By Powerscourt on 21/04/2020

Powerscourt Coronavirus Briefing – 21 April 2020

ANALYSIS

In a stark and unprecedented sign of the impact the coronavirus crisis is having on the world economy, the price of West Texas Intermediate, the US oil benchmark, fell to below zero on Monday. The fall in demand reflected that the US was briefly making more surplus oil than can be stored, leaving producers literally paying buyers to take oil off their hands.

Although by Tuesday the price had recovered somewhat, the dramatic collapse crushed earlier optimism that the world was starting to move beyond the crisis, and embarrassed the oil producing nations who last weekend promised to put a floor under the oil price. Asian markets overnight were trading lower, particularly those with exposure to oil.

A number of large US corporates on Monday plunged to significant quarterly losses, including United Airlines, Halliburton and IBM.

Many of the worst-hit European countries are now seeing signs that the virus has peaked, but politicians are divided over the right time to relax restrictions. With difficulties sourcing testing and protective equipment, there is a question about how much confidence European consumers will have in returning to work even when authorities deem it safe.

The Deputy Governor of the Bank of England said on Monday that he expected the economic slump to last even after coronavirus restrictions are lifted, with demand crushed for some time due to reluctance by consumers to expose themselves to the virus or to risk significant spending. The UK government on Monday opened its job retention scheme and saw 144,000 companies apply for grants to pay furloughed staff as it did so.

Similar anxiety is playing out in the US, where the Wall Street Journal said business executives have told President Donald Trump the economy will not reopen until testing is significantly ramped up.

Campaign group ShareAction has called on British listed companies to hold virtual AGMs that let investors question boards in real time. They also want voting to be replicated online. Reuters reports that two-thirds of the firms to announce meetings so far opted to hold them behind closed doors because of COVID-19.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Associated British Foods

Associated British Foods, the owner of Primark, said that they have made no sales from the clothing retailer since March 22 due to store closures, which usually brings in £650m a month. The group has reversed its position to not pay suppliers to preserve cash by pledging to buy garments yet to be finished, despite having written off £284m of stock already.

Joules Group plc

Joules, the premium British lifestyle brand, confirms the successful completion of its £15 million increase to its revolving credit facility (‘RCF’) with Barclays Bank plc as part of the group’s efforts to conserve cash and maintain liquidity. Nick Jones, Chief Executive Officer, commented, “our e-commerce sales over recent weeks continue to demonstrate the strength of the Joules brand and the loyalty of our customer base.”.

Tapestry

Tapestry, the luxury accessories company behind Coach and Kate Spade, said it is cutting more than 2,000 part-time roles and expects to furlough most in-store staff. At the start of fiscal year 2021, which begins June 28, Tapestry’s chairman and chief executive Jide Zeitlin will take a 50 per cent pay cut, while the board will also see a 50 per cent reduction in cash compensation. The company also expects salary cuts of between 5 to 20 per cent for all North American corporate employees depending on their salary level. The actions are expected to stay in place for up to 12 months “unless otherwise noted”.

 

Travel and Leisure 

Aston Martin Lagonda Global Holdings plc

Executive Chairman, Lawrence Stroll said, “I am truly excited to be taking on the role of Executive Chairman of this great British company, Aston Martin Lagonda…  In the months ahead, as the world starts to emerge from the Covid-19 pandemic, we will start to reinvigorate our marketing initiatives to continue to build our order book.”.

eDreams

eDreams Odigeo, Europe’s second largest online travel agency, said bookings fell 70 per cent in March due to the pandemic. The company said it had stress tested scenarios assuming no travel until 2021 as it shores up its balance sheet in order to outlast the global travel shutdown. eDreams said that it had cut costs by around 25 per cent and waived its debt covenants in 2021. It has also taken advantage of government schemes to pay staff salaries.

Nissan

Nissan will extend the annual shutdown of its global headquarters and other non-production facilities in Japan until May 10 to stem the coronavirus outbreak. Please use the sharing tools found via the share button at the top or side of articles. “The company hopes these measures will help prevent the spread of the coronavirus among employees at Nissan, the company’s affiliates, and the wider community,” the carmaker said in a statement on Tuesday, adding that many of its employees were already working from home.

PSA

PSA, a carmaker which owns Peugeot, said sales dropped by around 16 per cent in the first quarter and forecast a steep decline in demand this year amid the “chaotic economic environment” caused by coronavirus. The group expects the auto market to fall this year by 25 per cent in Europe, 10 per cent in China, 25 per cent in Latin America and 20 per cent in Russia. The group did, however, keep its target of a 4.5 per cent automotive adjusted operating margin for 2019-2021 in place.

