Powerscourt

By Powerscourt on 26/06/2020

Powerscourt Coronavirus Briefing – 26 June 2020

ANALYSIS

Coronavirus may be far more prevalent in the US but also less deadly than feared. Official at the US Centers for Disease Control said about 10 times as many Americans have been infected with the virus than the official figures. While an increase in infections from 2.3m to 20m seems like bad news, it also means that COVID-19 has a much lower mortality than feared.

Surging coronavirus infections around the world, and particularly in the US, are beginning to take the wind out of a previous sense of economic momentum.

Gregg Abbott, the Governor of Texas, on Thursday hit the pause button on a process of reopening businesses in the state which had been underway, allowing those businesses which have opened to remain open but halting any fresh progress.

Symbolically, the problem with Texas is a big problem for the US and the Trump administration in particular. As one of the largest and most populous US states, it is a Red State and a committed ideological supporter of the administration. Up until now it has also been at the vanguard of the process of reopening. President Trump has been pushing other states to reopen to support the flagging US economy. But on Thursday, Alabama, Missouri, Montana and Utah all hit record new daily case records. Presenting an awkward contrast, New York Mayor Bill de Blasio on Thursday said New York was ready to progress to the next phase of its reopening.

Asian markets recovered some of the ground lost during the week on Friday, a day after world stocks plunged to their lowest for a week on Friday. But a Reuters poll of 250 economists on Friday found their view of economic prospects had deteriorated over the past month.

In the UK, much rests on the anticipated relaxation of rules for the hospitality industry on July 4. Chancellor of the Exchequer Rishi Sunak is reported to be hoping the economic benefit of reopening the industry will be such that he will not need to provide a short-term fiscal stimulus in the form of a VAT cut.

But scientists and the wider public remain extremely nervous about the prospect that the relaxation will trigger a rise in infections. Photographs surfaced yesterday of hundreds people crammed onto a beach in England, triggering the now familiar social media moral outrage.

 

WHAT ARE COMPANIES SAYING?

Consumer & Retail 

Nike
Nike said sales lost due to widespread physical store closures during the coronavirus pandemic were not offset by gains in its e-commerce business. Global revenues for fourth quarter drop 38% to $6.3bn due to physical store closures. John Donahoe, CEO, said Nike would continue to invest in its digital sales segment, which rose 75 per cent during the three months ended May.

Pret A Manger
Pano Christou, chief executive, has written to the chain’s landlords to warn them that with sales in this country less than 20 per cent of normal levels. It is “in the eye of the storm” as he warned them to expect no more than 30 per cent of the June quarter rent due this week. He said they should expect a partial payment “commensurate with our trading performance”, to be paid in three monthly installments of 10 per cent each.

H&M
Hennes & Mauritz, world’s second-largest fashion retailer, reported a large loss of 50 per cent in the second quarter due to COVID-19 closing most of its stores. Net profit in the second quarter, which runs until the end of May, dropped to minus SKr5bn ($535m) compared with positive SKr4.6bn ($493m) a year earlier. However, it said sales had recovered faster than expected in June. Helena Helmersson, H&M’s new chief executive, said “it is clear that the rapid changes in customer behaviour caused by the pandemic will further speed up the digitalisation of fashion retail. To meet this, we are continuing to adapt the organisation and improve our ways of working, which will make us more flexible, fast and efficient.” She believed the family-controlled company would “come out of the current crisis stronger” as it sped up its transformation.

Tesco plc
Dave Lewis, Tesco CEO, said that the group doubled its online capacity and transformed stores with extensive social distancing measures in just five weeks. “The costs of doing this have been significant and only partly offset by business rates relief and increased volume. We see the balance as an investment in supporting our customers at a time when they need it most.” The group reported that underlying UK sales rose 8.7% year-on-year in its first quarter to May 30, boosted by the pandemic. Based on an assumption of a continued easing of lockdown restrictions in the UK, the group’s current expectation is that Retail operating profit in the current year is likely to be at a similar level to 2019/20 on a continuing operations basis.

888 Holdings plc
888, an online gaming entertainment and solutions provider, provided a pre-close trading update. The Board anticipates that 888 will achieve an adjusted EBITDA outcome for 2020 significantly ahead of its prior expectations. Itai Pazner, CEO of 888 commented, “we are pleased with 888’s trading during the year to date which has resulted in the Board now anticipating that adjusted EBITDA for 2020 will be significantly ahead of its prior expectations… 888 is well positioned to continue to benefit from a potential long-term shift towards online services that we have seen accelerate across several consumer industries during the COVID-19 pandemic.”

