By Powerscourt on 23/04/2020

Powerscourt Coronavirus Briefing – 23 April 2020

ANALYSIS

Stocks climbed again on Wednesday, and Asian markets rose overnight, with a nearly $500 billion aid package for small businesses in the US affected by coronavirus expected to be signed by Congress this week, and amid signs the oil market has recovered from the shock which hammered it earlier this week.

The S&P 500 and the FTSE 100 both ended up 2.2% on Wednesday.

Corporate fortunes continue to show a sharp bifurcation between lockdown friendly companies and those less adapted to the new normal. The UK drinks company Fever-Tree reported sales of high-end mixers rose 70% as locked-in millennials swigged gin. By contrast, US energy companies are particularly hard hit. A report by a US law firm, Hayes and Boone on Wednesday, suggested that up to 60% of independent US oil companies were facing liquidity problems following the oil price crash.

The UK’s Secretary of State for Health, Matt Hancock, told reporters on Tuesday the coronavirus outbreak had peaked, but the Chief Medical Officer, Chris Whitty, warned that “very socially disruptive” measures would continue for many months in the absence of a vaccine and with the UK government still failing to hit testing targets.

More broadly, governments and businesses are beginning to grapple with the mechanics of operating in a world requiring some social distancing indefinitely. Low-cost air carrier Ryanair said on Wednesday it expected flights to be back up to 80% capacity by September, but CEO Michael O’Leary said he had told the Irish government he would not do so if required to leave middle seats empty on flights – a suggestion for managing “socially distant” flying.

Meanwhile, in a brazen intervention, Peruvian coca farmers have told Reuters they will lobby the Peruvian government for support, in light of the local economy’s heavy reliance on the crop, the active ingredient in cocaine.

WHAT ARE COMPANIES SAYING?

Consumer and Retail

Compass Group

The world’s largest contract catering company gave an update this morning on three Ps: people, purpose and performance. The company said it is protecting jobs as a priority, redeploying when possible and furloughing when not. The company is working with charity and government partners to “care for the communities we serve”. About 55% of the company’s business is closed due to lockdowns, and it is mitigating its cost base by around £450m per month in response.

Unilever

The consumer goods company reported flat underlying sales growth and a small increase in turnover. The company said it has been able to maintain supply with factories still running “through the many unpredictable challenges in local operating environments” and that it has adapted to changing demand patterns. CEO Alan Jope said Unilever is “preparing for lasting changes in consumer behaviour as we move out of the crisis and into recovery”.

Hermes

Luxury brand Hermes said that all geographical areas were impacted by store closures. Its consolidated revenue in the first quarter was down 6.5% to €1.5bn. Executive Chairman Axel Dumas said “The solidity of our craftsmanship model, the appeal of our objects, and the efforts made by all the Hermès teams are key assets that will help us confidently overcome the major uncertainties this first period has brought”.

DFS Furniture

The furniture retailer today announced a successful equity placing equivalent to almost 20% of issued share capital (approximately £50m), a move which is “in the best interests of shareholders and will promote the success of the group”. Directors and senior management will be participating in the placing, intending to contributed £445,000. CEO Tim Stacey said “While the outlook remains uncertain, DFS is well placed to navigate the coming months and the Board remains positive about the long-term prospects of the Group.”

Financial Services & Real Estate

AJ Bell

The investment platform this morning reported customer growth and net inflows during its second quarter. CEO Andy Bell described the quarter as “without doubt one of the most dramatic we’ve witnessed”. The company said it is not furloughing staff or claiming benefits from any government support schemes as these “should be preserved for those companies that need them most”. It has set up a fund to benefit causes supporting the crisis efforts, with Bell donating his April, May and June wages.

Taylor Wimpey

The housebuilder announced it will start remobilising sites on 4 May with a “phased process based on detailed new operating protocols”. Sales centres, show homes and regional offices will remain closed with services provided remotely. Its statement said that “The phased nature of our remobilisation is key to making the necessary adjustments to site safety and to properly train our employees, suppliers and subcontractors in the new requirements and ways of working”.

Vistry Group

The housebuilder said this morning that it will recommence work on its Partnership sites and a significant number of housing sites from 27 April, doing so “in accordance with strict guidance and protocol from the Government, Public Health England and the HSE”. The group also announced that its directors, wider leadership team and board had volunteered a 20% reduction in base salary and fees and confirmed that the group remains financially strong.

Industrials

Meggitt

The aerospace, defence and energy components manufacturer reported that trading had been ahead of the comparative quarter last year but that in the past weeks there has been a “softening” in its civil aerospace business in terms of revenue and forward orders. Group revenue was up 5% due to strong growth in defence. The group expects to see a significant reduction in demand across civil aerospace in 2020 with the reduction in global air traffic. Mitigating actions taken include reducing variable costs such as through the use of the furlough scheme, freezing recruitment, removing annual salary increases and reducing executive committee salaries by 20%.

Delta Air Lines

The US’ biggest airline announced it is looking to raise a total of $3bn from loans and bonds. This will include a $1.5bn first lien term loan due 2023 and $1.5bn secured notes maturing in 2025. CFO Paul Jacobson said the airline’s options include borrowing against unencumbered assets or selling and then leasing planes. The airline expects a 90% fall in revenue during the second quarter.

Ryanair

CEO Michael O’Leary said yesterday that the airline would not fly if social distancing rules requiring empty middle seats were in place. He told the Financial Times that plans to return to flying would not go ahead with “entirely ineffective social distancing measures like having middle seats empty” because the company “can’t make money on 66% load factors”.

Anglo American

The miner said it is reducing operating costs by at least $500m as well as its 2020 capital expenditure guidance by $1bn. CEO Mark Cutifani said “We are acting to protect our optionality through this uncertain period and will continue to act in the best interests of our shareholders, our employees, customers and our broad range of stakeholders across society.” The company confirmed it will pay a final dividend as planned.

Croda International

The speciality chemicals company confirmed it will pay a dividend as planned. It saw sales and profitability in line with the prior year and its order book remains in line with normal circumstances. The company does note however that “visibility is limited” and there is uncertainty about the impact of the crisis on future sales.

Aston Martin

The carmaker announced it will reopen one of its manufacturing facilities on May 5 with another facility to follow. The company has worked “closely with employees and trade unions to develop and implement protocols to protect employee health”. The company also confirmed the majority of its staff is currently furloughed and the CEO and NEDs are waiving 35% of their salaries/fees, with other members of senior management taking smaller cuts.

TMT

Vodafone

The group announced yesterday that it is to accelerate a payment of $200m to a subsidiary, Vodafone Idea, which is India’s second biggest telecoms operator. The payment has been accelerate to provide Idea with liquidity to manage operations as well as “support the approximately 300m Indian citizens who are Vodafone Idea customers as well as the thousands of Vodafone Idea employees during this phase of emergency health measures”.

Netflix

The day after announcing a huge increase in subscribers, the streaming company said it plans to raise $1bn in debt in order to acquire new shows, produce content and make acquisitions.

IN THE NEWS

Universities’ plea for £2bn bailout falls on deaf ears in Treasury – Financial Times

EU should ‘not aim for self-sufficiency’ after coronavirus, trade chief says – Financial Times

Lockdown risks ruining economy, say senior Tories – The Times