Powerscourt

By Powerscourt on 17/06/2020

Powerscourt Coronavirus Briefing – 17 June 2020

ANALYSIS

Good news and bad news today. There was a major breakthrough in the UK yesterday, as a cheap, widely available drug proved to be effective in treating the worst cases of Covid-19. Dexamethasone, a steroid available in any pharmacy, was responsible for the survival of one in eight of the sickest patients – those on ventilators – in the biggest randomised, controlled trial of coronavirus treatments in the world.

The news came as cases surged in the US and Brazil while China introduced a fast, strong response to the recent spike in Beijing.

The US, which yesterday learned of a retail rebound in May, was also pondering the possible price of the return to shops with record levels of new infection in six states, attributed to businesses reopening and Memorial Day weekend gatherings late in the month. The US surge includes Florida, Texas and Arizona while in Oregon, a single church has been linked to 200 new cases. The church had a video showing a large crowd singing (dangerous for transmission) and mingling without social distancing. The video appeared to be deleted yesterday.

The equity market focused on the good news and stocks were up despite warnings of economic uncertainty from the Fed, helped by the short-term expectation that it would start to buy corporate bonds.

Bloomberg published its so-called Stringency Index today. The key to success in combatting the virus is to act fast and hard. Countries that had slower and weaker responses recorded eight times more cases than those that took this approach. Today, China is illustrating the fast and hard response. Schools in Beijing have been closed and 1,200 flights have been cancelled after 130 cases in the city. Meanwhile, there are  about 40,000 new cases a day in Brazil.

There are signs that changes in how we behave triggered by the pandemic might be long term. Visa has declared a shift in consumer spending to cards to be ‘permanent’ after an online spending boom and decline in the use of cash. An Associate Professor at Harvard Business School also argues in a paper for Boston-based asset manager State Street that the impact of Coronavirus on spending patterns renders inflation data useless. The traditional CPI weightings fail to reflect quick changes to real life behaviour, so credit and debit card expenditure data is now more reliable.

Further evidence of what consumers have been buying comes this morning from Boohoo, which points to increased sales of tracksuits and other loungewear, and the European auto group ACEA, which showed a halving of car sales year on year in May, despite many European showrooms reopening that month. It might take some time before we see evidence of going out becoming the new staying in.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail

Domino’s Pizza
In an AGM trading update released today, the pizza restaurant chain shared that like-for-like sales had increased by 5.1 per cent during the UK Covid-19 lockdown period between 23 March and 14 June. For the first half of the year, from 31 December until 14 June, sales increased by 2.7% year on year. CEO Dominic Paul said: “I am proud of the performance of our system during this period, and that the vast majority of our stores have remained open.”

Boohoo
The clothing retailer has said that it expects around 25 per cent revenue growth for the current financial year, in a trading update released today for the three months ended 31 May. During this time, it has seen Group total revenue increase by 45 per cent compared to the same period last year. The statement included that trading from mid-March to early April was mixed due to the impact of Covid-19, but improved throughout the month before delivering a robust performance in May. It was included that “areas such as loungewear and athleisure have performed well as customer buying habit adapted to a stay at home lifestyle.”


Industrials & Transport 

Serco
In an unscheduled trading update, the government services provider shared today that it has seen revenue growth of around 23 per cent for the first half, with any loss of business incurred as a result of Covid-19 largely offset by additional work carried out elsewhere in the business. CEO Rupert Soames said: “Thanks to the significant investments we have made in the last few years in people and systems, the business has shown itself capable of remarkable agility and effectiveness in response to governments’ needs”. 

SSE 
The energy company released its full year results today for the year ended 31 March. It reported a rise in adjusted operating profit of 37 per cent, despite a negative coronavirus impact of £18.2m related to energy demand. The total Covid-19 impact for the period, attributed to reduced demand and bad debts, was £51.9m. Chair Richard Gillingwater said: “It is still too soon to predict with accuracy the full human, social, economic and business impact of coronavirus; but we have put in place a comprehensive plan to achieve the related objectives of sustaining the dividend payments which provides vital income for people’s pensions and savings”.

Hill & Smith
The supplier of infrastructure products released a trading update this morning in which it shared that group revenues for the quarter to 31 March increased by 4.8 per cent, while trading in April was significantly impacted by Covid-19 business closures and reduced activity levels. Revenue for April and May combined was 26 per cent lower than the same period last year, but with the businesses that were temporarily closed now re-opening, a “gradual and controlled” recovery is being seen across the Group’s operations.

 

Financials & Real Estate 

Kingfisher 
The home improvement group released its full year results today for the year ended 31 January 2020. This included commentary on FY20/21, with the Group sharing that sales had fallen by 24.8 per cent year on year during the first quarter as a result of Covid-19 disruption, but bounced back in the second quarter, with an increase of 21.8 per cent year on year. It attributed this to strong e-commerce growth (which has increased fourfold since mid-March) and the phased reopening of stores in the UK and France from mid-April. 

Berkeley
The property developer announced its full year results today, reporting pre-tax profit of £503.7 million, representing a 35 per cent decrease year on year. Revenue has similarly fallen by 35.1 per cent. Chairman Tony Pidgley said: “The onset of the Covid-19 lock-down in the last five weeks of the period had a significant impact on our operating environment but Berkeley ended the year in a strong financial and operational position as our resilient business model and agile working culture defined our response”. 

 

IN THE NEWS

FTSE bosses back on full pay after pandemic wage cutsThe Financial Times

Half of firms to lay off staff at end of furloughThe Times

Inflation hits new four-year low in lockdown Britain The Daily Telegraph




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