Powerscourt

By Powerscourt on 20/04/2020

Powerscourt Coronavirus Briefing – 20 April 2020

ANALYSIS

As the markets limber up to assess first quarter earnings, politicians and policymakers around the world are increasingly divided on how, and how fast, to lift the coronavirus restrictions which have started to dim the hopes for economic recovery. One indicator of the extraordinary situation is oil. The US benchmark West Texas Intermediate dropped as much as 20% this morning because of concerns about storage capacity. Bloomberg speculates that producers may have to pay customers “to take crude off their hands”.

On both sides of the Atlantic, politicians are wrestling with a dilemma.  Which is worse, second or prolonged wave of coronavirus infection fuelled by a premature relaxation, or widespread unemployment and the potential for economic collapse resulting from an extended period of lockdown?

The UK government is split, according to the Financial Times, with Prime Minister Boris Johnson, still convalescing from the virus, urging caution while other ministers including Cabinet Office minister Michael Gove and Chancellor Rishi Sunak pushing for some relaxation of the restrictions. Johnson was reported by the Sunday Times yesterday to have been asleep at the wheel in the run-up to the crisis. The government issued a very lengthy refutation of the article late on Sunday, indicated anxiety about the unflattering portrait.

A Wall Street Journal/NBC News poll in the US suggested that more Americans fear lifting restrictions too soon than fear the impact on the economy.

But weekend protests in some US cities led by those urging the relaxation of the curbs suggests pressure to relax the lockdown will continue, with evidence growing of how the crisis has hit small businesses.

The UK government has announced a package of measures designed to support venture capital-backed businesses, including a £500 million fund matching government money with private investment. A US deal to support small businesses affected by the crisis could also be announced today, President Trump said on Sunday.

Asian shares reflected a mixed picture overnight, with China and South Korea indices edging higher on continued signs of easing, but Japan and Australian markets falling.

A number of large companies report this week in the US and Europe as investors review the impact of coronavirus on corporate earnings. There are expected to be some standout winners, such as Netflix, reporting Tuesday, and a lot losers, including a number of airline companies. Dutch technology giant Philips on Monday set the scene, reporting a 33% drop in earnings.

 

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Premier Foods

Premier Foods plc said it has experienced a dramatic short-term peak in volumes across many of its categories during March, leaving trading profits for the 12 months to March at the top of market expectations. Whilst, volumes have started to reduce from the exceptional levels seen in March, they are still expected to continue to be higher than average patterns of demand. During this challenging time, the Company said its manufacturing and distribution operations are working at maximum capacity and coping well with this recent elevated level of demand, and customer service levels continue to be high.

DFS Furniture

DFS Furniture plc published a statement on recent press comment about the Company considering its options with regard to additional financing. The Company confirmed that it is in the advanced stages of negotiating an additional debt facility of £60m-£70m with its existing lending banks, to supplement the existing bank facility of £250m. This additional facility will cover the near-term working capital unwind until sofa deliveries can resume. Furthermore, the Company is preparing for a possible non pre-emptive equity issue of up to 19.9% of its existing ordinary share capital.

Pret A Manger

The Financial Times reported that the food-to-go chain is planning to launch a coffee range in supermarkets by the end of the month as it tries to adapt its business to the world after coronavirus. Pano Christou, Pret’s chief executive, explained discussions about introducing a range of whole and ground coffee beans had been under way, with an expected launch at the end of the year, but coronavirus had sped up the process. “My sense is that Pret might be a very different operator model after this if [coronavirus] persists,” he said.

Amazon

All six warehouses in France were shut last Thursday after the Tribunal of Commerce in Nanterre ordered Amazon to limit what it handled to food and essential items only, or risk a €1m-a day penalty. The company had planned on opening the warehouses on Monday, but that will now not be the case, saying they will be closed until at least Wednesday. In a statement, Amazon said it was looking forward to the appeal hearing due to take place on Tuesday.

Ocado

Ocado issued a statement on its Annual General Meeting (AGM) emphasising shareholders should not attend in person and votes must be submitted by proxy. The AGM is scheduled to be held on Wednesday, 6 May 2020.

 

Travel and Leisure 

Walt Disney

Walt Disney will stop paying more than 100,000 employees this week, almost half of its workforce, as the entertainment company tries to weather the coronavirus lockdown. Suspending pay for thousands of cast members will save Disney up to $500m a month across its theme parks and hotels, which have been shut in Europe and the US for almost five weeks.

