By Powerscourt on 17/04/2020

Powerscourt Coronavirus Briefing – 17 April 2020

ANALYSIS

China’s economy shrunk by 6.8% in the first quarter, ending 30 years of growth and confirming the impact of the coronavirus pandemic on the world’s second-largest economy. But Asian markets traded up Friday on a growing sense that China is moving on, with a slow recovery in economic activity. 

European shares closed higher Thursday amid guarded signs the virus is plateauing in the region. Death rates in Spain and Italy, two of the worst-hit countries, both receded on Thursday, but the UK Government has delayed the end of its lockdown until May 7 at the earliest and Dominic Raab, effectively the acting UK Prime Minister while Boris Johnson convalesces from the virus, spoke of a need to maintain some form of social distancing beyond this point.

France’s President Emmanuel Macron, in a landmark interview with the Financial Times, called for an EU-wide debt fund to support European economies struck by the coronavirus crisis. France is at odds with nations such as Germany and the Netherlands over the fund.

The Macron interview also focused on a growing propaganda war between China and the western nations over which region was more at fault for its handling of the crisis. An article on the Chinese embassy’s website said that western countries had left elderly people to die alone. But Macron, and other world leaders, have given interviews pointing to the need to better understand how the crisis started – with the clear implication that China had failed in its early handling of the outbreak.

In the US, Donald Trump unveiled new state guidelines that appear to strike a balance between his previously bullish mood on reopening the US economy with the warnings from health officials of the risks to public health of doing so. The US President’s advice leaves it up to US state governors when to reopen business in their states, but the advice is to ensure a two-week downward trajectory in new cases before moving to the first relaxation phase.

WHAT ARE COMPANIES SAYING?

Consumer and Retail

Associated British Foods

In a brief statement released this morning, Associated British Foods have confirmed that they received confirmation of their eligibility to access funding under the COVID Corporate Financing Facility.

Auto Trader

The UK’s largest digital automotive marketplace this morning provided a further update on its response to the COVID-19 situation. Auto Trader stated that the market continues to face unprecedented levels of disruption following the government announcement for vehicle retailers to remain closed for at least another three weeks. Whilst Auto Trader’s customers are required to remain closed, the company is advising them that their advertising packages will continue to be free in an effort to “do what we can to support them such that when restrictions are lifted, they are able to get back to business”.

Bloomsbury Publishing

The leading independent publisher today confirmed their intention to launch a non-pre-emptive equity placing of over 3 million new ordinary shares, following the rapidly escalated coronavirus crisis. Retail closures and lockdowns have affected most UK and North American bookshop chains, including the retail branches of Waterstones, Barnes & Noble an WH Smith. Whilst some retailers have been able to continue trade via their websites, orders for print books that comprised 79% of the company’s revenue for the year ended 29 February 2020, are being impacted in all markets.

Dunelm

Despite reporting a surge in online sales, the chief executive of Dunelm has taken a 90% pay cut and the chairman and board have waived their salaries for the next three months. Dunelm, which sells items from kettles to blinds, reopened their website at the start of last week after temporarily shutting operations to ensure the warehouse and logistics network followed social distancing guidelines. Following the reopening of its website, online sales had been significantly higher than before the pandemic.

Flutter Entertainment

In a previous market update, Flutter Entertainment signalled that they anticipated a significant impact to their business as a result of the widespread cancellation of sports events due to COVID-19 restrictions. Following the update, overall revenue has declined by 32% year-on-year, with sports revenue decreasing 57% and 65% since the suspension of Irish racing. Gaming revenue has increased 15%, alongside a limited revenue reduction of 7% in Australia, reflecting continued racing behind closed doors. All retail operations in Ireland and the UK have been suspended since March 16 and March 20 respectively and thus, no revenue has been generated from either of these markets.

Hollywood Bowl

The UK’s market leading ten-pin bowling operator announces a proposed placing to raise approximately £10.9 million through the issue of 7,500,000 new ordinary shares. In addition, the group announced it traded well in the five months to 29 February 2020 with total revenue growth at 12.5% against the previous year. Hollywood Bowl completed three refurbishments in the year and opened one new centre as part of their new mini golf trial concept.

