Powerscourt

By Powerscourt on 02/07/2020

Powerscourt Coronavirus Briefing – 02 July 2020

ANALYSIS

The US economy is enjoying the beginnings a post coronavirus recovery, but this may go into sharp reverse if a resurgence of the virus in the Southern and Western states can’t be contained.

A Reuters poll predicts that non farm payrolls, expected Thursday, will increase by 3 million to June, the largest since records began in the 1930s. Federal Reserve Chair Jerome Powell, who has previously taken a notably bearish stance, acknowledged this week that the US economy was beginning to recover. But he cautioned the outlook “is extraordinarily uncertain” and would depend on “our success in containing the virus.”

Nearly 49,000 new US cases were announced on Wednesday. Texas, North Carolina and Tennessee hit daily records, and the Texas healthcare system is struggling to cope. The resurgence is now beginning to impact those states which had begun to recover: New York announced Wednesday it would no longer allow its restaurants to reopen indoor service as it had earlier planned.

In parts of the world where virus cases are on the wane, the focus is turning to the mechanics of monitoring and quickly suppressing local outbreaks.  Yesterday Professor Neil Ferguson, of Imperial College London, one of the leading voices in the UK recommending the national lockdown in February and March, warned that the UK government has about six weeks to get its test and trace strategy up to scratch before schools reopen in September, in order to prevent the UK heading down a similar path to the US.

Fears are mounting that a number of northern towns in the UK may be forced into local lockdowns similar to that imposed on Leicester at the start of the week. Data from Public Health England local testing units have showed rising numbers of cases in several regions, mainly in Greater Manchester and Yorkshire. Public health officials are squabbling with local politicians, and the opposition Labour Party is exploiting the confusion to accuse the government of incompetence. But a report in the Daily Telegraph Thursday suggested that infection rates are already now in decline in these regions, prompting questions about the Leicester lockdown.

 

WHAT ARE COMPANIES SAYING?

 

Consumer & Retail 

Associated British Foods 
Associated British Foods issued a trading update and said Group revenue from continuing businesses for the 40 weeks ended 20 June 2020 was 13% lower than the same period last year at constant currency. Since Primark stores reopened the first stores on May 4, cumulative sales for the seven weeks period to June 20 were £322m, 12% lower than last year on a like-for-like basis. Sales in the week ended June 20, with over 90% of selling space reopened, were £133m and trading in England and Ireland was ahead of the same week last year. However, the net cash outflow for Primark for the 12 week period from 1 March to 23 May, when trading across the estate was either non-existent or minimal, was some £800m. Grocery and sugar businesses, were both up 3% for the quarter, while retail revenue fell 75%.

Boohoo
The fashion retailer Boohoo has promised to investigate after the trailer came under fire yesterday for claims that factory workers at its manufacturing hub in Leicester were made to work while ill with coronavirus. Clothing factories in the city stayed open with little to no social distancing during the nationwide lockdown, according to a report by Labour Behind the Label. Workers told the campaign group that bosses had ordered them to come in when they were sick.

Mitchells & Butlers
The pub owner said profit declined to a £121m pre-tax loss in its half-year ending in April due to lockdown. Its operating profit also fell to a £51m loss, compared to a £140m profit in 2019. Revenue was lower too, with the company counting £1.039bn compared to £1.186bn the previous year. However, Mitchells & Butler said like-for-like sales had improved prior to lockdown, growing 0.9 per cent year on year. The group said its experience in Germany means it is confident of reopening this weekend when pubs and restaurants can finally open their doors.

John Lewis
The Times reported that the chairwoman of the John Lewis Partnership has written to staff to tell them she plans to cut jobs, shut more stores and slash its employee bonus to zero. Dame Sharon White, 52, confirmed fears that it is “highly unlikely that we will reopen all our John Lewis stores”. The department store chain has reopened 31 shops, and will reopen its store on Oxford Street on July 16, but the remaining 18 shops are under threat, with retail sources saying up to ten stores could close.

DS Smith
The paper and packaging business published their FY results and said it was “resilient” having seen relatively limited Covid-19 impact in March and April. Headline full-year profits increased 5% to £660 million, up from £631 million, in the year to the end of April, a fraction lower than the City had expected. In the short term, the impact of Covid-19 on the economies in which it operates is likely to impact volumes to industrial customers and add to operating costs. In particular, infrastructure constraints have driven elevated OCC prices, although this is currently expected to be limited to H1. The Board considers it premature to resume dividend payments at this stage.

 

Industrials & Transport 

Meggitt Plc
The British engineering company today issued a trading update where it said that it expects revenue to be c.30% lower in the second quarter, with about an 15% drop in first-half revenue as demand from planemakers dried up due to a virtual halt in air travel from restrictions to contain coronavirus. The energy division is estimated to be lower than last year, while defence is to rise by 1-5%. The FTSE 250-listed engineer said it is making good progress in delivering cost-saving measures, while the “significant” free cash outflow in the first half will be offset by the sale of its training systems subsidiary for US$146mln.

Ryanair 
Ryanair released statistics showing that the Company’s June traffic had fallen 97% to 0.4 million guests. Ryanair operated just over 2,800 scheduled flights (79,600 budget) in June. 

Wizz Air
In June 2020, Wizz Air continued to grow its network and improve its customer offering opening three new bases, the deployment of a total of nine aircraft and is launching 64 new routes across Central and Eastern Europe. It also reported it has increased their fleet with the addition of the first two Airbus A320neo aircraft. For the month of June, emissions in grams per passenger/km were 64.3% higher due to the drop in load factor, while total CO2 emissions in tonnes decreased in line with capacity.

 

Financials & Real Estate 

LXi REIT plc
The Board of LXi REIT provided a update on rent collected for the June to September 2020 quarter: 84% has been received to date; a further 6% was already subject to agreed deferral and repayment plans entered into following negotiations with tenants in respect of the previous quarter; a further 4% is subject to ongoing negotiations with tenants; and a further 6% has been granted as temporary concessions (being predominantly the agreed terms of the Travelodge Hotels Limited CVA as announced on 19 June 2020) . The Company said it “continues to seek to strike an appropriate balance between protecting the interests of its shareholders and providing proportionate support to a small number of its tenants which have been impacted temporarily by Covid-19.”

LondonMetric Property Plc
In respect of advance rental payments due up to 24 June 2020, the Company reports that 95% has been collected or is being collected monthly, a further 3% is expected to be received imminently and the remaining 2% is in discussions, less than half of which is expected to be forgiven. The proportion of rental income that is received monthly in advance instead of quarterly is unchanged at 18%. In light of the strong rent collection and in line with its progressive dividend policy, the Company intends to increase its first quarterly dividend for the financial year ending 31 March 2021.

 

Pharmaceuticals 

BioNTech
A coronavirus vaccine from Germany’s BioNTech has yielded positive trial results according to the Financial Times. Preliminary data released by the company showed the vaccine generating immune defences in participants that were stronger than those of the average recovered Covid-19 patient. In a clinical study run with pharmaceuticals group Pfizer in the US, 24 people between the ages of 18 and 55 who received two doses of the vaccine had “significantly elevated” antibodies within four weeks of their first injection.

 

IN THE NEWS

Infection rate dozens of times higher in northern hotspots The Times 

UK high street suffers jobs bloodbath Financial Times

UK supermarkets not in line to deliver super profits Financial Times




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