By Powerscourt on 23/06/2020
Powerscourt Coronavirus Briefing – 23 June 2020
US stocks finished higher Monday despite ominous signs of a resurgence of coronavirus in a number of US states and elsewhere in the world.
The Nasdaq continued its bulletproof streak, registering its fourth record closing high this month on gains driven by Microsoft, Apple and Amazon, and stocks were higher overnight in Asia.
Coronavirus is bifurcating the US: a number of Southern and Southwestern US states are continuing to report sharp rises in coronavirus cases, even as coastal states such as New York are relaxing restrictions. The Governor of Texas, Greg Abbott, said the virus was still spreading at an “unacceptable” level throughout the state. His comments came as many New Yorkers started returning to their offices after a three month hiatus.
One possible cause of market optimism: it is killing fewer people than before. While there were 25,000 new cases in the US for the fifth day in a row, just 285 people died of the virus on Sunday, the lowest since late March.
Officials in China are battling a resurgence in Beijing, meanwhile, and the virus continues to rage in Brazil, Latin America’s largest economy.
Coronavirus continues to cast a pall over US/China relations. A row erupted overnight after Peter Navarro, the US trade minister and one of the best-known US anti-China hawks, initially appeared to suggest that a trade pact between the US and China was “over” due to the alleged failure of the Chinese to inform the US of the start of the pandemic. His remarks were flatly contradicted later in a tweet by President Trump.
In the UK, Prime Minister Boris Johnson is expected to announce at lunchtime on Tuesday that he will scrap the 2m social distancing rule and will set a timetable for the reopening of leisure and cultural institutions and pubs. Art galleries, museums and cinemas are expected to be cleared to open from July 4, in news expected to cheer the hospitality and arts industries.
UK economic data continues to show the negative impact of the coronavirus crisis on manufacturing. The Confederation of British Industry on Monday published data showing that UK factory output declined at the fastest rate on record.
WHAT ARE COMPANIES SAYING?
Consumer & Retail
The UK food producer today announced its audited preliminary results, confirming strong revenue growth and earnings momentum, with total export revenue up 92%. Throughout the COVID-19 pandemic, Cranswick has implemented a proactive and comprehensive action plan, including the introduction of enhanced protective measures and a £500 bonus payable to each site-based colleague to recognise their essential worker status and valued contribution. Their strong financial position has enabled Cranswick to continue operating without banking covenants and without recourse to any Government assistance.
The largest UK based online retailer of musical instruments and equipment today announced its full year results, reporting a strong return to profitability and revenue up 9% on a 12-month basis. Active customers increased 11% to 807,000, resulting in exceptionally strong trading in April and May 2020. With an increasing number of people recognising the benefits of playing, creating and recording music whilst in COVID-19 induced lockdown, Gear4music has seen a significant increase in demand. Positive sales trends with improved margins have continued into June and the group is confident of further improvement in FY21.
JD Sports has moved to appoint administrators for its Go Outdoors chain, putting more than 2,000 jobs at risk. The FTSE100 group announced that it had lodged a notice with the court to appoint administrators, giving it legal protection from creditors over the next 10 business days. Go, which employs approximately 2,400 people in 67 stores in the UK, kept its shops closed for almost three months during the ban on non-essential trading due to the coronavirus pandemic.
Following their acquisition of Elegant Hotels earlier this year and in light of the COVID-19 pandemic, Marriott International announced this morning that it had closed all of Elegant’s hotels. Over 90% of Elegant’s property-based employees were placed on furlough and the remaining employees were placed on a reduced hour basis. Subject to any further developments relating to COVID-19, further restrictions may be imposed on other properties in the Marriott International group. However, the current hotel closures are expected to be temporary at this point.
Industrials & Transport
The UK’s leading tools, equipment and plant hire services company has announced resilient performance in uncertain markets in the full year results. Their adjusted profit before tax is up 11.1% to £34.9m and ROCE increased to 12.0%. Prior to the COVID-19 pandemic, asset utilisation in the UK and Ireland was 56.6%. Going into FY21, the group is taking action to contain costs and preserve cash with a significant proportion of revenue retained. All discretionary spend has been frozen and at current revenues, the Group expects they can operate throughout FY21 within existing banking facilities and without breaching any covenant tests.
Financials & Real Estate
The UK commercial real estate investment company today reported the COVID-19 pandemic had a significant impact, with a £12.5m valuation decrease in the final quarter of the year. Profit before tax was down 91% whilst £25.3m of new equity was raised. Prior to the outbreak, Custodian had delivered on its objectives for the year, despite a struggling retail sector. However, the COVID-19 pandemic and the recent turmoil in the markets has now emphasised the important of having a well-diversified, income focused property portfolio.
On 19 March 2020, OnTheMarket announced a 3 month discount to listing fees to assist agent customers who were facing the uncertainty of the evolving COVID-19 crisis. The initial discount period was due to expire on 25 July 2020, however OnTheMarket is now extending the discounts for a further two months to 25 September 2020. This extension is being implemented to further help to reduce the cash flow pressure that agents continue to face.
Royal Bank of Scotland
The Royal Bank of Scotland announced this morning that they have welcomed the Banking Competition Remedies Limited’s Incentivised Switching Scheme which forms part of the Alternative Remedies Package. RBS has entered into an amendment to the Framework and State Aid Deed as a result of the COVID-19 pandemic, which agrees that 200,000 additional RBS customers with turnover of up to £1m will have the opportunity to participate in the scheme.
The leading independent global security and resilience advisor has provided an update this morning, prior to their preliminary results announcement. The group has experienced delays, cancellations and disruptions to the business since Q3 FY20, which have broadly followed the same pattern as COVID-19 spread across the regions in which they operate. The Board expects revenue and adjusted EBIT to be ahead of the latest FY20 analysts’ consensus expectations of £243m and £22.3m respectively. However, they do believe that COVID-19 will continue to have an uncertain impact through FY21.
One of London’s biggest drugs companies will be in focus today after a leading shareholder and industry peer moved to offload its near-£1 billion stake. Hikma said last night that Boehringer Ingelheim, the privately owned German business that holds about 16.4% of the FTSE100 company’s shares, was looking to exit its investment via a placing and buyback. The transactions come after a strong year for Hikma, a maker of generic drugs whose shares were boosted 25% as a result of the pandemic.
IN THE NEWS
Bailey: Government ‘would have struggled to fund itself’ without £200bn rescue – The Daily Telegraph
Global stocks bounce back after Trump says China deal ‘intact’ – Financial Times
France shows Europe can keep COVID-19 in check after reopening – Financial Times
Take a summer holiday without quarantine on UK return – The Times