LVMH

The world’s largest luxury group, LVMH, has shaken off the sharp falls in their first-quarter sales due to COVID-19, stating they will be able to withstand the knock to their businesses. LVMH’s finance director has said that COVID-19 “would not have a lasting impact” on its activity and pointed to positive signs from China where the virus hit first but quarantines have now been lifted. Sales at Louis Vuitton, its biggest brand, have risen 50% in the past two weeks compared with the same period last year.

Travel and Leisure 

Whitbread

In a short statement released today, Whitbread announced that it has been confirmed as an eligible issuer under the UK Government’s COVID Corporate Financing Facility. Indicative issuing limits for their Fitch rating of BBB/F2 have been published on the Bank of England website, however the group is yet to issue any commercial paper from this programme. In addition to this facility, as at 16 April, Whitbread has confirmed it has accessible cash reserves of c.£400 million and access to £900 million of its existing committed Revolving Credit Facility.

Financials and Real Estate 

Brewin Dolphin

Ahead of its half year financial results in May, Brewin Dolphin has provided a trading update for the six months ended 31 March 2020, stating that total net flows of £0.6bn were driven by strong flows in MPS and continued demand for advice-led services. The recent market weakness has naturally created a high level of uncertainty for the outlook of the financial year and therefore it is too early for the independent wealth management provider to ascertain the impact this may have on the full year income and profitability. However, total income has increased by 8.3% year-on-year to £175.8m, including the recent acquisitions.

Financial Conduct Authority

The Financial Conduct Authority has today announced another proposed package of measures to directly support consumers facing payment difficulties as a result of the COVID-19 pandemic. The range of targeted temporary measures cover motor finance and high cost credit agreements and are intended to complement measures already announced by the government. As part of these measures, the FCA expects firms to provide a three-month payment freeze to customers experiencing temporary difficulties meeting motor finance-related payments.

Foxtons

In their Q1 trading statement issued this morning, Foxtons stated that financial performance in the first 11 weeks of the year has been in line with the Board’s expectations, with strong and steady growth in the sales commission pipeline in the first two months of the year having flowed through to March. However, as expected, the necessary measures to limit the spread of the COVID-19 pandemic inevitably impacted trading in the final two weeks of the first quarter and thus for the group’s outlook for the remainder of the year. Group revenue was down 3%, accompanied by lettings revenue which fell 5%.

Funding Circle

The leading SME loans platform has this morning announced that it has been accredited to join the British Business Bank’s Coronavirus Business Interruption Loans Scheme to distribute loans with an 80% government guarantee to UK small businesses. CBILS loans will be funded by Funding Circle and a combination of new and existing institutional investors. The group expects to open applications within the next week, once they have completed the required legal and operational setups with the BBB. In addition to this, the group has announced a strong financial base that will be maintained by focusing on keeping a substantial cash balance and only investing further cash in SME loans where necessary to support government lending schemes.

Man Group

Following the outbreak of the COVID-19 pandemic, Man Group maintains that it continues to have a robust balance sheet and liquidity position, with $570 million of net financial assets, including $253 million of cash. The reduction in their net financial assets since year end primarily reflects normal seasonal working capital movements and, given the overall strength of their balance sheet and liquidity, Man Group maintains that they will proceed with the 2019 final dividend and share repurchase programme.

Morgan Stanley

Even as its profit fell by nearly a third, Morgan Stanley has outperformed its larger bank peers in the first quarter. The $58 billion American investment bank, the latest to report its results this earning season, benefited from a strong performance by its trading desks, but missed Wall Street’s profit and revenue forecasts nonetheless. Profits slumped at all of America’s Big Four, with JP Morgan, Bank of America, Wells Fargo and Citigroup collectively setting aside $25 billion in the quarter to cover expected losses from loans that go bad.

Record

In the 12 months to 31 March 2020, Record plc generated strong trading momentum however, asset pools whose currency risk exposure is managed by Record have seen their values impacted by falls in global financial markets in response to the COVID-19 crisis. Record saw net inflows of $1.1bn in the final quarter and maintain that they have not cut staff wages or taken advantage of the government’s job retention scheme.

