Powerscourt

By Powerscourt on 28/07/2020

Powerscourt Coronavirus Briefing – 28 July 2020

ANALYSIS

It is a month since New York said it was OK to return to office work. Problem is, no-one wants to. CBRE, the property management giant, calculates that just 8% of people have returned to the offices it runs in New York.

Alphabet, parent of Google, wrote to its 200,000 employees and contractors on Monday telling them that they would not be returning to office work until July 2021 at the earliest.

Meanwhile, a chill has come back into the European summer air.

Travel stocks plunged on Monday as tour operators and airlines desperately scrambled to negotiate air corridors, which would not be affected by the renewed quarantine imposed by the UK government for travelers returning from Spain. The UK imposed the quarantine at the weekend after a steady rise in infection levels in three Spanish regions.

Some travel operators saw their shares fall double digit percentages Monday with managers of these operators blaming government: the outspoken Ryanair CEO Michael O’Leary called it a “badly managed over-reaction”. The boss of TUI for the UK and Ireland joined him in excoriating the government for a “one size fits all” approach.

There were unconfirmed reports that the UK was planning a mass testing exercise for people returning from holiday: if clear after a test at eight days, they would be allowed to cut the quarantine period short.

There may be short-term workarounds, but the quarantine has burst the slowly-building bubble of conviction that Europe was putting the virus behind it.

Travel isn’t the only part of industry likely to be hit by a growing caution. The UK Prime Minister Boris Johnson on Monday warned a number of business leaders in a private call to prepare for a resurgence of the virus in the autumn, just as businesses prepare to reopen offices and schools return.

According to the Financial Times, the Prime Minister’s tone was more pessimistic than at his most recent public utterances. Although numbers remain low in the UK – for now – politicians and business leaders know complacency could prolong the agony.

Controlling the virus around the world has started to look like an international game of Whack-a-Mole: as infections die down in one place, they pop up in others. Xinjiang, the autonomous region of China, now has over 200 cases, while infections in Melbourne, Australia hit a record of 532, prompting authorities to consider tightening an existing lockdown in the state of Victoria.

This sense that the virus is always one step ahead, combined particularly with the huge challenge of getting the US economy back on track with virus numbers soaring has propelled the price of safe haven gold to new highs. The price of gold reached a record high of $1,945.16 an ounce on Monday.

Horse-trading has begun in the US between Republicans and Democrats on a fresh $1 trillion of economic stimulus, as millions of Americans are close to losing the direct payments they have been receiving from government since the pandemic began to hit the US. With no sign that the virus is letting up and an election looming, the Democrats are seeking to extract further concessions to protect workers.

US indices closed up on Monday, but Asian markets were lower overnight.

 

WHAT ARE COMPANIES SAYING?

 

Retail & Consumer

Greggs
The British food-to-go retailer known for its sausage rolls, bakes and sandwiches, said sales at it company-managed stores stood at 72% of the 2019 level in the most recent week as trading recovers from the COVID-19 lockdown. The company reported a pretax loss of 65.2 million pounds, against a profit of 36.7 million pounds a year earlier, for the six months to June 27 after its stores were closed for most of the second quarter.

Reckitt Benckiser
Consumer products maker Reckitt Benckiser Plc reported better-than-expected quarterly results today, as cautious customers stocked up on Lysol and Dettol disinfectants and Mucinex cough syrup during the coronavirus pandemic. Like-for-like sales for the three months ended June 30 rose 10.5%, handily beating company-provided estimates of 7.8%. The Slough-based company also said it expects high-single-digit underlying revenue performance in 2020 compared with the mid-single-digit sales growth initially expected. “The world has changed beyond recognition in 2020. Covid-19 is likely to be with us for the foreseeable future and, as a society, we are embedding new hygiene practices to protect our way of life,” said Laxman Narasimhan, chief executive. “Our supply chain has withstood the challenge of unprecedented demand,” he added.

A.G. Barr 
The company best known for Scottish fizzy drink Irn-Bru has said it expects revenue to fall by up to 15% this year, while reporting a recovery in its hospitality and ‘on the go’ segments as coronavirus curbs eased in recent weeks. The London-listed soft drinks maker said the outlook was based on the company’s assumption that the UK would not enter into a further significant period of lockdown, along with estimated adjustment for Rockstar energy drink no longer being part of its portfolio for the final quarter.