United Airlines

United Airlines recorded a $2.1bn pre-tax loss in the first quarter because of the coronavirus pandemic. The company’s revenue declined 17 per cent compared with the same period a year earlier, to $8bn. Chief executive Oscar Munoz and President Scott Kirby have told employees their jobs are protected only until September 30.

Virgin Australia

Australia’s second-biggest airline Virgin Australia entered administration following its failure to secure a A$1.4bn ($886m) bailout from the government. The carrier said that it had appointed Deloitte to look for investment to recapitalise the group. The group would continue to operate scheduled flights and would retain existing management led by Paul Scurrah, chief executive, during the restructuring.

Wizz Air

Wizz Air, the Eastern European low-cost carrier, said that it has been confirmed as an eligible issuer under the UK government’s Covid Corporate Financing Facility, a scheme for large companies to access loans for up to a year by the Bank of England buying their commercial paper.

 

Financial Services & Real Estate

AEW UK REIT plc

AWE UK REIT, a company that owns a diversified portfolio of 35 regional UK commercial property assets, announces its COVID-19 statement. Whilst the Investment Manager and the Board of Directors believe that the full impacts of COVID-19 on both the UK economy and the real estate market are yet to become clear, the Company exhibits a number of features which make it as robustly positioned as possible to deal with the ongoing situation including: low leverage, well capitalised, low vacancy level, strong industrial weighting, active management of assets and strongly performing underlying property portfolio.

Barclays Plc

Barclays announced that Mr Staley and Mr Morzaria have requested that any increase to their Fixed Pay, as proposed in the 2020 Directors’ Remuneration Policy, be postponed until at least 2021. The Board has confirmed that it will agree to this and, therefore, if the Policy is approved by shareholders, there will be no increases to Mr Staley or Mr Morzaria’s Fixed Pay until at least 2021. This is a further measure taken as part of Barclay’s COVID-19 response.

Gresham House Plc

Gresham House, the specialist alternative asset manager, announces that it has published its Report and Accounts for the year ended 31 December 2019. The company made a commitment to donate £100,000 in aggregate to the Trussell Trust and NHS Charities Together, expected to comprise of £60,000 from the Company and £40,000 from the Directors and Management Committee. In addition, Gresham House set up a Give As You Earn Scheme for all employees and the Company will match up to a specified sum of donations made via the Scheme.  This is expected to take the Group’s charitable donations to up to £175,000 over the next twelve months.

Jupiter UK Growth Investment Trust plc

In light of the coronavirus pandemic and measures taken to contain the outbreak, Jupiter announced on 15 April 2020 that it now expects to seek shareholder approval for the Merian acquisition at Jupiter’s Annual General Meeting of shareholders on 21 May 2020.  As a result of this delay, Mr Buxton is now expected to take over lead fund management responsibility for the Company at the end of May. In the meantime, The Company’s investment portfolio will continue to be managed by a Transition Management Team (TMT) comprising senior members of Jupiter’s investment team led by Stephen Pearson, the Chief Investment Officer of Jupiter.

London Stock Exchange Group plc

London Stock Exchange reported good Q1 performance including total income up 13% year-on-year to £615 million, citing increased trading in Capital Markets and higher clearing activity across listed and OTC products leading to higher NTI in Post Trade. In light of current circumstances, LSEG regularly assesses the strength of its balance sheet and stress-tests its liquidity positions under various market scenarios.  The Group believes it has sufficient cash resources and access to liquidity to maintain continuity of business but says it is “too early” to comment on the impact of the virus on its results for the rest of the year. The Group intends to pay its final dividend in relation to the 2019 financial year, subject to shareholder approval at today’s AGM.

Quilter Plc

Quilter, a provider of advice, investments and wealth management in the UK and internationally reports positive Q1 net flows. It noted that in the latter weeks of the quarter, against a backdrop of high market volatility, transfers out from the Quilter platform to competitor platforms reduced significantly while transfers in remained steady, due to a relatively higher level of business continuity and adviser support. It no longer expects to achieve its 27% operating margin target in 2020.

Stenprop Limited

Stenprop, the UK multi-let industrial (MLI) property company, announced that at close of business on 15 April 2020, the company received 73% of the total rent invoiced and due for the aggregate of the quarter commencing 25 March 2020 and the month commencing 1 April 2020. To date, the company have not made any redundancies or put any staff on furlough. It supplied to the NHS a list of all available units in its portfolio that are available for storage or distribution of equipment and the company recently completed a short-term, rent-free letting to a food bank charity supplying food to the NHS. Stenprop remains a financially sound business with a capital structure and operating platform which is well placed to deal with a prolonged period of uncertainty.

