By Powerscourt on 30/04/2020

Powerscourt Coronavirus Briefing – 30 April 2020

ANALYSIS

As we draw to the end of the beginning of the coronavirus age, the recriminations went up a couple of notches with an overnight interview from President Donald Trump during which he again threatened China, claiming it had supressed early news about the virus. He wasn’t clear what he would do: “There are many things I can do. We’re looking for what happened.”

He made it clear that Sinophobia will be a theme in the six months to the November presidential election: “China will do anything they can to have me lose this race.”

There may be reasons to be cheerful on Thursday. Stock markets certainly thought so, with the FTSE 100 hitting a nearly seven-week high at the close Wednesday while the Dow Jones Industrial Average closed at 24,633, up 2.2% on the day and up a staggering its 32% from March 23. Asian markets also rose today. In London, several heavyweight companies reported this morning, but the headlines will be grabbed by Shell which has cut its dividend by two-thirds, the first reduction since World War ll and a contrast to BP which held the line yesterday.

Irrational exuberance or green shoots? The readout from the Chairman of the US Federal Reserve on Wednesday could hardly have been more sombre. Jay Powell, following the Fed’s rate-setting meeting, said there was a risk of “damage to the productive capacity to the economy” and warned of a “very negative” global outlook.

This followed confirmation Wednesday from the Commerce Department that the US economy contracted by 4.8% in the first three months of the year, the largest decline since the last financial crisis.

Yet despite Powell’s gloomy assessment of the economic outlook, mixed signals on reopening from governments and a further slew of poor corporate news, there are stubborn signs economies are turning a corner.

US Labour Market data suggests applications for jobless benefits are now trending down, Reuters said. Remdesivir, Gilead’s potential coronavirus drug, posted promising trial data Wednesday after a setback in an earlier Chinese trial. Facebook and Google, in earnings outlook, have both said they seen signs of returning consumer confidence.

In Europe, caution is dictating the pace of a reopening of business. Germany has responded aggressively to signs that a relaxation of lockdown had accelerated transmission rates. The UK Government, while it resets data showing coronavirus death rates were worse than earlier reported, is said to be preparing “workplace by workplace” guidance for employers to reopen.

Prime Minister Boris Johnson, whose partner Carrie Symonds gave birth to a baby boy on Wednesday, is expected to give the coronavirus daily media briefing today, nearly a month after becoming ill.

WHAT ARE COMPANIES SAYING?

Consumer and Retail

British American Tobacco plc

In the Chairman’s AGM statement, the company said it did not had to make any employee redundant, nor furlough any staff, due to the COVID-19 crisis. Further, following a request from the UK Government, the company lent some of its analytical machinery to support the government’s COVID-19 testing programme. It reiterated its sustainability targets including having 50 million consumers of non-combustible products and to achieve carbon neutrality by 2030.

GlaxoSmithKline

GSK reported a jump in first quarter sale. Chief executive Emma Walmsley commented about a COVID-19 vaccine, ““We’re talking to a lot of governments… We do think this needs to be a global approach…”

Heavitree Brewery PLC

Heabitree Brewery, which owned over 70 public houses in the UK, announced that the company has taken further steps to assist and protect its tenanted estate by cancelling rent charges for its tenants for both April and May 2020. To minimise the impact of Covid-19 and to continue to preserve cash the Directors have also made the decision to take a salary reduction of 20%.

Reckitt Benckiser

Reckitt Benckiser, a British multinational consumer goods company and owner of products such as Dettol and Lysol disinfectants, Mucinex cold medicine, and Nurofen painkillers, reported an increase in sales of 12.3 per cent in the first quarter. The group said its performance for the year was set to be “better than original expectations”. Laxman Narasimhan, chief executive of Reckitt Benckiser, said: “The exceptional demand has resulted in some customers and consumers facing shortages for some of our products. RB has responded with its typical can-do attitude, ramping up production, streamlining our SKUs [stock-keeping units] and working with customers and suppliers to overcome significant barriers, while incurring additional cost.”

Sainsbury’s

The uncertainty of the pandemic meant Sainsbury’s, UK’s second-largest supermarket group, will defer a decision on its dividend until later in the financial year. It also said that it would not pay any bonuses to its executive team this year, resulting in an effective pay cut of 13 per cent.

