Powerscourt

By Powerscourt on 04/06/2020

Powerscourt Coronavirus Briefing – 04 June 2020

ANALYSIS

Asian and US stocks have continued to advance amid growing confidence about economic recovery from coronavirus.  MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.43 on Thursday, reaching the highest levels since March 9.

They took their lead from US indices which were up strongly yesterday amid hopes that  the weeklong social unrest resulting from the death of George Floyd was starting to calm. On Wednesday three officers were charged with Floyd’s death by the Minnesota attorney general, going some way towards defusing anger.

Global investors are now favouring riskier asset classes and those which have been shunned during the coronavirus crisis, a strong sign they believe the worst, economically, is over. The S&P closed up 1.4% on Wednesday, with the Dow Jones closing up 2%.

US/China relations remains a major economic risk. The former head of British intelligence service M16 told a newspaper on Thursday he believed COVID-19 was probably modified in a Chinese laboratory. Meanwhile, Chinese authorities have banned the typical remembrance gathering in Hong Kong on the anniversary of the Tiananmen Square Massacre, a brutal repression of a student uprising by the government.

But some hedge funds believe investors have become complacent about the prospect of economic recovery, according to the FT, which says many market strategists are preparing for another stock market crash. They believe most equity investors are failing to price in a long economic slump when economic and social support after the crisis starts to erode.

In the UK, anxiety is growing again about the prospect of a no-deal Brexit. The FT reported that health secretary Matt Hancock is struggling to replenish a six-week stockpile of emergency drugs depleted by coronavirus, ahead of a possible no deal exit from the EU.

The UK government continues to come under pressure over the specifics of its coronavirus exit strategy, with reports in the papers questioning the veracity of Prime Minister Boris Johnson’s claim to return all coronavirus test results within a day. Meanwhile MPs, led by former Prime Minister Theresa May, have strongly objected to the government’s planned travel quarantine plan.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail

Fever-Tree
The carbonated drinks company said that in its AGM statement that for its business across all regions, it’s On-Trade business has been “severely impacted” by lockdown, however it says that its Off-Trade performance has been strong. In the UK, it reported that sales in the first month of lockdown were up 28% year on year, and in the US that figure was 98%. It added in an outlook statement that it believes it is increasingly likely that social distancing measures will be “remaining in place for some time” and that this will have a “material impact” on FY2020 trading

Lookers
The UK motor retail and service group said in a scheduled trading update today that having closed all its trading locations on 23 March, it was able to partially reopen 41 sites in April, and then on 11 May was able to reopen all its aftersales facilities. Since then capacity has been built to around half the normal level with a plan to bring back technicians from furlough as demand increases. It reported that at the end of May, 66% of its total current colleague base remained on furlough with that expected to reduce to 55% in June. The group however also said that it has identified 12 dealerships for closure and that it has commenced a redundancy programme which will result in approximately 1,500 redundancies., saving around £50m.

Loungers
In a Covid-19 update, the restaurant group said that it was issuing an update to the market on how it has used “the closure period to protect and evolve [its] business.” The company said that its focus has been “communicating with our team”, “evolving the business” and “preparing for reopening”. It said it has opened 17 Lounge sites for takeout and will open 10 further sites over the next week. It also said that it was expecting some of its sites to opening July, assuming that is in line with Government guidance as anticipated.

Youngs
The brewer and pubs company announced today in its full year results that it expects to reopen its pubs by 3 August 2020. It said that closing them for the final 10 days of its financial year resulted in an estimated £13m shortfall in revenue and hit on profits of £7.7m. As a result of the pandemic, the company said it expects trading to be “materially below average” for FY2021, with sales expected to return to normalised levels in 2022. The firm expects to reopen all of 276 pubs with 1m social distancing and a thorough cleaning and sanitising regime in place. 


Industrials & Transport 

Princess Cruises
The global cruise and shipping business announced this morning that it would be extending its pause in its cruise operations for all cruises to and from Australia, Canada and Taiwan, and some out of San Francisco. This has extended the existing cancellations to the end of October in some cases. They are offering ‘future cruise credit’ refunds for all cancelled voyages, or guests can request a full refund if preferred.

Avacta
Healthcare company Avacta announced today that it planned to raise up to £45 million through a placing of up to 37,500,000 shares. It said that the primary reason for the raise was to fund the “rapid scale-up” of the broader Affirmer diagnostic products including Covid-19 antigen rapid testing. It said specifically that £10 million of the funds raised will be working capital for the Covid-19 testing opportunity. The remaining £35 million will be used to accelerate the pipeline of its pre|CISION pre-clinical cancer therapies

Aston Martin
In a statement not explicitly linked to Covid-19, British car manufacturer Aston Martin Lagonda said that it continues to make progress with its strategic plan to improve the cost efficiency of the business. This includes the announcement that it will be cutting 500 jobs, saying that its business requires a “fundamental reset” as it aims for profitability and that the job cuts would help to “right size” its structure. 

 

Financials & Real Estate 

IG Group
Online trading business IG said in a short trading update today that it now expects net trading revenue in Q4 to be approximately £259 million compared to £117.9 million in the equivalent period in 2019 and up from the £173 million figure highlighted at its previous update on 24 April. The company also said it would take “a cautious approach” to returning to its offices, particularly as its “ongoing investment in communications and infrastructure” had enabled all employees to work from home

Intermediate Capital Group
The global asset manager reported that assets under management rose 22 per cent to €45.3 billion in the year to the end of March. Lower investment valuations as a result of Covid-19, however, pushed group pre-tax profits down 60 per cent to £110.8 million. The company raised its full-year dividend by 2 per cent to 35.8p. CEO Benoit Durteste said that the company expected “lower fundraising and investment activity in the short term”. 

 

TMT

Amazon
The US tech and retail giant is being sued by a group of employees who have accused the company of exposing them and their families to Covid-19. Amazon said that it was “saddened by the tragic impact Covid-19 has had on communities across the globe, including on some Amazon team members and their family and friends” however advised that the company had complied with expert advice and offered employees “unlimited time away from work” and offered “leave for the most vulnerable”.

XP Power
The power control components business said in a scheduled trading updated that all of the Group’s manufacturing and logistics facilities are currently operational and that trading for April and May has been “encouraging”. It reported a spike in demand for Healthcare customers and also in its Semiconductor Equipment Manufacturing business, both of which are performing well. It said, however, that while it had good near-term visibility, the economic uncertainty meant a “wide range of potential outcomes for 2020.”

 

IN THE NEWS

UK drugs stockpile eroded by coronavirus ahead of Brexit – Financial Times

Coronavirus: Testing pledge does not include all casesThe Times




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