Powerscourt

By Powerscourt on 03/06/2020

Powerscourt Coronavirus Briefing – 03 June 2020

ANALYSIS

America and China offered differing news overnight, the former in turmoil, the latter offering more evidence of recovery.

In the US, civil disturbance continued in numerous cities as anger over the killing of George Floyd by police continued to reverberate through a nation struggling to recover from coronavirus. President Trump’s threats to bring the military onto the streets on Tuesday didn’t calm things down, with protesters defying curfews, military vehicles out in force on the streets of Washington DC, and reports of several police officers shot.

The Democratic presidential contender Joe Biden ratcheted up the pressure on the President with an emotive speech in Philadelphia on Tuesday, accusing Trump of turning the nation into a “battlefield” and allying himself squarely with black and minority ethnic Americans. The presidential mood will not have been helped by his dispute with the government of North Carolina where the Republican presidential convention was to be held in Charlotte. The main elements will move to another state because North Carolina, which has a Democrat governor, wanted a scaled-down convention because of coronavirus concerns.

Meanwhile, the authorities in Wuhan, the Chinese city where the virus was first seen, announced that they had completed the test for the virus of 11 million residents (everyone over six years of age who hadn’t tested positive in the past). Wuhan said that while there was no-one with symptoms, 300 people who tested positive without showing symptoms had been placed in isolation.

The markets are shrugging off the turmoil, however. A late rally on Wall Street on Tuesday, based on a plethora of positive, albeit modest, economic data, was sustained into Wednesday in Asian markets, where the Nikkei rose to another three month high. In China, a closely-watched service sector activity survey showed its index recovered to pre-epidemic levels in May.

US shale oil producers are beginning to restore prices which previously fell to historic lows. Lyft, Uber’s main rival in the ride-hailing market, said it had seen a 26% increase in traffic in May compared with April. A number of car brands, including Toyota and Hyundai, reported significant uplifts in demand in May.

Meanwhile Zoom Video Communications, the previously obscure Silicon Valley tech firm which became a worldwide verb during the lockdown due to its invaluable video-calling service, said on Tuesday it was doubling its full year sales forecast, vastly exceeding expectations. The company saw use of its service increase 30-fold during April.

Economic positivity flies in the face of continued alarm over the health impact of coronavirus: the US one-day death rate spiked up again on Tuesday after three days of retreat and the Center for Disease Control on Tuesday expressed concern that the proximity of protesters at rallies across the US could have helped spread the disease. It is far from clear that developed nations have contained the virus, which is now having a devastating effect in Latin America.

The UK government is also wrestling with a report which could have far-reaching political consequences. Data from Public Health England Tuesday showed that black and minority ethnic people are twice as likely to die from the virus as their white counterparts.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail

SSP
The British travel food group has launched a shares for dividend deal aimed at having shareholders reinvest this year’s 6 pence per share payout in the company, as it swung to a first-half loss due to coronavirus-led store closures. SSP, which operates food and beverage outlets in airports worldwide, posted an underlying pretax loss of £10.7 million, for the six months ended March 31, compared to a profit of “54.2 million a year ago. Simon Smith, chief executive of SSP, said: “With sufficient liquidity to manage a pessimistic trading scenario, I believe the actions we have been taking during this crisis will make us a fitter and stronger business, well placed to deliver for all our stakeholders as the travel market recovers”.


Industrials & Transport 

Lyft 
Rideshare service Lyft, Uber’s biggest competitor in North America, has said the number of rides taken on its platform had increased 26% in May compared with April, but said business was still well down because of continuing impacts from the virus. Rides in May were down 66% on the same month last year, following a 70% year-on-year drop for April. However, the company pointed to seven consecutive weeks of increased rides since mid-April as a reason to be optimistic, telling investors in a filing that its losses would be narrower than it first predicted as the pandemic took hold. Before accounting for interest, tax, depreciation and amortisation, Lyft said it now expected to lose no more than $325m for the quarter – a 10% improvement on what it told investors previously.

