Powerscourt

By Powerscourt on 19/05/2020

Powerscourt Coronavirus Briefing – 19 May 2020

ANALYSIS

US stocks surged late Monday, with major US indices rising to their highest level in weeks and a rally continuing overnight on Asian markets, fuelled by promising data for a potential vaccine candidate from drugmaker Moderna Inc.

Moderna’s stock closed up nearly 20% Monday after limited early stage trials on eight patients showed its experimental drug was safe and generated an immune response similar to coronavirus in patients.

Signs of global leadership and coordination to tackle the crisis also supported markets. France and Germany on Monday united to call for a EUR500 billion recovery fund to support EU spending – a far greater level of solidarity than had been anticipated. The challenge will be to persuade others, notably the Netherlands and Austria, to support.

China, at a virtual meeting of the World Health Organisation, staked a brazen claim to global leadership as Premier Xi Jinping pledged $2 billion to help fight the pandemic.

Mr Xi’s position looks designed to escalate tensions with the US, where President Trump has announced he would withhold America’s contribution to the WHO and has repeatedly and stridently criticised the Chinese response and the WHO’s early reaction.

As if to deliberately throw America’s isolation on the pandemic into sharper relief, Trump on Monday told a press conference he was taking hydroxychloroquine, a malaria drug which has no proven efficacy against coronavirus, as a preventative measure. Ask for the evidence in favour of the drug, Trump said a doctor in Westchester, NY had written to him and told him it worked for his patients.

The glacial relations between the US and China may have some positive consequences for UK capital markets, according to Reuters. An unsourced story reported that Nasdaq will unveil restrictions to disincentivize many Chinese companies from listing on the US exchange, and that China’s government will pivot to recommending London listings. 

The UK government finally appeared to be making some headway with the coronavirus testing programme which is one of the key planks of its economic easing plan Monday. Health Secretary Matt Hancock told Parliament that everyone over the age of five with symptoms was now eligible for a test.

But deep scepticism remains that the Government can implement the next phase of its plan: a Commons Science and Technology Committee said better tracing and quarantine facilities were urgently needed. Meanwhile, more than 300 schools may remain closed as four local authorities in England said schools in their regions would not reopen in June due to safety concerns, in opposition to Government policy. 

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Imperial Brands

The multinational British tobacco group reported in it’s half year results today that the impact of the pandemic was “relatively small” in the first half of this year, seeing a small amount of inventory build expected to fully unwind in the second half. In the second half, the company said it expected three main issues – material decline in demand in the global duty free/travel retail operation; reduced consumer spending due to recessionary pressures; and limited manufacturing capacity, although it is assumed this will be at full capacity by the end of June.

Compass Group

The catering services giant has announced that aims to raise £2 billion of new equity in the largest equity raise for a UK company so far this year. This follows the announcement in April that its revenues had fallen by 46% as a result of the impacts of Covid-19. The company also published its interim results today, detailing action such as £500m of monthly cost savings, a reduction in H2 capex by £200m and a pause in acquisitions.

Topps Tiles

The UK’s largest tile company reported its half year results today, up to 28 March 2020. It reported like-for-like sales down 6.1% in the period including from 23 March when all of its stores were closed due to Covid-19. The company did however say that 250 of its stores were now offering click and collect service and 130 offering controlled customer entry. It also said that revenue from its website are 3x pre-crisis levels, although that does not mitigate the significant drop in retail sales due to store closures. The company said it expects all stores to be fully open by the end of June.

HomeServe

The emergency repair company has reported a 1 per cent fall in pre-tax profits to £137.9 million in the year to the end of March on revenue up 13 per cent to £1.13 billion. The company expects a resilient performance this year and as a result will pay a final dividend of 17.8p, increasing the total dividend by 10 per cent to 23.6p. Founder and CEO Richard Harpin said that the companies purpose of making home repairs and improvements had “never been more relevant.”

 

Industrials & Transport 

DCC

The international sales, marketing and support services group announced in its full year results today saw group adjusted operating profit come in ahead of market expectations, up 7.3%. The company said that its energy, technology and healthcare products and services had “been fundamental to ensuring the continued operation of economies” during the pandemic. It said it had traded “robustly” in the April and May, with performance currently better than anticipated.

Avon Rubber

The manufacturer of respiratory protection and equipment for militaries and first responders said in its half year results that it had seen only “minor disruption” to its operations and had therefore seen “no material impact on our financial performance to date.” The company also pointed to a strong balance sheet, highlighting that it expects financial headroom to continue to grow in the second half. They have seen increased demand in their first responder markets for filters, accessories and spares as a result of the pandemic.

Antofagasta

The Chilean mining conglomerate has reduced its final dividend recommendation for last year by 16.3 cents to 7.1 cents per share. It said in its statement that this was due to quarantine measures restricting the company’s ability to operate if they were expanded beyond the current area of Greater Santiago. The company said in a statement that the Board will “continue to monitor” Covid-19 in the region but that the company’s priorities remain to maintain a strong balance sheet, invest in the business, support local stakeholders and increase returns to shareholders.

Ovo

The energy supplier has announced that it is planning to cut 2,600 jobs, representing more than a quarter of its workforce, as it accelerates plans for integration with the household supply business it acquired earlier this year from SSE. The Bristol-based company shared that it hopes to achieve these cuts “largely through voluntary redundancy”. It had already furloughed 3,400 staff at the beginning of April, as lockdown led to a vast reduction in work such as fitting digital smart meters.

 

Financial Services & Real Estate 

Watkin Jones

The AIM listed property developer and manager announced in its half year results that adjusted PBT was up 6.4%, although also noted this was largely prior to the disruption caused by Covid-19. CEO Richard Simpson said in his quote that the company had responded “carefully and cautiously” to the challenges presented. The company reiterated its earlier statement that it had suspended its dividend and withdrawn financial guidance. It said that its sites in England, Wales and Northern Ireland were now operating at c.75% of pre-Covid resource levels, and that it had seen “encouraging” early progress in mitigating the impacts on student accommodation deliveries.

Julius Baer

The Swiss private bank said it had seen a 16% rise in gross margins in the first four moths of 2020, however assets under management felly by 8%. The spike in margins came as the company benefited from an “exceptional increase” in trading volumes. The company had previously announced it was cutting 300 jobs this year after significant earnings decline in 2019. It also said it was “clearly too early” to assess the full impact of the Covid-19 crisis on its results for the rest of the year.

 

TMT

Micro Focus

In a trading update, the enterprise software business said that it expects to report a revenue decline of c.11% for the first half of the year to 30 April 2020. It said that it had seen a “slowdown in customer buying behaviour” in April 2020, leading to an “identifiable impact” of at least 2% on revenues in the period. The company said that more than 90% of employees were working from home.

First Derivatives

Software business First Derivatives said in its full year report that Adjusted EBITDA was up 17% and that it was yet to see “material financial impact” of Covid-19. However, the company noted that it has seen lengthening of sale cycles as a result of the pandemic. It said that it was able to successfully transition employees to remote working and had cancelled bonuses for Executive Directors for the last financial year.  

 

IN THE NEWS

Private equity-owned companies miss out on bailout loans – Financial Times

Jobless claims surge by record 856,500 in April to highest level since 1996 – Sky News




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