Powerscourt

By Powerscourt on 04/05/2020

Powerscourt Coronavirus Briefing – 04 May 2020

ANALYSIS

With many countries moving to ease restrictions, governments are poring over the mechanics of how to return to “normality” without prompting a renewed spike in the number of virus cases.

An anxious trade-off between guarded optimism and fear of the unknown was the hallmark of Warren Buffett’s speech at the Berkshire Hathaway annual shareholder meeting – held virtually at the weekend. While the Berkshire Hathaway Chairman’s characteristically folksy tone remained, Buffett was guarded about the risks of moving too fast in reopening economies, as he revealed he had sold all of Berkshire Hathaway’s holdings in airline companies.

Buffett’s downbeat assessment of the airline industry’s prospects comes amid continued agony for the industry. Norwegian Air was on Monday reported to be closing in on a life-saving bailout deal with bondholders, but over the weekend, Ryanair and Aer Lingus both announced plans to lay off thousands of their staff. 

The UK Government is expected on Thursday to announce a detailed roadmap for a return to work for the UK population, after a detailed consultation with business leaders and unions. The plan is designed to maintain safety in workplaces, with measures including staggered shifts, a ban on communal eating and the use of protective screens in customer-facing jobs. A new NHS “test, track and trace” app will be piloted in the Isle of Wight this week ahead of broader rollout to the UK population, enabling all contact with an infected person to be traced.

President Trump’s administration, having already implied that the virus may have originated in a Chinese laboratory, has ramped up the sabre-rattling towards China. Undersecretary for economic growth Keith Krach told Reuters the US was “turbocharging” an attempt to wrest global manufacturing away from China, as Secretary of State Mike Pompeo repeated the allegation made by Trump that the virus had originated in a Wuhan lab. These signs of aggression towards China hit Asian stocks early Monday.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Reach

The UK’s largest free-to-air broadcaster is due to publish a trading update on Wednesday, with analysts at Morgan Stanley expecting a fall of 55% in its ad revenues in the second quarter. Reach, which owns the Mirror and Express titles and more than a hundred regional and local newspapers, put a fifth of its staff on furlough.

 

Financial Services & Real Estate

Westpac

Australia’s second-biggest lender by assets will defer paying a dividend following a year-on-year 62% slump in net profit, caused by loan losses linked to the pandemic and the fallout from a money laundering scandal. It reported profit of A$1.19bn ($759m) in the six months to the end of March with A$1.6bn in Covid-19 related impairment charges and a A$900m provision for expected penalties linked to the money laundering scandal denting its performance. Westpac’s wealth platforms, pensions and life insurance businesses will be amalgamated into a single unit in preparation for a potential sale to a new owner, according to the company. Chief Executive, Peter King, stated: “This is the most difficult result Westpac has seen in many years. It is significantly impacted by higher impairment charges due to Covid-19, as well as notable items including the Austrac (money laundering) provision”.

 

Industrials & Transport 

Norwegian Air Shuttle

The low-cost airline has announced it is close to its goal of pushing through a large debt for equity swap that would help it unlock a state rescue after a dramatic weekend of negotiations. Minutes before a shareholders meeting today, Norwegian announced that it had reached agreement with enough aircraft leasing companies that it should be able to convert more than NKr10bn ($960m) in debt into equity, pushing its equity ratio significantly above the 8% threshold imposed by Norway’s government for NKr3bn in loan guarantees. Norwegian has said this morning it has received “strong support” from leasing companies to convert $730m into equity, up from $550m on Friday evening, and that it was continuing to discuss with other lessors. Today’s meeting will ask existing shareholders to allow themselves to be all but wiped out by the debt-to-equity swap, before asking new shareholders to back a NKr400m rights issue, the fourth from Norwegian in two years. Norwegian said that it had received commitments from bondholders – who are set to become large shareholders under the plan – for a “meaningful amount”, leading it to declare that it expects investors to approve the rights issue.

Rolls-Royce

The Times reports that Rolls-Royce is expected to lay bare this week the depth of crisis it is facing after airlines grounded most aircraft that use its engines. Before its AGM on Thursday, Rolls-Royce is expected to reveal the scale of a collapse in flying hours in April, with analysts’ estimates suggesting a drop of as much as 90%. Notably, payments based on flying hours accounted for almost £4 billion, or approximately a quarter, of Rolls group revenues last year. Last month it suspended its dividend and said that flying hours had already fallen by 50% in March.

BAE Systems

The British defence company has said it has completed the acquisition of Raytheon’s airborne tactical radios business, paying $275 million (£221 million) out of existing cash resources to finalise the deal announced in January. BAE announced the acquisition of the radio business plus a larger military-focused GPS unit for a total of $2.2 billion three months ago. Both were sold as a result of the merger of its U.S. rivals Raytheon RTX.N and United Technologies.

Eurostar

The train operator will require passengers to wear a face mask or covering starting from today. It also warned passengers could face fines if caught without a mask.

Beximco Pharmaceuticals

The pharmaceutical company in a COVID-19 update this morning stated that its operations “are currently unaffected”. However, the company is experiencing “some disruption” to its international distribution network and supply chain, but “does not foresee any major shortage of raw materials in the immediate term”. It also pointed to strong sales performance in the first three quarters of the financial year to 31 March 2020. However, it anticipates “some impact” in the fourth quarter but nonetheless still expects to report year-on-year sales growth for the full year to 30 June 2020.

Inchcape

The auto dealership chain has announced today that it has appointed former Fujitsu Ltd executive Duncan Tait as its Chief Executive Officer, replacing Stefan Bomhard who was named as the top boss of Imperial Brands in February. Tait will join Inchcape’s board on June 1 and will assume the role of CEO on July 1, the company said.

 

Energy

Kazatomprom

The multinational resource extraction company, and world’s largest producer and seller of natural uranium, in April announced actions to reduce the risk of a localized mine site or community COVID-19 outbreak by reducing the number of staff on site to minimum possible levels. To abide by travel restrictions and lockdown requirements imposed by the government of Kazakhstan, a portion of the workforce returned home with payout according to Kazakhstan labour laws, while those remaining will keep the sites operating with strict social distancing and hygiene practices. Nonetheless, in its 1Q20 Operations and Trading Update today the company expects to keep the measures in place for “about three months, resulting in a lower level of wellfield development activity and, in consequence, a reduction in production volumes”.

 

TMT

Telefonica

The telecommunications company confirmed this morning that it has opened talks with billionaire John Malone’s Liberty Global Plc over a possible merger between both companies’ British units. The talks to merge Telefonica’s British mobile operator O2 and Liberty’s Virgin Cable network company have just started, the Spanish company said: “The process started between both parties is in negotiation phase, with no guarantee, at this point, precise terms or its probability of success”.

 

IN THE NEWS

Coronavirus vaccine is only way we will win, Boris Johnson insists – The Times

Draft rules laid out for UK workplaces to ease lockdown – Financial Times

Trump Promises ‘Conclusive’ U.S. Report on Virus’s China Origins – Bloomberg

Record fall in business confidence – The Times

 




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