Powerscourt

By Powerscourt on 20/05/2020

Powerscourt Coronavirus Briefing – 20 May 2020

ANALYSIS

Another day, another vaccine: the Thai government’s Covid-19 response team said this morning that it expects to have a vaccine for use against novel coronavirus next year. The mRNA vaccine has worked on mice and will be tested on monkeys next week. More than 100 potential vaccines are in development worldwide with several in clinical trials. Earlier this week, Moderna of the US reported that its potential vaccine had appeared effective in a small trial.

Across the world, a debate is raging between those who argue continued stimulus is the way out of the crisis and those who believe the world needs to get back to work.

On Tuesday, US Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jay Powell painted bleak pictures of the state of the US economy at a Senate Banking Committee, as the Congressional Budget Office predicted a 38% contraction in the US economy in Q2. But both have radically different approaches to recovery.

While Powell suggested further stimulus may be necessary, Mnuchin said that if workers don’t return to work, the economy might never recover.

The debate is polarising Americans and drawing strong emotions. Ohio Democratic Sen. Sherrod Brown, at the hearing, accused the Trump administration of being eager to send employees back to work despite the risk to their health. “How many workers should give their lives to increase the GDP or the Dow by 1,000 points?” Brown rhetorically asked Mnuchin.

Similar tensions are being played out in the UK, as Chancellor of the Exchequer Rishi Sunak warned of a recession “the likes of which we have never seen”, just as UK unemployment figures jumped to the highest rate on record. Earlier Tuesday the UK Government extended its coronavirus large business interruption loans scheme, but said businesses which took advantage of the loans would not be eligible to pay bonuses or dividends.

But the UK Government’s plans to reopen primary schools in 10 days’ time remains in doubt, with teaching unions, local authorities and scientific advisers demanding that track and trace facilities must be in place before schools reopen.

Brazil on Tuesday overtook the UK to become the country with the world’s third-largest number of coronavirus cases. Many of the world’s low and middle-income countries, including India, Indonesia and Mexico, are opening their economies even as the number of cases continues to rise, underlining the fact that poverty and lack of infrastructure puts these countries under even greater pressure than developed economies.  

Amazon, the outstanding corporate winner of the crisis, just got competition from Facebook. The social media giant on Tuesday unveiled “Facebook Shops”, a digital storefront on its Facebook and Instagram platforms.

US markets were dented Tuesday as optimism over Moderna’s vaccine was tempered by a sceptical report about the drug. Asian markets were mixed into Wednesday.

 

WHAT ARE COMPANIES SAYING?

 

Consumer and Retail

Marks and Spencer

The British retailer reported full year results for the year to end of March today, with CEO Steve Rowe saying that “the trauma of the Covid crisis has galvanised our colleagues to secure the future of the business.” In food, the company said it saw a 0.3% benefit from the effects of Covid-19 in March, while in clothing and home it saw an estimated 2.2% adverse impact for the year. UK clothing and home sales declined 26.9% in the second week of March. The company said that it has budgeted for a scenario which “reflects a very substantial reduction in sales”. They have taken actions totalling c.£1bn to reduce costs and manage cash. It did however say that trading so far this year has been ahead of its planned scenario.

Walmart

The US retailer said on Tuesday that it had seen “unprecedented demand” for household essentials and a resultant spike in sales. It said that it had taken on an additional 235,000 staff to help meet demand, noting it was selling the same volume of products in two or three hours that would normally take that many days. Revenues for the first quarter were up 8.6% on last year, with ecommerce sales in the US up 74%. The company also warned that its supply chain was stretched, with certain products such as laptops, office chairs and fabric being cleared out of stores and online.

Playtech

The gambling software company provided a further Covid-19 update having previously updated the market on 9 and 19 March. It said that it had performed “better than envisaged” with cashflow remaining positive in March and April and Q1 Adjusted EBITDA of €117m. The company reiterated its existing measures of reduced capital expenditure, suspension of shareholder distributions, salary reductions across the company and more. It also highlighted that it has made its safer gambling tools available to all operators for free during the crisis.

