken a German Federal Government bridging loan for €1.8bn. The company applied for the loan “in order to cushion the unprecedented effects of the pandemic until normal business operations can be resumed”. CEO Fritz Joussen said “We are now preparing intensively for when our operations can resume after the Coronavirus crisis and firmly believe, people will continue to want to travel and explore other countries and cultures in the future.”

Trainline

The rail and coach travel platform has seen a “significant fall in industry passenger numbers” in March and has therefore taken “quick and decisive measures”. These include pausing discretionary spend, a recruitment freeze, deferring bonus payments and pay reviews and revising payment terms with suppliers. “In recognition of the uncertainty generated by the current environment” the CEO has taken a 50% salary reduction, and the board and management team have taken 20% reductions, with all deferring their 2020 bonuses. CEO Clare Gilmartin said “we believe that our prudent action now strengthens us for the long term, positioning us well to return to growth once travel restrictions lift.”

 Everyman Media Group

The cinema group announced a successful placing raising £17.5m, intended to allow the company to operate within its loan facilities in the event it is unable to open cinemas for a period up to 9 months. CEO Crispin Lilly said “Our ambition is simply to ensure that as we emerge from the restrictions that currently face us, Everyman is well placed to continue to deliver on our growth ambitions. We see a huge continuing appetite for entertainment, and specifically for film. We are confident that when the time is right, customers old and new will return to our venues, in large numbers, to enjoy film the Everyman way.”

 

Industrials

Airbus

The aerospace company announced it is “revising its production rates downwards to adapt to the new Coronavirus market environment”, noting customer requests to defer deliveries and other factors related to the pandemic. The production rates are roughly a third of the pre-coronavirus average which the company says “preserves its ability to meet customer demand while protecting its ability to further adapt as the global market evolves”. The company also noted its work developing, sourcing and ferrying medical equipment, such as facemasks and ventilators. 

Mondi

The packaging and paper company announced its board has “decided it is prudent to no longer propose a final dividend”. CEO Andrew King said “The Group is financially strong with a robust liquidity position and capital structure. However, in these unprecedented times we are taking appropriate actions to ensure we remain well-placed to withstand an extended period of uncertainty.”       

 

Financials & Real Estate 

Standard Chartered

The bank released a statement saying that “given the underlying resilience of the Group, we are in a strong position to help” clients and communities. It announced $1bn of financing for companies that provide goods and services to help the fight against the virus, a $50m global fund providing assistance to those affected by the pandemic, and “significant personal donations” by the CEO and CFO, who would both also forego cash bonuses for 2020.

 Lloyds

Executives including CEO Antonio Horta-Osorio will give up his annual bonus in a show of “solidarity with the communities in which [Lloyds] operates”.

HSBC

The bank has said its chairman will donate his entire fee for 2020 to charities supporting “healthcare workers and vulnerable people” in the UK and Hong Kong. The CEO and CFO will donate a quarter of their salary this year, and waive their cash bonuses.

UBS

The Swiss bank has revised its 2019 dividend proposal, with the bank now paying in two instalments. Chairman Axel Weber said “Our financial strength well above regulatory requirements and prudent risk management allow us to deliver on our current capital returns policy. Nevertheless, at FINMA’s request, we have adjusted the 2019 dividend payout proposal given the high and unprecedented uncertainty.”

Redrow

The housebuilder announced it is an eligible issuer for the CCFF with a limit of £300m, which is currently undrawn. It is “progressing well” in negotiations for additional headroom under its existing RCF, has furloughed 80% of its workforce and its “wider directorate” have volunteered to take salary cuts of 20%. Chairman John Tutte said “The positive progress we have made on securing additional banking facilities means we can now finalise plans for our valued workforce and supply chain, to make an orderly return to work when we are advised it is safe to do so”.

 

Regulatory  

Financial Conduct Authority

The regulator confirmed the measures it proposed last week giving firms flexibility to provide temporary financial relief to those facing payment difficulties for some of the most commonly used consumer credit products. Interim CEO Christopher Woolard said “We know many people are suffering financial pressures brought on as a result of the coronavirus pandemic. The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.”

 

IN THE NEWS

Bank of England to directly finance extra government spending – Financial Times

More than £52bn in dividend payments at risk in UK – Financial Times

Global trade heading for an ‘ugly’ fall, says World Trade Organisation – The Times

Two million people lose their jobs in record plunge – The Telegraph

Coronavirus could push half a billion people into poverty, Oxfam warns – The Guardian

 




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