By Powerscourt on 29/07/2020

Powerscourt Coronavirus Briefing – 29 July 2020


When is a wave not a wave? Has Europe entered the much-feared “second wave” of the coronavirus pandemic? Or are we still feeling the effects of the first wave?

These are the questions preoccupying governments and citizens across Europe this week. From Spain to Belgium to Germany, there is now a pattern in which cases have started to tick up in certain regions.

The head of Germany’s main public health body, Lothar Wieler, told reporters on Tuesday Germans had become “negligent” after the country recorded a rise of over 3,000 cases of the virus in the past week.

UK Prime Minister Boris Johnson went further and explicitly called a “second wave,” although his remarks may have been a response to a furious reaction from Spain after the UK retracted plans to end quarantine for UK citizens travelling to the country. John Holland-Kaye, the Chief Executive of Heathrow Airport, said on Tuesday the airline industry should prepare for periodic lockdowns as a way of life, and added Heathrow was trialling coronavirus tests for passengers arriving. Hong Kong and Vienna airports are already conducting coronavirus tests on arriving passengers.

In the UK, some northern English towns, among them Blackburn and Oldham, are tightening restrictions again after sharp spikes in cases. Leicester is already in a local lockdown.

It’s not yet clear whether the pattern of coronavirus outbreaks can be managed on a regional basis through test and trace programmes, as authorities are hoping, or whether whole nations go into logjam again.

The US is now mired in a large-scale resurgence of the virus, with the administration increasingly at odds with states about balancing health preserving restrictions with a drive to reopen economies. President Donald Trump has consistently pushed for a relaxation of restrictions to support the economy. On Tuesday a Federal report issued to the states – obtained by the New York Times – identified 21 so-called “red zones” where it recommended tougher restrictions.

There’s been good recent progress from drug developers on a range of fronts in efforts to tackle the virus, but it’s not clear that any of the vaccines currently in development will offer long-term immunity. The head of the UK vaccines taskforce warned on Tuesday that a coronavirus vaccine is not going to be a “silver bullet”. Kate Bingham said that the evidence from clinical trials to date suggested that immunity provided by any product would be short-lived, suggesting vaccinations will need to be topped up.

With drug developers now beginning to discuss pricing of vaccines, the geopolitics and ethics of drug pricing will now come back into sharp focus. Moderna Inc., the biotechnology company behind one of the most promising vaccine candidates, yesterday said it was considering pricing its drug at between $50 and $60 a course, significantly higher than the notional prices discussed by other leading developers such as AstraZeneca and Pfizer.

Asian markets are down today ahead of the European open.




Retail & Consumer

Starbucks saw its first quarterly loss in seven years after the coffee chain lost $3.1bn worth of sales and incurred expenses in responding to the pandemic but also said it was over the worst of the slump. Kevin Johnson, chief executive, said the business was “steadily recovering”, with the vast majority of Starbucks stores around the world now open. Like-for-like sales in the three months to June 28 dropped 40 per cent, both in the US business and across the wider group. Starbucks said sales were about $3.1bn lower than it had expected before the outbreak because of store closures, reduced hours and lower footfall.

Upmarket UK department store chain Selfridges is to cut 450 jobs as part of “fundamental changes” to its business in response to the coronavirus pandemic. The group warned that this year will be the “toughest” in its recent history and expects sales to fall significantly. It is leaving “no stone unturned” in planning for changes to consumer behaviour that have been accelerated by the Covid-19 crisis. “How we work, shop and socialise is changing,” managing director Anne Pitcher said in a message to staff.

Quarterly profits at McDonald’s sunk to their lowest level in 13 years. The pandemic forced the closure of thousands of its restaurants, but the fast food group said business was picking up with revenues in the US approaching normal levels. Net income in the three months to June dropped 68 per cent from the same period a year ago to $484m. Across the group, revenues in the quarter fell 30 per cent to $3.76bn. Diluted earnings per share were 65 cents compared with $1.97 for the same period last year. McDonald’s said at the start of this month that it would postpone sit-in reopenings in the US by three weeks and last week it extended this for another 30 days. From this weekend it will also require customers to wear face masks in its US outlets, even where authorities do not mandate them.

Pfizer, US pharmaceutical company, lifted its full year guidance as sales of key cancer and cardiac drugs rose, despite the pandemic hitting in-person sales representative visits and routine healthcare appointments. It now expects revenue of between $48.6bn and $50.6bn, $100m more than previously forecast, and adjusted diluted earnings per share of between $2.85 and $2.95, three cents more than prior guidance. But the forecast is dependent on patient and sales rep visits increasing in the third quarter.

Amazon has started selling protective face shields, designed with help from engineers from its drone delivery programme. The company said it had donated 300,000 of the shields to front-line workers, and would now begin selling them at cost price — currently $66.25 for a pack of 25.

