Powerscourt

By Powerscourt on 11/06/2020

Powerscourt Coronavirus Briefing – 11 June 2020

ANALYSIS

The Nasdaq, the stick exchange favoured by US tech companies, soared to a record high on Wednesday underlining, for now at least, the clear blue water that big technology companies are putting between themselves and “old” companies due in part to their relative adaptability to the post-crisis world. 

In a striking symbol of this, electric carmaker Tesla is now the world’s most valuable automobile company, with its market value now surpassing that of Ford, General Motors, Honda and Fiat Chrysler combined.

A slump in the Dow Jones and the S&P 500 Wednesday came after a sobering assessment from the US Federal Reserve of economic prospects over the coming months. The Fed announced that rates would be kept at near zero levels through 2022 and pledged to continue to support the US economy through asset purchases. Asian markets retreated Thursday, with the Nikkei off over 2% by mid-day Thursday.

Some linked the sell-off to signs of a second wave of cases in the US. Bloomberg collated some sobering numbers from across the nation: Texas had its highest one day total on Wednesday with 2,504 new cases; Florida, which reopened a month ago, had its worst seven day period with 8,553 cases in the last week; and California’s hospital cases are at a one month high and rising almost every day.

In the UK, Prime Minister Boris Johnson’s government is under fire on several fronts amid the perception that it has fumbled its virus response. A high-profile former government scientific adviser, Neil Ferguson of Imperial College London, said on Wednesday that the UK’s coronavirus death toll could have been halved if the government had moved more quickly to quarantine citizens.

Meanwhile, the Royal College of Pathologists criticised the UK’s testing strategy: a key pillar of the government’s approach to economic recovery. The FT carried a report highlighting a number of problems from slow test processing to failure to inform the GPs of people testing positive. 

There was further bad economic news for the UK Wednesday, as the OECD said it expected to face the deepest downturn of all advanced economies.

Providing a fillip for the UK public though, some of the most onerous restrictions of the crisis were lifted on Wednesday, allowing children to be reunited with their grandparents and single parents to form a “support bubble” with other adults. Reports suggest that the 2 metre social distancing guidance could be relaxed in time for the new academic year in September, facilitating the return of millions of children to school.

Pivotal “make or break” Phase 3 trials for the most advanced coronavirus vaccines, from Moderna Inc, AstraZeneca and Johnson & Johnson will begin as early as July, the Wall Street Journal reported, suggesting rapid progress on these studies.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail

Unilever
The Anglo-Dutch consumer giant has announced that following a “comprehensive review over the last 18 months” the company will unify its legal structure under a single parent company, ‘Unilever PLC’. The aim of this is to create a “simpler company” with “greater strategic flexibility” – this flexibility will apparently be “even more important” as the company predicts an increasingly dynamic business environment due to the Covid-19 pandemic. The company said that it will mean there will be an equal voting basis per share for all shareholders, and one market capitalisation, although it will be maintaining listings on the Amsterdam, London and New York stock exchange.

Ocado Group
The online supermarket announced late yesterday that it planned to raise a total of £1bn in order to “capitalise on the full opportunity” presented by the boost in online groceries as a result of the pandemic. It will be split across a £650m equity raise and a £350m bond issuance. The company said that it ha seen significant growth in online grocery, with UK market online penetration almost doubled in recent months to 13% and with significant opportunity for greater growth globally. The business also anticipates a permanent increase in online penetration, citing survey data from the US showing that 90% of shoppers who purchased groceries online in March expect to continue to do so.

Grafton Group
The DIY retailer and building materials company said in a trading update today that it has seen Group revenue down 26% to £810.9m in the five months to 31 May 2020 (compared to the same period last year) as a result of the impacts of Covid-19. In April, lockdown measures meant that there was an 80% decline in revenue compared to April 2019. The company said that while initial trading in May market a “significant recovery”, they said that since opening there were some other factors such as pent up demand and these figures may not be indicative of ongoing activity levels.

B&M European Value Retail
The UK retailer announced alongside its preliminary results that it has seen “very strong early LFL sales” since the year-end (28 March 2020). Sales were up 22.7% to 23 May 2020. However, the company did warn that it has seen increased consts of trading as a result of social distancing measures implemented in its stores and warehouses since the onset of the crisis. It says that alongside the closure period losses from its French business, the costs partially offset the additional revenue from the recent surge in Gardening and DIY sales. It has been able to keep the majority of its stores open during the crisis as they were classed as essential because they sell food.


Industrials & Transport 

Babcock International
The defence business said in its final results that it would take a goodwill impairment to offset “weakness” in its aviation business, reporting underlying operating profit of £524m with a “small impact” from Covid-19. It did say that its combined orderbook and pipeline was £35bn up from £31bn a year earlier. Because the majority of its service delivery is critical, its major sites have remained open and its work has continued in defence, emergency services and nuclear. It did however see a small impact as a results of lower levels of flying in both aerial emergency services and Oil and Gas businesses, reduced activity at some civil nuclear sites and reduced training activity.

Heathrow
The UK’s largest airport has warned that, partly as a result of the UK government’s two-week quarantine measures, employment levels are “no longer sustainable” and 25,000 jobs could be cut as a result of the pandemic. The airport directly employed 7,500 people prior to the crisis, says the 25,000 figure includes lay-offs for jobs based at the airport announced by Virgin, British Airways and other companies impacted by the pandemic. CEO John Holland-Kaye said that protecting front line jobs was “no longer sustainable” and the company urged the government to quickly establish ‘air bridges’ to allow some travel to countries with low rates of infection.

 

Financials & Real Estate

Moneysupermarket Group
In a Covid-19 update, the price comparison company, said that households have continued to ‘switch’ during lockdown with it’s Motor Insurance business showing signs of recovery, strong demand in its Home Services business and its Money business facing greater challenges. The company said the closure of estate agents had hit its key insurance channels and similarly the travel ban had impacted its travel business. However it said motor insurance was now up to “more normal levels.” CEO Mark Lewis said “the lockdown restrictions have had a significant impact across our marketplace.

CMC Markets
In its full year results the online trading business said that following a “smooth transition” to 100% staff working from home, its key processes were unaffedcted and it saw net operating income for this year increase by 93%. It’s profit before tax was up 1,459% from £6.3m in 2019 to £98.7m in 2020. The company also highlighted that it had nor recieved any government aid, furloughed or mady any reductions to its permanent workforce. The company boosted its total dividend to 15p, up from 2p in 2019, in line with its policy of distributing 50% of profit after tax.

 

TMT

TalkTalk
The British telecoms group said in it’s full year results that while telecoms has not had the most severe of effects of the Covid-19 pandemic, the company “will not be completely immune form the longer lasting macroeconomic impacts of the virus. It said that lockdown measures have seen “material increases” in traffic and voice usage, but that their network has been able to handle that. Looking forward, it said that it would not give formal guidance but that it did expect to deliver stable Headline EBITDA year on year, assuming a c.£15m Covid-19 impact.

 

IN THE NEWS

Jay Powell delivers dovish message to financial markets – Financial Times

Rishi Sunak targets two-metre rule and calls for a spending spree – The Times

UK to see ‘worst’ economic contraction among developed countries – Sky News




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