By Powerscourt on 28/04/2020

Powerscourt Coronavirus Briefing – 28 April 2020

ANALYSIS

Asian stocks wobbled Tuesday following solid gains on both sides of the Atlantic on Monday. Initial optimism about a continued thaw in lockdown has given way to recurring worries about global oil markets and broader economic weakness.  Brent Crude for June delivery traded under $19 this. BP, which reported today and described uncertainty about the environment, held its nerve and its dividend.

Moves by a number of US states, including Texas and Ohio, to relax restrictions, appear to foreshadow a broader push to reopen the US. President Trump told reporters on Monday evening that the US now had testing facilities for 2% of each state’s population as he urged schools to consider reopening.

In the UK, despite Prime Minister Boris Johnson’s ominous warning that the country was at the “point of maximum danger” in the crisis, the Government was reported to have set up six working groups to draw up guidelines for the safe return of employees to work. European countries continue to edge back towards normality, with Italy, Belgium and Portugal setting dates in May to allow industries such as retail and manufacturing to start reopening.

Over the past few days a few business sectors, including construction, carmaking, retail and food outlets, have begun opening up. UK Chancellor Rishi Sunak is reported to be examining ways to “wean” employees off the furlough scheme, which has seen around 4 million workers’ salaries’ substantially covered by the government.

Corporate earnings season rolls on this week with Starbucks, a bellwether of consumer sentiment, reporting in the US. In the UK, HSBC this morning announced that its profit had nearly halved as it stepped up its provision against bad loans. Unlike BP, it pulled its dividend. Standard Chartered and Barclays will also report this week.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Greggs

British baker and takeaway food group Greggs plans to reopen 20 shops from next Monday in a trial to see it can operate effectively with social distancing measures as a coronavirus lockdown is eased. All of Greggs’ more than 2,050 shops have been closed since March 24 when the lockdown started even though the government allowed takeaway outlets to stay open. Most of its employees were furloughed under the state job retention scheme and the group has tapped the government for finance to get it through the crisis. “We want to play our part in getting the nation back up and running again so we are planning to conduct a limited trial with volunteers to explore how we can reopen our shops with new measures in place that keep our colleagues and customers as safe as we can when we re-open at scale,” a Greggs spokeswoman said on Monday.

Marks & Spencer

Marks & Spencer said it had taken steps to secure more liquidity to help it cope with the downturn caused by the coronavirus pandemic, and it had significant facilities available to it for 18 months. The British retailer said on Tuesday that its banks had agreed to relax or remove covenant conditions later this year and in 2021, and it had also accessed a UK government coronavirus corporate finance scheme. The company also said it did not anticipate paying a dividend for the 2020/21 financial year, saving it 210 million pounds of cash.

Novartis

Swiss drugmaker Novartis reported rising first-quarter sales and profit that beat analyst expectations and confirmed its 2020 targets as the coronavirus pandemic prompted patients to stock up on their prescriptions in advance. “COVID-19 did result in increased forward purchasing by customers, including at the patient level, as some patients filled prescriptions to cover a longer period of time,” Novartis said on Tuesday. Core net income rose to $3.55 billion, from $2.8 billion in 2019 and compared to the average analyst forecast in a Refinitiv poll of $3.17 billion. Sales rose to $12.3 billion from $11.1 billion in the year-ago period, also above the poll average of $12 billion.

 

Financial Services & Real Estate

UBS

UBS reported Tuesday that net profit had risen by 40% in the first quarter of 2020, however the Swiss bank warned of additional loan losses as a result of the coronavirus pandemic. Net profit attributable to shareholders came in at $1.6 billion in the three months to the end of March, up from $1.1 billion in the same quarter of 2019.CEO Serio Ermotti stated: “The COVID-19 pandemic and the measures taken to contain it have dramatically changed the global economic outlook for the foreseeable future,” UBS said earlier this month that it will suspend half of its 2019 dividend payout until later this year, after pressure from Swiss regulator FINMA.

HSBC

HSBC warned of more earnings pain to come after first-quarter profit nearly halved as it boosted provisions against bad loans expected to rise amid the coronavirus pandemic. HSBC also said the pandemic would mean sustained pressure on its revenues as customer activity declined and lower central bank interest rates squeezed margins. HSBC Chief Financial Officer Ewen Stevenson told Reuters the bank expected a lower credit loss rate for rest of the year compared to the first quarter. The bank further warned in a statement: ““Should the Covid-19 outbreak continue to cause disruption to economic activity globally through 2020, there could be further adverse impacts on our income”.

Santander

Santander posted an 82% year-on-year slump in quarterly net profit on Tuesday as it booked higher provisions for expected credit losses from the coronavirus outbreak. The euro zone’s second-largest bank by market value reported a profit of 331 million euros ($358.11 million) for the first quarter ended in March. Overall loan-loss provisions rose 80% after the bank set aside 1.6 billion euros to offset the impact from COVID-19 based on the expected deterioration of the macroeconomic conditions arising from the health crisis. COVID-19 has led to the deaths of 23,521 people in Spain so far.

 

Industrials & Transport 

British Airways

Sky News reports British Airways is planning to launch a consultation that could result in cutting about 800 of its 4,500 pilot jobs. The company said earlier this month that it had struck a deal with its unions to suspend more than 30,000 cabin crew and ground staff. According to Sky News, a 50% pay cut for BA pilots is in place until the end of May, however a “permanent redundancies would further underline the crisis facing UK aviation”.