 

Industrials & Transport 

Rolls Royce

Engineering giant Rolls Royce has announced today a “major reorganisation” which would mean the loss of at least 9,000 jobs from its 52,000 strong workforce. It also said in the statement that it will cut expenditure across plant and property, capital and other areas. These actions together are expected to save £1.3 billion per year, with £700 million of that coming from headcount reductions. The majority of the cuts will affect the Civil Aerospace business, where there will be a review of the existing facility footprint. CEO Warren East said that the company had “emerged from troubled times before, to achieve incredible things. We will do so again.”

Coats

The industrial thread manufacturer provided a trading updated today, with group sales for Q1 down 17% and down 50% in April, with around 15 of its sites under enforced government closure. This has since been reduced to 2 sites. The company said its three priorities were to ensure the health and safety of employees, focus on cash and liquidity, and support customers by maintaining the supply chain. It highlighted a “robust” balance sheet and “necessary actions” from management including a 70% reduction in capital expenditure.

Severn Trent

The water company said in its full year results to the end of March that “operations remain resilient” it was supporting customers, staff and other organisations where possible. The company said it seen an impact in non-household wholesale revenues which is expected to continue, with a similar story for the Water Plus non-household joint venture. It is also seeing and expects to continue to see an increase in household bad debt as customers are unable to pay their bills as a result of higher unemployment.  

 

Financial Services & Real Estate 

Vistry

Greg Fitzgerald, CEO of the housebuilder said in a trading update that its performance has been “better than initially expected” and that the company now had “more than 5,600 operatives working safely across our developments”. The company said its Partnerships business has proved the most resilient and is now at over 70% of normal production capacity and operating on 31 out of 34 sites. The housebuilding part of the business is operating 119 out of 172 which is now on an upward trend and sales have continued despite the pandemic.

Great Portland Estates

CEO of the FTSE 250 property business, Toby Courtauld, said in its full year results statement that it was in “the enviable position of being both well place to withstand the impacts from the Covid crisis and able to look to [the] future with confidence.” The company said it would pause the provision of guidance on rental values, and that it “must plan for a rescission with an increase in unemployment.” It also noted its position of low leverage and that its portfolio was “virtually fully let”.

 

TMT

Experian

The global information services company released its full year results today (to end of March), with CEO Brian Cassin saying that Covid-19 had “limited financial impact in FY20”, with full year organic revenue growth of 8%. He and the other executive directors waived 25% of their salary for six months. The company has not provided guidance for 2021, but estimated a decline of 5-10% in organic revenue over Q1 if current trading trends continue. The statement also listed examples of where it had helped support globally, including free credit reports, managing charity donations and providing data to ministers on lending schemes.

Facebook

Social networking tech giant Facebook has announced that it will enter into the online shopping market through ‘Facebook Shops’, designed to compete with Amazon and eBay. CEO Mark Zuckerberg said that Facebook had accelerated plans for the launch of Shops in order to take advantage of the boom in online shopping during the coronavirus crisis. The main revenue source for Facebook will be through higher bids for advertising on the platform, however in the US it will also collect a small fee as part of the checkout service it has launched. According to Zuckerberg the product is not an “end-to-end” offering and would work with existing services like Shopify.

S Three

The STEM recruitment business said in a market update that it had received confirmation from the Bank of England that it is eligible to access the up to £300m of funding under the Covid Corporate Financing Facility, however the board agreed that it would cap its use at £50m. The company reiterated earlier statements saying that it was in a “strong financial position.” The recruiter also said it expected the increase in flexible working to cause a “seismic shift in working practices and cultures” as companies recognise the potential advantages of remote working.

RenalytixAI

AIM listed AI healthcare business RenalytixAI announced today that it has entered into a joint venture to develop and scale production of Covid-19 antibody test kits. The venture, with Mount Sinai and Kantaro Biosciences, is planned to enable clinical laboratories to conduct 10m tests per month from July.

 

IN THE NEWS

Doubt cast over date for school reopening – The Times

UK inflation rate plunges to lowest level since 2016 amid coronavirus – City AM

Europe’s Coronavirus Spread in Check as Lockdowns Loosened – Bloomberg




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