TUI
Europe’s biggest travel company has said it has struck a deal with aircraft maker Boeing for compensation and slower delivery of the 737 MAX plane, helping its finances during the pandemic. The Germany-based company said in a statement today that Boeing would provide it with compensation for a significant portion of the financial impact of the grounding of the plane, which had hit its earnings over the last year. TUI said in May it needed to cut 8,000 jobs and shed 30% of its costs after the pandemic halted holidays. The company said the agreement with Boeing would help it shrink its airline businesses over the coming years, something it wants to do amid forecasts that the travel market will take several years to recover from the pandemic.

Lufthansa
The German airline has posted a net loss of €2.1 billion in the first quarter. The loss, which compares to a net loss of €342 million in the year-earlier period, was driven by write-downs of €266 million on its fleet, as well as write-downs on the book value of catering business LSG North America by 100 million and on budget unit Eurowings by 57 million. It is bracing for a significant decline in 2020 earnings before interest and tax, adjusted for one-off items, from the €2 billion reported last year, saying demand was only gradually recovering and that it was unable to be more specific amid uncertainty over the pandemic. The company said: “Even after the end of the crisis, which is expected to end in 2023, the group expects its fleet to remain 100 aircraft smaller”.

Wizz Air
The Hungarian low-cost airline grew profits by 30% in the year to the end of March 2020, but has said that it could not provide guidance for this year because of the pandemic. Wizz Air posted underlying net profit of €344.8 million, slightly behind its forecast of 350 million euros to €355 million, and higher than the €265.4 million it made in the previous year, boosted by increased passenger numbers. Since the end of its financial period, its operations have been limited by the pandemic and it said that while it expected to grow seat numbers in its 2020-2021 year, it was too early to guide on net profit.

Renault
The carmaker has finalised a €5 billion credit facility with the French government. Renault said that the new credit facility carried a guarantee from the French state – which owns a 15% stake in Renault – of up to 90% of the total amount borrowed.

Cherming Group
The British defence contractor has stood by its annual targets and raised its dividend as it posted a jump in half-year profit, managing to win new orders from the United States despite the pandemic. Chemring said its order book was strong and about 95% of the expected revenue for the second-half of the year has been delivered to date, after its underlying profit before tax rose to £24.2 million in the six months to April 30, from £9.9 million a year earlier.

 

Financials & Real Estate 

AXA
The French insurer has announced it plans to cut its dividend to 0.73 euros per share from a planned payout of 1.43 euros in order to preserve cash amid the pandemic. AXA added that it could consider proposing an additional fourth-quarter shareholder payment, of up to 0.70 euros per share, if financial market conditions improved. Last month, AXA said the crisis would have a material impact on its 2020 earnings and added it could face claims of about 500 million euros for event cancellations.
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BlackRock
The world’s biggest asset manager has called out oil stocks, domestic tourism and debt in China and India as investment opportunities in its Asia outlook. The manager expects it may be 2022 at the earliest before global growth returns to trend but said in a statement outlining its regional outlook that “Asia stands out” as a beneficiary when the recovery arrives.

 

TMT

Zoom
Zoom Video Communications has nearly doubled its expectations for annual sales,  driven by a surge in users as more people work from home and connect with friends online during lockdowns. However, Zoom’s costs also rose sharply, and executives said gross margins would likely remain below Zoom’s historical norms in the coming quarters. The company raised its full-year revenue forecast to a range of $1.78 billion (1.4 billion pounds) to $1.80 billion from $905 million to $915 million. Analysts on average expected revenue of $935.2 million for the fiscal year ending January 2021.

 

IN THE NEWS

New figures cast doubt on coronavirus test and trace success rate The Times

Specialist lenders seek access to cheap BoE funds Financial Times

Boris Johnson takes back control of coronavirus crisis with Downing Street shake-up The Telegraph




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