Delta Airlines

Delta Air Lines took advantage of blistering demand in debt markets to raise $5bn on Monday, as the company attempted to fortify its balance sheet to deal with the fallout from coronavirus. The company had planned to borrow $3bn but increased the size of the deal after investors clamoured to buy the debt, people familiar with the fundraising said. The cash injection is intended to help the Atlanta-based airline overcome the effects of travel restrictions put in place to contain the spread of Covid-19.

Boeing

Boeing’s chief executive told shareholders on Monday that it could be several years before the company pays a dividend again, as airlines wait for global travel to slowly return to pre-coronavirus levels. David Calhoun said at the aircraft manufacturer’s annual meeting that the company would borrow money again in the next six months. It has already borrowed $13.8bn this year. After the coronavirus pandemic passes, Boeing would prioritise rebuilding its balance sheet. “Our first priority is going to be to pay that back,” Mr Calhoun said. “So that process could take three to five years. I don’t know. I don’t want to predict futures. But it’s going to be a while before dividends come back as our number one priority.”

Airbus

Airbus will furlough around 3,200 staff at its Broughton factory in Wales, the European planemaker said on Monday after it warned staff that the coronavirus crisis had put its survival at stake. The company told its 135,000 employees to brace for potentially deeper job cuts as it grapples with the impact of the COVID-19 pandemic on the aerospace sector. Earlier this month, the group said it would furlough some 3,000 French workers by tapping a government-backed scheme for four weeks. “Airbus confirms it has agreed with its social partners to apply the government’s Job Retention Scheme for approximately 3,200 production and production-support employees at its commercial aircraft site in Broughton,” it said in a statement.

Volkswagen

Volkswagen’s chief executive called for a broad stimulus package to revive the auto industry and the economy even as he defended the carmaker’s intention to pay a dividend. “We need consumption, the economy needs to get moving again and an opportunity, perhaps the best opportunity is the car,” Herbert Diess told German television ZDF, adding that replacing older cars with more efficient ones would also cut pollution. Diess reiterated the carmaker’s intention to pay a dividend for 2019 but said the company would consider cutting bonuses and shrinking the dividend if the carmaker ended up taking state aid.

Travis Perkins

Travis Perkins flagged a raft of coronavirus mitigation measures in a trading update this morning, including a remote “service-light” operating model, elimination of discretionary spend, reduction of salary by 20% at board level, access of government support programmes and the furloughing of half its 30,000 staff. The FTSE 250 group further stated it was looking at “working protocols which can be applied across the construction supply chain to enable more activity to be carried out safely under lockdown”. The company stated sales for Q1 fell by 4.6%, or by 3.8% on a like-for-like basis, owing to the impact from the COVID-19 outbreak. It finally reiterated that it had withdrawn its annual profit guidance and made no comment about its dividend outlook.

ABB

ABB expects the coronavirus epidemic to trigger a “sharp drop” in demand over the next three months as lockdowns disrupt business activity around the world, the engineering company said on Tuesday. ABB said the COVID-19 crisis had lowered revenues and profit margins in all its business during the first quarter. Revenues fell 9% to $6.22 billion, while net income fell 30% to $376 million, both ahead of market expectations. “In the second quarter, we expect ABB’s operations to be significantly challenged by a sharp drop in demand due to lockdowns in many parts of the world,” Chief Executive Bjorn Rosengren said in a statement.

Nissan

Nissan Motor Co said on Tuesday said it expected to post an operating loss for the year that ended in March, as an ongoing decline in sales is exacerbated by the coronavirus outbreak. In a statement, the Japanese automaker said that it expected an annual operating loss of as much as 45 billion yen ($419.7 million) from a previous forecast announced in February for an operating profit of 85 billion yen. It expects to post a net loss of as much as 95 billion yen, compared with a previous forecast for 65 billion yen profit.

 

Energy

BP

BP reported a 66 drop in first-quarter earnings on Tuesday as the initial fallout of the coronavirus pandemic on the finances of the energy sector began to be felt. In the three months to March 31, underlying replacement cost profits — BP’s definition of net income and the measure tracked most closely by analysts — were $791m, versus nearly $2.4bn in the same period in 2019. Although this is higher than consensus estimates of $710m, BP said it was hit by a plunge in energy prices; a drop in demand for fuels and refined products, especially in March; and weaker earnings from its oil trading business and its stake in Russia’s Rosneft.

UK Oil & Gas Plc

AIM-listed UK Oil & Gas plc announced it had “successfully implemented material cost savings at all levels across its organisation”. According to the group, the savings “enable Horse Hill oil production to remain profitable at asset level at current Brent oil prices, and together with the funding, better positions the Company to take full advantage of any post-pandemic oil price increase and related growth opportunities”. Further cost saving measures were flagged, including increasing automation at sites, which will be introduced when appropriate.

 

IN THE NEWS

Trump ‘can’t imagine why’ US disinfectant calls spiked – BBC News

UK’s National Health Service survives the first coronavirus wave – Financial Times

Coronavirus: Social distancing after lockdown could ruin us, warn businesses – The Times

Boris Johnson prepares to share plan for ‘refining’ coronavirus lockdown this week – Daily Telegraph

Johnson Urges Discipline While U.K. Plans Gradual Lockdown Exit – Bloomberg

Japan to amend first-quarter GDP calculation method to better reflect coronavirus impact – Reuters