The group said that based on a scenario that saw the UK lockdown ending by June but business disruption continuing until September, it would expect underlying pre-tax profit to be at a similar level to the £586m reported on Thursday for the year to March 7 2020. In the seven weeks to April 25, a period that included the ‘panic buying’ spree, Sainsbury’s said grocery sales were up 12 per cent while general merchandise sales were 3 per cent higher.

JD Weatherspoon plc

Weatherspoon said that since the UK government ordered the closure of pubs on 20 March 2020, the company’s sales have been zero. The company has implemented measures to protect profit and cash including operational reductions, postponing its opening programme until FY22, furloughing more then 99% of its workforce. The board does not intend to propose a final dividend for the year ending 26 July 2020, when the full year results are announced in September 2020. The company does not intend to issue a trading update on the previously indicated date of 13 May 2020.

Yum Brands

Yum Brands, the owner of fast food franchises KFC, Taco Bell and Pizza Hut, reported a 68 per cent decline in its quarterly profit as its restaurants worldwide were hit by efforts to slow the coronavirus pandemic. “First-quarter results reflect two different realities,” said David Gibbs, chief executive of Yum Brands. “We began the year with momentum across many of our businesses, however as the quarter progressed, we were heavily impacted by the unfortunate spread of Covid-19.”

Financial Services & Real Estate

Amundi

Amundi, Europe’s largest fund manager reported an 8 per cent fall in assets under management to €1.53tn. Yves Perrier, Amundi chief executive, said the company had “adapted quickly” to the crisis. But he cautioned: “The duration of the crisis and its impact on the business remain difficult to assess.”

Bank of Cyprus Holdings Public Limited Company

Bank of Cyprus announced that its Board of Directors has approved its annual financial report including the audited financial statements of the Bank of Cyprus Group for the year ended 31 December 2019. It says that COVID 19 could have an adverse impact across risks including the credit portfolio, operational risk, people, capital, funding and liquidity. The Group is closely monitoring the potential effects of COVID 19 and impact on its operations, businesses and financial performance, including liquidity and capital usage.

BBAV

BBVA, the Spanish-based bank, has recorded a €1.79bn loss in the first quarter after taking €1.43bn in provisions related to the coronavirus crisis and a €2.08bn goodwill impairment charge at its US arm. Carlos Torres, executive chairman, said “the recurrence of our pre-provision profit and our solid capital and liquidity position have allowed us to face this crisis from a position of strength and frontload provisions related to the pandemic in this quarter.”

Commercial Bank of Qatar

The commercial bank announced its financial results for the quarter ended 31 March 2020. The Group reported a net profit of QAR 402 million as compared to QAR 440 million for the same period in 2019. Sheikh Abdulla bin Ali bin Jabor Al Thani, Chairman of the Board of Directors of Commercial Bank, said, “Qatar has again demonstrated its resilience and agility as it joins the international community in the fight against COVID-19. The government and Qatar Central Bank have introduced a raft of measures, including a QAR 75 billion stimulus package for the private sector and allocating QAR 3 billion to local banks as guarantees to ease liquidity and back the economic and finance sectors.”

Danske Bank

Denmark’s biggest lender reported net losses in the in the first quarter on a 10-fold increase in loan impairments due to coronavirus and lower oil prices. It also slashed its profit forecast for the year. Chief executive Chris Vogelzang said Danske had performed well in the first two months before coronavirus hit the business in March. He added, “The key drivers were impairments made mainly because of the assumptions of a worsened macroeconomic scenario, the decline in oil prices and charges against exposure to certain sectors. We also saw the highly turbulent markets result in extraordinarily low trading income.”

Lloyds

Lloyds pulled its guidance after pre-tax profit fell 95% to £74m on-year and income slipped 11% to £3.9bn in the first quarter on-year. The bank warned of further credit losses in the second quarter after taking impairments of £1.4bn, owing to the impact of Covid-19 pandemic on the customers. It announced a 420 per cent increase in provisions for bad loans. ‘The impact of lower rates, lower levels of activity and higher impairment on the group’s business will continue into the second quarter, but remains difficult to quantify given the significant uncertainty,’ it added.