 

Industrials & Transport 

British Airways 
BA has made a proposal to its cabin crew that would mean they will have to take a 20% basic pay cut and change working patterns if they are to be retained. British Airways says that it is burning through 20 million pounds a day and will not survive if it does not become more competitive.

Air-France KLM
The Dutch unit of Air France-KLM has received a €3.4bn support package. Air-France KLM said, “Following discussions with the Dutch State and several Dutch and international banking institutions, the Air France-KLM Group and KLM were able to finalize the various components of a financial support package. These loans will enable KLM to weather the current Covid-19 crisis and prepare for the future.

EasyJet
EasyJet said it strengthened its finances by $255 million (£205 million) through the sale and leaseback of six A320neo aircraft with leasing firm SMBC Aviation Capital. The funds raised is part of the anticipated 500 million to 650 million pounds that easyJet said in May it could raise from aircraft sales. SMBC Aviation will be easyJet’s preferred partner if it decides to sell other aircraft in the next 18 months. The aircraft involved in today’s deal have been leased back for terms of between 110 and 122 months.

Aston Martin
Aston Martin, luxury carmaker, will raise around £260m by selling new shares and tapping debt as it seeks to fund a turnaround effort launched by the automaker’s new owner. The group reported a £120m loss in the three months to March, and on Wednesday new chairman Lawrence Stroll Stroll announced “further steps to improve financial flexibility in a period of ongoing uncertainty with this additional funding to execute the business plan”

The Weir Group plc
The Weir Group, a leading engineering business, confirmed the completion of the ordinary course refinancing of its main banking facilities. Providing an update on COVID-19 and current trading, the group said that minerals orders are stable sequentially in Q2 to date despite COVID-19 restrictions and that margins are in  the normal range. However, year-on-year comparisons will be impacted by a particularly strong Q2 in 2019 which was an all-time record

Occidental Petroleum
US’s biggest onshore oil producer, Occidental Petroleum said it would write down the value of its oil and gas assets by up to $9bn as it prepared for a lengthy period of weak crude prices. It anticipated recognising an after-tax impairment charge of between $6bn and $9bn in its second-quarter results

PhosAgro
PhosAgro is one of the world’s leading vertically integrated phosphate-based fertilizer producers. CEO Andrey Guryev said that he expects PhosAgro’s 1H 2020 production output to rise by 6% year-on-year taking into a consideration the pandemic and measures taken to protect workers while maintaining operations.

 

Financials & Real Estate

Bain Capital
Bain Capital, US private equity group signed a deal to acquire Virgin Australia, which would lead to its recapitalisation. Bain said it was committed to protecting as many jobs as possible at Virgin Australia, which employs 9,000 people, and remained committed to investing in regional services across the country. “Our investment and plan for the airline will support and celebrate Virgin Australia’s unique culture and protect as many jobs as possible for the short and medium term in a way that will make significant jobs growth possible,” said Mike Murphy, managing director at Bain Capital Australia

Intu
UK’s biggest shopping centre owner, Intu announced that discussions have continued with the Group’s creditors in relation to the terms of standstill-based agreements. Unfortunately, insufficient alignment and agreement has been achieved on such terms. The Board is considering the position of Intu with a view to protecting the interests of its stakeholders. This is likely to involve the appointment of administrators

Countrywide plc
Countrywide plc, a leading provider of residential property services, financial services and surveying and valuations, reported that following the re-opening of the branches in England from 18 May, it saw clear evidence of increased transactions in the market, and more than 3,000 workers returned to work. As at 26 June 70% of branches have been risk assessed, certified COVID-secure, opened with appointments only. The group noted that it is still too early to assess the long-term impact on housing transactions and is unable to provide guidance for the full year ending 31 December 2020.

 

TMT

Inspiration Healthcare Group
Inspiration Healthcare Group, the global medical technology company, had a very strong start to the year with increased revenues and a healthy order book. Chairman Mark Abrahams said, “I can report that this high level of activity continued during the last few months and including the Covid-19 epidemic.

Sportech plc
Sportech plc, an international betting technology business, announced in its trading update ahead of its AGM that revenues were impacted in Q2-2020 across all business areas. However, a significant reduction in operational costs in H1-2020 is expected to partially offset severe revenue declines. Despite the challenging global situation, the group as agreed new deals or extensions with numerous international clients. It noted that the lack of spectator attended sporting events, potentially for the remainder of 2020, will be an obvious challenge for Bump 50:50 this year.

IN THE NEWS

Pandemic causes ‘unprecedented’ fall in global trade – Financial Times

Sunak to weigh consumers’ response to easing before completing stimulus plan – Financial Times

Gilead’s remdesivir set to become Europe’s first COVID-19 therapy – Reuters

Oil gains on growing fuel demand, even as infections rise – Reuters




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