Schroders

Peter Harrison, chief executive of Schroders, has pledged to donate approximately £631,000 to charities following scrutiny around his remuneration. In addition, the fund management business said that its executive directors would give away their entitlements to share awards that they would have received for this year, as well as 25% of three months’ salary. This announcement came as the company reported that its assets under management had fallen to £470.5 billion from £500.2 billion between the end of 2019 and March 31.

Urban Exposure

The specialist development finance firm confirmed this morning that the CEO, COO, CRO and CFO will be accepting a 10% reduction in pay for a minimum of three months, alongside the 13 members of staff who have been furloughed. The upcoming results will be published on 28 May 2020, in which they expect revenue for the period to be £9.0m, which is stated after a £2.3m write down of a legacy receivable, and total costs for the period of £8.8m. Given the nature of the COVID-19 pandemic, the Board has also announced the final instalment of the proposed 2019 dividend will not be paid.

Healthcare

Mediclinic International

Mediclinic is playing a vital role in combating the COVID-19 pandemic as a private healthcare services group and confirmed this morning that it is prepared for the crisis, leveraging its expertise across operating divisions. The group remains in a strong financial position and liquidity entering the pandemic and has taken prudent and appropriate measures to preserve liquidity, including suspending all non-essential capital expenditure and the group dividend.

Sanofi

French pharmaceutical company Sanofi is teaming up with Silicon Valley start-up Luminostics to develop a coronavirus test that patients could do themselves using a device plugged into a smartphone. As countries struggle to test enough patients for the virus, the companies hope their novel test would be easy to deploy without the need for a healthcare professional or sending a sample to a laboratory and deliver an answer in less than a half-hour. The test would use Luminostics’ new type of glow-in-the-dark nanoparticle that can be detected by a smartphone’s camera when used with an adapter.

Industrials

Anglo African Oil & Gas

AAOG this morning provided an update on the disposal of an interest in its wholly owned Anglo African Oil & Gas Conge SAU to Zenith Energy Ltd, some 16 weeks since AAOG entered into the sale and purchase agreement. Completion was expected to take place swiftly after the shareholders meeting and as such, AAOG’s cash position did not allow for the completion of the disposal to be delayed for as long as it has been. The delay to completion began because the companies were waiting for the Minister of Hydrocarbons in the Republic of Congo to consent to the change of control, however it has been exacerbated but the current COVID-19 pandemic. As such, neither AAOG nor Zenith are able to confirm when consent from the Minister will be forthcoming, thus making them unable to provide a timeline on the completion of the disposal.

Nissan

As the latest manufacturer to produce medical kit during the coronavirus crisis, Nissan has pledged to produce 100,000 visors a week for NHS workers treating coronavirus patients at its Sunderland plant from next week. This pledge will make them the largest face protection provider in Britain. The carmaker will have delivered 77,000 visors by today, with plans to increase production to 100,000 per week.

Petrofac

Following the current downturn in the oil market, Petrofac has lost $1.5 billion of contracts it had won two months ago. The troubled oil services group said that Adnoc, Abu Dhabi’s national oil company, had terminated two contracts to work on the Dalma gas development project, sending Petrofac’s shares down by up to 15% yesterday. Petrofac has stated that they are committed to continuing to work with Adnoc to explore other options, with a remaining backlog of work worth about $7 billion.

Rio Tinto

In the release of their first quarter production results, Rio Tinto maintained that despite the uncertain times, all assets continue to operate, and the company has achieved robust production performance in the first quarter. Demand in China continues to recover however, the rest of the world looks uncertain as commodity supply is disrupted by COVID-19 restrictions on supply chains and peoples’ movements globally.

IN THE NEWS

UK lockdown extended for ‘at least’ three weeks – BBC

Asia stocks rally as investors look past China GDP data – Financial Times

£400bn paid in dividends by UK companies before coronavirus crisis – The Guardian

Australia’s coronavirus contact tracing app: what we know so far – The Guardian