Société Générale

Société Générale’s investment bank was “penalised heavily by” volatile market conditions in the first quarter as it fell to a net loss of  €326m in the first quarter and increased the amount of cash it put aside for bad loans to €820m, a threefold increase over the €264m in the same quarter last year. SocGen’s equity trading business saw revenues down 98.7 per cent to €9m. “These activities performed well in January and February,” said the bank of its equity business, but “revenues from structured products activities were severely impacted by the equity markets dislocation in March.”

Mastercard Inc

Spending by Mastercard’s customers rose 8 per cent in the first quarter, despite the coronavirus, driving revenue growth of 5 per cent, adjusting for currency. Mastercard repurchased 4.7m shares for $1.4bn in the quarter, but said that it had temporarily suspended its buyback programme until visibility into the economic situation improves.

Metro Bank

Metro bank announced amendments to fees and salaries, effective 1 May 2020 which includes a 20% reduction in Non-Executive Director fees and a 10% reduction in Executive Director salaries with a further 10% deferment for a period of three months with a review thereafter.

St. Jame’s Place plc

St. James’s Place plc, the wealth management group, issued an update on new business inflows for the three months ended 31 March 2020. The Board has decided to withhold 11.22 pence per share, or around one-third of the proposed 2019 final dividend, until such a time as the financial and economic impacts of COVID-19 become clearer. Andrew Croft, CEO said, “With the escalation of the COVID-19 crisis during March there was a sharp decline in global markets and this negatively impacted our funds under management, which closed the period at £101.7 billion.   Given the nature of our unit-linked business model, where we match client liabilities with corresponding assets, our balance sheet is largely protected from these steep market declines and therefore our solvency position remains strong.”

Swiss Re

Reinsurance group Swiss Re estimates $776m cost from rising Covid-19 insurance claims and reported a $225m first quarter loss. The company said that it had taken a $476m charge to pay claims relating to Covid-19, mostly for event cancellations including the Tokyo Olympics. It also said that market volatility had wiped $300m off the value of the investments it holds to pay claims, although it added that without equity and credit hedging the loss would have been much worse. “Swiss Re’s business remains resilient despite the financial impact of the crisis on our results,” said chief executive Christian Mumenthaler, adding that “we will weather this situation as a strong partner for our clients.”

Industrials & Transport 

Boeing

Boeing has said it will cut production rates for nearly its entire portfolio of commercial aeroplanes. It posted a $641m net loss in the first quarter compared with $2.1bn in net income for the same period last year. Revenue fell more than a quarter to $16.9bn. Boeing also reported a flurry of charges totalling $2.3bn.

Bosch

Bosch, Europe’s largest auto supplier, has warned of a “significantly steeper” recession for the sector than during the financial crisis more than a decade ago, in one of the starkest forecasts from within the industry since the start of the Covid-19 outbreak. It is expecting at least a 20 per cent decrease in automotive production in 2020.

Carlsberg

The Danish brewer reported a 7.4 per cent decline in organic sales in the first quarter. It warned that continuing social-distancing requirements will impact consumer behaviour and that volumes will decline further in the next quarter.

eBay

eBay reported first quarter revenues of $2.4bn, a 2 per cent decline on the same period last year. The number of active buyers on its marketplace rose by 2 per cent to 174m, helping achieve a segment revenue increase of 1 per cent. Looking ahead, eBay said it expected second quarter revenue to come in between $2.38bn-$2.48bn – growth of 2 per cent to 6 per cent year-on-year on a currency-neutral basis

General Electric

Industrial conglomerate General Electric reported a sharp slowdown in orders in its aviation business during the first quarter of the year. It saw orders slide 14 per cent to $7.5bn in the three months to the end of March, compared to the previous year. Lawrence Culp, GE chairman and chief executive, said, “The impact from Covid-19 materially challenged our first-quarter results, especially in Aviation, where we saw a dramatic decline in commercial aerospace as the virus spread globally in March.”. He noted that despite the many unknowns, “there will be another side—planes will fly again, healthcare will normalise and modernise, and the world still needs more efficient, resilient energy”.

Glencore

Glencore, a British multinational commodity trading and mining company, said in a quarterly production update that it planned to reduce capex to $4.0bn to $4.5bn this year, down previous guidance of $5.5bn. Glencore also revised down its cost guidance for its key commodities due cheaper oil prices, the weakness of key producer currencies against the US dollar and by-product credits. The company said “volatile and complex” markets had provided opportunities for its trading arm, which was on course to generate earnings within its $2.2bn to $3.3 long-term guidance range.

