By Powerscourt on 12/06/2020
Powerscourt Coronavirus Briefing – 12 June 2020
ANALYSIS
The UK economy contracted by 20% in April, according to the Office for National Statistics. This was even worse than economists feared. An ONS statistician said the fall was TEN* times worse than the steepest pre-Covid-19 fall.
The UK data comes after stocks plunged in the US yesterday and Asia today as news of resurgence of the virus finally put the brakes on a weeks-long rally.
For several weeks, bulls have been winning the argument about economic reopening versus caution, with stock markets rising on a growing perception that the world economy may bounce back more quickly than previously feared. Yesterday, that optimism was jarringly reset, with the Dow Jones Industrial Average falling 1,800 points, or almost 7%, the sharpest one-day drop since the crisis hit in March. Asian markets were weak into Friday, with European markets also seen likely to sustain sharp falls.
The primary trigger for this fresh anxiety is evidence, highlighted in yesterday’s Powerscourt Wrap, of a spike in coronavirus cases in various US states, particularly California, Utah, Arizona, North Carolina, Florida, Arkansas and Texas. A downbeat message on the pace of recovery from the Federal Reserve earlier this week has underlined the sense that the stock market had previously run away with itself.
The Financial Times reported Friday that the European Union plans to invest billions of euros into advance purchase deals with pharmaceutical companies to secure access to coronavirus vaccines and treatments. Under plans seen by the FT, money from an EU emergency support fund would largely be channelled into securing stocks of medicines for Europe.
The report highlights a growing arms race between developed nations over coronavirus-related medical research, with significant implications both for public health and scientific research. In the US, the government’s Biomedical Advanced Research and Development Agency (Barda), has invested billions of dollars into a number of trials into coronavirus vaccine projects, including the joint AstraZeneca/Oxford University and the Moderna vaccines projects, prompting concerns about “vaccine nationalism”.
In Europe, with Brexit looming back into focus, familiar geopolitical fault lines have been brought back to the surface by coronavirus concerns. The UK was criticised by the Chief Executive of Airbus, Guillaume Faury, for its failure to support its aerospace industry. Mr Faury, pointing to a package of support measures offered by the French and German governments, told the FT the UK would suffer loss of market share as a result of failure to invest in supporting its workers in the industry.
WHAT ARE COMPANIES SAYING?
Consumer & Retail
Bakkavor Group
The UK food company said in a trading update ahead of its AGM today that while it was thankful for the “exceptional response” of colleagues, it has faced significant operational challenges both in China in the early part of the pandemic and int he UK and US in March and April. It said that since then sales have stabilised, and group revenue for the five months to the end of May was down 5% compared to the same period last year. In the UK specifically, revenues were down 19% in April and 13% in May compared to the same periods last year. The company said it had “significant” financial headroom and had not accessed government supported debt funding.
Games Workshop
In a trading update for the full year ended 31 May 2020, the tabletop game company said that following its update on 28 April the company has seen a “better than expected” recovery. It has reopened 306 of 532 total stores and warehouses are now fully operational, with online orders being processed by staff working from home. The company said it estimates sales of c.£270m for the year ended 31 May 2020 and profit before tax of £85m. The company also said that it would not be claiming any additional money through government subsidies and that “where possible” it aims to repay any amounts that have already been received.
Mitchells and Butlers
The pub and restaurant group said in another Covid-19 update today that the full impact of the pandemic is uncertain. It said in the statement tht it has agreed the provision of committed unsecured liquidity facilities totalling £250m through to 31 December 2021. The company also highlighted existing cash balances of £130m having fully drawn down the existing facilities of £150m. It said that the EBITDA loss per four week period has now stabilised at £15m, with cash burn higher at around £30-35m per four week period. It also flagged that it would have incurred a number of technical breaches on its secured financial arrangements, but has agreed a number of waivers to accommodate this.
Industrials & Transport
Biffa
The sustainable waste management company announced today the proposed placing of shares to raise c.£100m to “allow it to continue with its growth investment opportunities without delay.” It said in the statement that it had identified £250m of organic and inorganic investment opportunities, while continuing to deliver its essential services during the Covid-19 pandemic. It said that it has sufficient liquidity to trade through all modelled scenarios, but that the this placing would put the balance sheet “in a position of strength, providing flexibility and confidence” to pursue growth opportunities.
Carnival
The UK cruise operator announced in a press release that its Holland America Line has extended the pause in its cruise operations and cancelling additional departures from Vancouver, in 2020, as well as some Hawaii itineraries for early 2021. For customers affected they are entitled to credit for future cruises and where paid in full they will receive 125% of the base cruise fair paid. The company confirmed it is also offering 100% refunds if preferred.
Financials & Real Estate
Grant Thornton
The accounting and consulting firm has become the first big UK accounting firm to announce redundancies. It said in a statement to employees that around 70 jobs in its tax and consulting divisions will be made redundant. The redundancies will take effect from 24 July, and according to the company had been “planned prior to the Covid-19 outbreak but subsequently put on hold during the lockdown.” Previously the firm had said it would not use the government furlough scheme and had instead cut the pay and hours of 300 employees, pledging that no employee would be worse off than if they had been placed on furlough.
TMT
Informa
The FTSE 100 events and services business said in a trading update ahead of its AGM today that the “prospect of a return for some of our major events brands in mainland China from July is now real.” The company said that in the two months since its first quarter trading update, it has not traded any physical events anywhere in the world due to Covid-19. It did however say that it has worked to provide value to customers through digital or hybrid events where applicable. The company said that as a result of its Covid-19 action plan, 160+ brands have been cancelled or postponed representing c.£300m revenue. It also said that its subscription business continues to deliver steady growth and trade well.
IQE plc
The semiconductor parts designer and manufacturer said in a trading update that it has not been affected by the pandemic to date. It reported Q1 revenues slightly ahead of expectations and Q2 performance so far being strong. The company said it expected revenues for the first half of £85m, a record first half and an increase of over 27% compared to first half revenues in 2019. In its outlook statement, it said that while the smartphone market is expected to be hit by the pandemic over the course of 2020, opportunities in other sectors leave it confident. That being said, it has not provided guidance for the full year.
IN THE NEWS
UK economy shrinks by record 20% in April – Financial Times
Fears of coronavirus ‘resurgence’ prompt sharp falls in markets – Sky News
U.S. insurers use lofty estimates to beat back coronavirus claims – Reuters