Delivery Hero
The online food delivery group, has raised its full-year guidance by around €200m after revenues and order volumes both nearly doubled during the pandemic. The Berlin-based internet group behind the Foodora, Foodpanda and Talabat apps said that it now expects 2020 revenues to hit €2.6-2.8bn, compared with €2.4-2.6bn previously, as it also announced plans to launch in Japan. “Even in these unprecedented times, we have seen record growth across Delivery Hero’s markets, putting us in a strong place to build out our global leadership position,” said Emmanuel Thomassin, Delivery Hero’s finance chief.”Japan is the greatest underpenetrated delivery market outside of China, and we see great potential to win market shares in this early stage environment.” The company is competing with the likes of Just Eat Takeaway, Uber and China-focused Meituan Dianping for global dominance of the food delivery market, which has seen an up-step in deal-making over the past year.

 

Industrials & Transport 

PSA Group
Peugeot maker PSA Group held on to its margin target despite a fall in profitability in the first half of 2020, and said a recovery in sales had extended into July after the coronavirus pandemic ate into first-half revenues. Like rival carmakers, PSA halted production as the outbreak spread from China to Europe and the United States, while dealerships also closed. But the group, which is in the middle of working through a merger agreement with Italy’s Fiat Chrysler, said it was aiming for a more positive second half. “June has been a very strong rebound in sales and July is seeing a similar trend,” PSA’s Financial Chief Philippe de Rovira told reporters.

Fresnillo
The FTSE 100 miner has reported a 137% rise in first-half pre-tax profits to $127.9 million. Octavio Alvídrez, Chief Executive Officer, commented: “The combination of higher commodity prices and lower costs has resulted in a significant rise in profitability during the first half. Our performance improvement initiatives we have set out in previous reports are having a positive impact. We remain committed to delivering a sustainable improvement in our operating performance and maintaining the momentum in the improvement plan into the second half”.

Travis Perkins
The builders merchant has reported a 19% fall in group like-for-like sales during the first half. Nick Roberts, its chief executive, said: “Since the trading update on 15 June, the business has continued to recover well with good demand from RMI and infrastructure markets offsetting ongoing challenges in the new build and commercial construction sectors. We remain cautious as to the near-term headwinds facing our business and the wider economy, nevertheless the decisive actions we have taken to manage our cost base mean that we are well placed to continue to service our customers, support our colleagues and generate value for our shareholders.”

Woodside Petroleum
Australia’s Woodside Petroleum said today it is considering blocking Russia’s Lukoil from becoming a partner in the $4.2 billion Sangomar oil project, which it could do by increasing its stake in Senegal’s first oil development. Woodside, 35% owner and operator of the Sangomar project, has a right to match Lukoil’s $400 million offer to buy Cairn Energy’s 40% stake in the Rufisque, Sangomar and Sangomar Deep contract area off Senegal. Lukoil’s offer was announced on Monday. Woodside previously said it might consider increasing its stake in the Sangomar project if its partners, including Australia’s FAR Ltd, put their holdings in the joint venture up for sale. “Woodside will consider all its options,” a spokeswoman for the firm said on Tuesday in emailed comments.

 

Financials & Real Estate

St James’s Place
British wealth manager St. James’s Place (SJP.L) said on Tuesday a recovery in market sentiment after the coronavirus-led market sell-off boosted inflows in the first half of the year, while operating profit fell 10%. Net cash inflows rose to 4.5 billion pounds in the six months to end-June, compared with last year’s 4.4 billion pounds. Operating profit on a European Embedded Value basis, a key measure of financial performance that reflects expected cash-flows from insurance products, was 418.7 million pounds, down from 465.7 million a year earlier.

Virgin Money 
Virgin Money has reported a sharp increase in provisions for defaults on mortgage loans, as fears grow about the impact the coronavirus pandemic will have on UK unemployment levels. The UK’s sixth-largest bank said it had yet to see many specific credit losses across its loanbook due to forbearance measures such as loan holidays and free overdrafts, but topped up its provisions for potential future losses by £42m to reflect a weaker economic outlook. The majority of the increase in provisions was focused on home loans, an area which largely avoided provisions earlier in the year. Virgin said the 62 percent increase reflected “more cautious assumptions in relation to the outlook for unemployment” and house prices. David Duffy, Virgin chief executive, said he was “pleased with the way the group has performed during the pandemic … we know that things may yet get more difficult for many of our customers, but we are determined to continue to support their needs where we can and to fulfill our role in the economic recovery”.

 

IN THE NEWS

ECB tells eurozone banks not to pay dividends until January 2021 – Financial Times

Risk to all travel, holidaymakers told after Spain quarantine – The Times

Gold hits a high, more precious as dollar loses value – Reuters




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