Powerscourt

By Powerscourt on 09/07/2020

Powerscourt Coronavirus Briefing – 09 July 2020

ANALYSIS

The US has now recorded over 3 million cases of coronavirus and the pace of the virus is speeding up. The US took nearly three months to get to a million, six weeks to add the next million but has now got to 3 million in less than a month. It set a record for daily new cases on Wednesday, with 59,400 cases announced.

Though the high figures in part reflect increased testing, they are also an indication of the severity with which the disease has hit the US. Dr Anthony Fauci, the immunologist who has come to symbolise the US scientific community’s response, told the Wall Street Journal that some states should consider state-wide shutdowns.

California, Texas and Florida have the highest case counts. Meanwhile, the ability of health authorities to get on top of testing has been hampered by the large backlogs, leading to waits of up to a week for people to get test results back. A health official in Tulsa, Oklahoma, has told a news conference that a spike in virus numbers in the state was likely linked to President Trump’s campaign event there on June 20.

In the UK, Chancellor of the Exchequer Rishi Sunak on Wednesday unveiled a fresh round of economic stimulus in the form of a £30 billion package of tax breaks, consumer giveaways and employment subsidies. The UK taxpayer of the coronavirus stimulus now exceeds the total annual health spend for the UK for 2019.

A UK study warned of the growing risk of neurological problems arising from coronavirus. The study looked at more than 40 UK COVID-19 patients with complications ranging from brain inflammation to nerve damage.

In a striking symbol of the way coronavirus has changed work culture, Brooks Brothers, the iconic US retailer which was briefly owned by Marks & Spencer, has filed for bankruptcy protection, citing in particular the significant relaxation of dress codes since the lockdown which has made smart office attire largely redundant.

In China meanwhile, there is a frenzy of retail investor money flowing into the stock markets, encouraged by state-owned media. The Shanghai market rose today for the eighth day in a row with gains of 9% so far this week. Bloomberg has a striking piece on the retail investment boom. The headline says most of it: ‘No Way I Can Lose’: inside China’s Stock Market Frenzy

 

WHAT ARE COMPANIES SAYING?

 

Consumer & Retail 

Brooks Brothers
Brooks Brothers, the preppy American clothing chain once owned by Marks & Spencer, has filed for bankruptcy. The 202-year-old retailer has requested protection from its creditors and plans to cut 700 jobs. The brand, renowned for its smart blazers and buttoned-down shirts, has been toppled by the relaxation of dress standards since the coronavirus pandemic started as people have abandoned suits in favour of casual attire while working from home. 

 

Industrials & Transport 

AirAsia
Shares in AirAsia fell by almost a fifth on Wednesday after the Malaysian airline’s auditor said coronavirus had cast “significant doubt” on the company’s ability to continue as a going concern. “The travel and border restrictions implemented by countries around the world has led to a significant fall in demand for air travel which impacted the group’s financial performance and cash flows,” EY said in a stock exchange statement. EY also highlighted that in the 2019 financial year, AirAsia’s liabilities exceeded current assets by $430m. 

Ceres Power Holdings
Ceres Power Holdings has recorded another period of significant growth across all areas of the business, alongside continued commercial and operational progress. In their trading update released this morning, the global leader in fuel cell technology saw revenue increase 20-25% to around £20 million, with cash and short-term investments at approximately £108 million. 

Daimler
Daimler chief executive Ola Kallenius said he was “cautiously optimistic” about a recovery in the global auto market, despite sales of Mercedes brand cars falling almost 19% in the first half of the year. Speaking at the opening of the carmaker’s annual meeting, Mr Kallenius also revealed that Daimler’s truck division suffered a 38% drop in orders in the first six months of 2020. However, the luxury manufacturer had its best-ever second quarter in China, with sales of Mercedes vehicles in the country up by more than 21%. 