KAZ Minerals plc

KAZ Minerals announced an update on the Aktogay Expansion Project including a reduction in capital expenditure guidance for 2020. It said that after reviewing construction progress and the near-term impact of Covid-19 restrictions, the project remains on track for completion in 2021 but is now expected to commence production in late 2021.

Tesla

Tesla reported an after-tax profit in the first quarter of the year despite a hit to its production and vehicle deliveries from the coronavirus crisis. Ahead of a call with Wall Street analysts, the company did not indicate when it hoped to return to production at its US plants. Elon Musk, chief executive, late on Tuesday, took to Twitter in all capitals to declare: “FREE AMERICA NOW”.

Wizz Air

József Váradi, chief executive of Wizz Air has outlined a bullish outlook for recovery in air travel. Wizz Air will start services from London Luton airport to 15 destinations, including Tenerife and Lisbon, from Friday with plans to fly all its planes by the end of the year. He expected demand to rise once travellers became used to the new safety protocols and said Wizz Air is planning to offer “very low fares” to stimulate the market. “We pretty much expect the airline to fly its full scope by the end of the year but not exactly the same way we’d intended prior to the coronavirus [pandemic]. We’re not expecting every single airline to return to operation and even those that return, we will see what capacity they are able to put back,” he said. 

Energy

Royal Dutch Shell

Royal Dutch Shell cut its dividend for the first time since 1940 as the drop in oil prices and demand triggered by the coronavirus pandemic nearly halved its quarterly earnings. It will reduce its quarterly pay-out to 16 cents per share, from 47 cents per share. Shell has said it will suspend its share buyback programme altogether and announced that capital expenditure would fall to $20bn or less this year, from initial plans for $25bn, in response to the pandemic. It said its operating costs would also decline by $3bn to $4bn.

TMT

Facebook

Facebook reported a rise of 17 per cent of revenues year on year in the first three months of 2020, which come largely from advertising. It saw “signs of stability” in its business this month following a sharp fall in advertising revenues in March because of the coronavirus crisis. The company added that the steep coronavirus-related decrease in advertising revenues had since stalled, with advertising revenue in the first three weeks of April “approximately flat compared to the same period a year ago”.

Microsoft

Microsoft reported revenue growth of 15 per cent for the period, up from the 14 per cent it saw in three of the previous four quarters. “We’ve seen two years’ worth of digital transformation in two months,” said chief executive officer Satya Nadella. The company reported revenue of $35bn and earnings of $1.40 a share, compared with $30.6bn and $1.14 the year before.

Nokia

Nokia cut its full-year outlook as coronavirus causes problems in its supply chain and delivering telecoms equipment to customers as well as pushes some operators to postpone investment in 5G networks. It reported that revenues in the first quarter decreased by €200m (2 per cent) due to Covid-19, mostly due to supply chain issues in China. Rajeev Suri, Nokia’s chief executive, said the group had not seen a drop in demand for its products and services in the first quarter. But he added, “as the Covid-19 situation develops, however, an increase in supply and delivery challenges in a number of countries is possible and some customers may reassess their spending plans… We expect the majority of this Covid-19 impact to be in the second quarter and believe that our industry is fairly resilient to the crisis, although not immune.”

Spotify

The music streaming company reported an operating loss of €17m in the quarter on €1.85bn in revenues. The company said that its advertising revenues during the final three weeks of March were more than 20 per cent lower than it had previously forecast. “We are fortunate that as a business we are able to operate with very little disruption…”. It added 6m subscribers in the first quarter to reach 130m paying customers, noting that “morning routines have changed significantly”.

IN THE NEWS

France’s Record Slump Shows What’s in Store for Rest of Europe – Bloomberg

Stocks rise as possible Covid-19 treatment buoys investors – Financial Times

Fed warns of lasting ‘medium-term’ economic damage – Financial Times

Government prepares blueprint for UK’s ‘safe’ return to work – Financial Times

Remdesivir: ‘Clear-cut’ results show Gilead drug can fight coronavirus, says Anthony Fauci – The Telegraph

Boris Johnson to dash hopes coronavirus lockdown will be lifted soon – The Telegraph

British coronavirus death toll rises 17% under new counting method – The Times