Payments over Visa networks fell 10 per cent in the June quarter, driving big declines in revenue and net income, but volumes improved “meaningfully” as the quarter went on. As of the third week of July, the company said, payment volumes were up versus the same week a year ago. Revenue for the quarter was $4.4bn, down 17 per cent from the year before and well short of Wall Street analysts’ expectations of $4.8bn. Net income of $2.4bn was down 23 per cent and in line with estimates.

Online marketplace eBay added an extra 8m shoppers in the last quarter, boosting revenue and net income that exceeded Wall Street expectations. The company recorded $2.87bn in revenue against analysts’ expectations of $2.8bn, driving $746m in net income for the quarter, versus $402m in the same period last year.

Premier Foods
Food producer Premier Foods reported a boost from lockdowns and increased supermarket shopping. The group said sales rose 22.5 per cent in its most recent quarter, compared to the same time last year. “As expected, we continued to see strong demand for our grocery brands, with consumers eating the vast majority of their meals at home,” chief executive Alex Whitehouse said. 

Industrials & Transport 

Industrial group 3M reported quarterly sales and earnings below analysts’ estimates due to the pandemic which curbed demand for its products. Sales are improving so far in July – 3M is “seeing broad-based sales improvements across businesses and geographies to start the third quarter”. 3M reduced costs by about $400m year-on-year. “While our results were significantly impacted by the global economic slowdown, we executed well, managed our costs and delivered another quarter of robust cash flow,” said Mike Roman, 3M chief executive.

Wizz Air
Wizz Air reported a €108m net loss for the three months to June 30, compared to a net profit of €72m the same time last year. The group, which restarted flights in May, said it was now flying at about 70 per cent of its capacity, compared to just 11.5 per cent in the first quarter of the year. Chief executive József Váradi said that Wizz Air’s young fleet and low costs made the business “best positioned to double down on the opportunities that present themselves,” and “emerge as a structural winner post-Covid-19.”

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.

Yellow Cake 
Yellow Cake, a specialist company operating in the uranium sector with a view to holding physical uranium for the long term, announced that the value of U3O8 held by Yellow Cake increased over the quarter from US$263.5 million to US$303.7 million. Yellow Cake’s estimated net asset value as at 28 July 2020 was £2.77 per share. Andre Liebenberg, CEO of Yellow Cake, said, “We remain positive about the longer term outlook for the uranium price. Our focus remains on maintaining a low cost base, actively managing our inventory to generate shareholder value, and on delivering the next phase of our supply arrangement with Kazatomprom.

Tullow Oil 
Oil producer Tullow Oil said it would likely take impairment charges of up to $1.7bn in its forthcoming half-year results, as it lowered its outlook for fuel prices. The group, which has net debt worth almost six times its stockmarket capitalisation, has now downgraded its expectations for oil prices.

Smith & Nephew
Medical devices maker Smith & Nephew missed analysts’ earnings forecasts as its business continued to suffer hospitals delaying elective surgeries to focus on the health crisis wrought by coronavirus. It reported a trading profit for the six months to June of $172m and sales also fell 19 per cent on an underlying basis.

Heathrow Airport 
Heathrow Airport reported a £1.1bn pre-tax loss for the first half of the year, with passenger numbers down 96 per cent in the second quarter. The airport also said the opening of the much-disputed third runway will be delayed by at least two years because of the crisis and an ongoing appeals process. It has warned that the UK risks being left behind other European countries unless the government rapidly introduces a passenger testing scheme.


Financials & Real Estate

Deutsche Bank
Deutsche Bank has increased its full year revenue outlook after slightly beating analyst expectations in the second quarter, while provisions for credit losses rose to the highest level in more than a decade. DB said it was now expecting that group revenue in 2020 will be “essentially flat”, compared to the previous guidance of a slight decrease. Please use the sharing tools found via the share button at the top or side of articles. A 46 per cent increase in investment banking revenue to €2.7bn in the quarter pushed group revenue to €6.3bn. The net loss attributable to shareholders almost doubled to €77m.

Barclays added a further £1.6bn to its reserves for bad loans in the second quarter.“While the remainder of 2020 will be challenging, our diversified model means we can remain financially resilient,” said Jes Staley, the lender’s chief executive. “Although we will remain well capitalised… we may experience stronger capital headwinds in the second half. The board will decide on future dividends and capital returns at the year-end.”

Taylor Wimpey
UK housebuilder Taylor Wimpey expects the number of home completions to drop by 40 per cent this year because of site closures caused by coronavirus. Chief executive Peter Redefern said: “While uncertainties remain, we are confident in the underlying fundamentals of the housing market.” The company said that the pandemic had “a material impact on our financial performance.” in its first half results. Revenue for the period more than halved to £754m, while the £300m pre-tax profit in the first half of last year became a £40m loss.



Federal Reserve extends emergency lending facilities by 3 months – Financial Times

Boris Johnson warns of signs of coronavirus second wave in Europe – Financial Times

‘Silver bullet’ to beat Covid-19 unlikely, warns UK vaccine chief – Financial Times 

Britain secures 60 million doses of Sanofi/GSK COVID-19 vaccine – Reuters