Grafton Group
The UK building materials distributor and DIY retailer today provided a trading update ahead of their results for the half year on 27 August 2020. Whilst the group was encouraged by the improved performance in June, trading during this month was likely as a result of pent-up demand as COVID-19 restrictions were lifted. Prior to this, group revenue was down 18.4% to £1.06 billion. As a result of the unpredictable nature of the current environment, the Board remains cautious about revenue trends in the second half of the year. 

Rolls-Royce
The aero engines maker cutting thousands of jobs as a result of the COVID-19 pandemic has today warned that it has seen £3 billion in cash exit the business as orders decrease and demand to service planes fell significantly. Rolls-Royce generates much of its revenue from the regular servicing of aircraft with its engines however, with flying hours in civil aviation down 75% in the second quarter of the year, demand has collapsed. This has meant that the company received approximately £1.1 billion less cash inflow than normal during the first half of the year. 

United Airlines
United Airlines plans to furlough up to 36,000 workers, or just under half of its US workforce, as it contends with a pandemic that has cut demand for air travel. The company said on Wednesday that it would send furlough warning notices to 15,100 flight attendants, 11,000 in airport operations and 2,250 pilots. Other affected employees include catering, aeroplane mechanics, flight network operators and call centre customer service representatives. 

 

Financials & Real Estate 

MJ Gleeson
The low-cost housebuilder and strategic land specialist today provided an update for the year ended, stating that it completed the sale of 1,072 homes during the year. This was a reduction of 29.9% compared with the previous year, as a result of the pandemic. The division has now entered the new financial year in a strong position with a forward order book standing at £145.3m on 1,033 plots and over 1,000 built of part-built homes. Net daily reservations over the last four weeks have also risen to more than 80% of pre-COVID-19 levels. 

Persimmon
The UK housebuilder announced this morning that it has entered the second half of the year in a strong position, despite revenue and sales decreasing over the first six months of the year, as a result of the pandemic. Persimmon stated that year-on-year sales were up 15% as of June 30, with work in progress well advanced and cash holdings of £830 million. In the six months to 30 June, the company said revenue fell 32% to £1.19 billion, on the back of new legal completions falling to 4,900 from 7,584 in the first half of the previous year.

Primary Health Properties
PHP today announced its intention to issue ordinary shares in order to raise approximately £120 million to fund a mixture of future acquisitions and asset management projects. When commenting on the share placing, PHP stated that the “tragic associated impact of COVID-19 brings the ongoing requirement to cater for NHS surge capacity ever more starkly into focus.” This, combined with the demands of an ageing and growing population for healthcare, underpins the need for healthcare facilities to be able to relieve pressures placed on hospitals and A&E departments. 

Segro
The warehouse developer that has become Britain’s biggest listed property company announced that its rent collection rate had held up for this quarter after it agreed deferrals for some tenants. Segro said that it had collected 93% of the £37 million of rent due for its British portfolio in the June quarter, after adjusting for £9 million of rent deferrals and alternative payment plans. While retail and leisure landlords have been hit hardest, office and industrial tenants also have deferred rents with only 43% of industrial rents due from operators paid at the June quarter day, according to Remit Consulting. 

Vistry Group
The British housebuilding group has announced that sales have continued throughout lockdown in a trading update released this morning. Sales increased to an average of 0.62 in the last four weeks, with pricing remaining firm in the six-month period. The group has successfully returned to site and has seen excellent progress on integration with synergies expected to be higher than the level assumed at the point of acquisition. 

Workspace Group
Whilst the COVID-19 lockdown had a significant impact on the UK-based real estate investment trust, customer demand improved through the quarter with enquiries in June at 765, up from 272 in April. Cash collection of rent due for the first quarter is now at 75%, net of rent reductions and deferrals, and a 50% rent reduction has been offered to business centre customers. Overall utilisation of the business centres is also increasing slowly as the group comes out of the other side of the pandemic, currently running at around 15% of pre-lockdown levels. 

 

IN THE NEWS

Mini-budget: Rishi Sunak serves up a £30bn rescue – The Times

Insurers start to offer COVID cover as travel ban is lifted – Financial Times

Calls for inquiry after Treasury reveals £15bn cost of PPE – The Daily Telegraph




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