The Rank Group

The gambling company provided a trading update in the context of Covid-19. The Group said the short-term economic impact to their venues businesses “has been significant, but they have acted swiftly and decisively to mitigate where appropriate”. 7,000 colleagues, out of a UK workforce of 7,600, have been furloughed. The executive and non-executive directors have volunteered a 20% reduction in salaries and fees with effect from 1 April for as long as our colleagues are in furlough.  The Group also benefits by approximately £1m per month from the business rates holiday and has a small number of long running VAT claims. In terms of Covid-19 initiatives, the group have launched a new charity initiative in collaboration with Blue Light Card, the UK’s number one discount service for the NHS, Emergency Services, Social Care workers and Armed Forces. Rank colleagues are providing free meals to these key workers from some of our UK venues’ kitchens.

 

Financial Services & Real Estate

Mitsui & Co

Tatsuo Yasunaga, chief executive of Mitsui, the Japanese trading house warned of a temporary backlash against globalisation following the pandemic which could “redraw supply chains, unravel years of globalisation and make national economies more insular”. In an interview, he said, “I imagine in the medium term, people will tend to look inward. Supply chains will have to be reorganised with a more domestically oriented focus. People will tend to stay at home.” He added that any anti-globalisation sentiment would only be temporary.

Redrow Plc

The British housebuilder provided a further update to their Covid-19 statement on 9 April, announcing that Redrow has also now successfully concluded negotiations with its six relationship banks regarding the request for £100m additional funding under its existing Revolving Credit Facility (RCF). Moreover, as a consequence of the unprecedented impact of COVID-19 on the business and the housebuilding industry, John Tutte has agreed to delay the step back to non-executive Chairman from 30th June until the company’s AGM in November 2020.

 

Industrials

Yellowcake

The specialist company operating in the uranium sector reported its performance for the quarter ended 31 March 2020.  Yellow Cake reassured shareholders “that at present it is not adversely affected, either operationally or financially, by Covid-19.” The company referenced its strong capital position, sufficient working capital (at least two years before needing to take any measures to access additional funds) and that it has no debt or hedges on its balance sheet. The company did say the escalation of the pandemic has significantly impacted global uranium supply with producers having to curtail production, resulting in upward pressure on the uranium price during the quarter and after quarter-end.

Jaguar Land Rovers

The Times reported that up to 20,000 Jaguar Land Rover factory workers still do not know when they will be going back to work. Jaguar Land Rover reported a 42 per cent crash in sales of Jaguar models between January and March, while sales of Range Rovers and Land Rovers declined 25 per cent. Jaguar Land Rover spokesperson confirmed that its factories remain on an extended “controlled stop” and that they will “work towards a phased return to production as soon as conditions permit.”

 

TMT

Philips

Dutch health technology company Philips on Monday reported a 33% decline from a year earlier in first-quarter core earnings, as the global coronavirus outbreak hit demand for its toothbrushes, shavers and other personal health products. Sales at its sleep and respiratory care unit have reported double-digit growth in the first quarter. Philips said it is investing more than 100 million euros ($108 million) on increasing production of ventilators and other hospital equipment needed to combat the coronavirus.

Uber

Uber is reviving an attempt to offer deliveries of goods as well as people and food, as it searches for new sources of revenue during the coronavirus outbreak. Its latest effort to transport items ranging from medical supplies to pet food via two new services, Direct and Connect, follows  their recent accelerated push into online groceries.

Future plc

Future plc, the global platform for specialist media, today announced the completion of the acquisition of TI Media, which was first announced on 30 October 2019. Despite the unprecedent circumstances, Future said audience numbers remain strong, and are benefiting from additional users currently searching for advice and inspiration e.g. March was the biggest month ever for Tom’s Guide, while Live Science had 100 million sessions in the month. Their digital revenue performance continues to be encouraging with and although digital advertising is experiencing some reduction in yields this is offset in the main by audience growth.

 

IN THE NEWS

Johnson faces cabinet split on lifting lockdown – Financial Times

Coronavirus claims thousands of UK businesses – Financial Times

City chiefs demand fair shares in equity fundraisings – The Times

Coronavirus: UK’s furlough scheme opens today amid warning delays could be devastating – Sky News

 




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