Target Healthcare REIT plc

Target Healthcare, the UK listed specialist investor in modern, purpose-built care homes, stands by the current expectation that its tenants’ cashflows will remain supported by continued demand for their beds. Kenneth MacKenzie, CEO, commented, “Given the fast-moving nature of the COVID-19 pandemic, it is impossible to predict with any certainty what sort of impact we may see across our portfolio.  Whilst we expect to see a small number of care homes disproportionately affected, our investment strategy has always focused on the quality and design facilities of the properties, underpinned by a forensic approach to understanding local market dynamics.”.

 

Industrials

BHP

Miner BHP said that steel production outside China could drop by a “double digit percentage” in the 2020 calendar year. Production guidance for other commodities, including iron ore, should remain unchanged. BHP said it plans to cut its capital and exploration expenditure for its 2021 financial year, which was forecast to be $8bn.

Halliburton

Halliburton is one of the world’s largest providers of products and services to the energy industry. On Monday, it reported a $1 billion loss in the first quarter, lowered its spending plan for the year, and forecast a bleak outlook for its North American business due to the collapse in oil prices. The company is implementing a number of measures to reduce overhead and other costs by about $1 billion, lower capital expenditures to $800 million, and improve working capital.

Nexus Infrastructure plc

In light of COVID-19, Nexus Infrastructure plc, a leading provider of essential infrastructure services, utilities connections and smart energy infrastructure, have cut all non-essential capital expenditure, discretionary expenditures and implemented a recruitment freeze. Further measures are being undertaken, effective from 1 April 2020, including 100% reduction in the CEO’s salary, and up to 50% salary reductions for Non-Executive Director and senior management.

Polymetal International plc

Polymetal, a precious metals mining company, issued production results for the first quarter ending 31 March 2020. It reports that quarterly revenue increased by 9% y-o-y to US$ 494 million on the back of higher gold prices. Sales volumes decreased by 7% y-o-y due to the COVID-related slowdown of concentrate shipments to China, which have fully normalised since early March. There have been no cases of COVID-19 registered within Polymetal so far. Polymetal has organised isolated accommodation for potential placement of patients with suspicion of COVID-19, enhanced hygiene protection in public spaces and increased control over disinfection and sterilisation measures. Adequate medical supplies are in place at all locations.

South32 Ltd

South32, a mining and metals company reported its performance for the quarter ending 31 March 2020. Graham Kerr, South32 CEO stated that due to COVID-19, the company removed guidance for South Africa and Columbia operations and lowered FY20 production guidance at Australia Manganese by 5%. The company has maintained FY20 guidance for all other operations, where to date production and sales have been unaffected by the response to COVID-19.

Tullow Oil

Tullow Oil, Africa-focused oil and gas group, announced that Rahul Dhir will take over as chief executive from the beginning of July. Paul McDade, the previous chief executive, resigned in December after the group slashed its production outlook.

Vestas

Vestas, the wind turbine manufacturer, said it planned to lay off 400 employees, most of them in Denmark, and halt some projects due to the impact of coronavirus. The company said it had decided to focus on delivering projects this year and reduce its workforce that did not directly support the execution of these near-term projects. Following the job cuts, the group’s headcount will be reduced to about 25,500 people.

 

TMT

IBM

IBM withdrew financial guidance for the rest of the year as it revealed that the coronavirus crisis had taken a bite out of its software sales at the end of March, pushing revenue down by 3 per cent in the first quarter.

GlobalData plc

GlobalData PLC, the global provider of data, analytics, and insights, were able to transition smoothly to a work from home model and have not needed to furlough employees or rely on government support. The business has raised over £100,000 for eight additional charities. Over 75% of the Group’s revenue derives from recurring subscriptions, and revenues remain largely unaffected by COVID-19.

Telecom Plus plc

Telecom Plus PLC (trading as Utility Warehouse), which supplies a wide range of utility services focussed on domestic customers, announced record revenues and profits. Customer numbers for the year increased by 2.7% and service numbers grew by 6.2%. The group remains confident that it is well positioned to continue to build shareholder value over both the near term and the years ahead, with a diverse portfolio of essential household services, a motivated distribution channel, a unique integrated multi-utility business model, market leading levels of customer retention, and a strong balance sheet.

 

IN THE NEWS

US oil price back above zero after historic plunge – Financial Times

Government launches £1.25bn plan to help struggling UK start-ups – Financial Times

Investor groups call for UK firms to provide a virtual AGM – Reuters

Donald Trump announces plan to suspend immigration to US – The Times