Powerscourt

By Powerscourt on 10/08/2020

Powerscourt Coronavirus Briefing – 10 August 2020

ANALYSIS

Britain’s economy will be officially declared to have entered a recession this week for the first time since the 2008 financial crisis. 

Figures from the Office for National Statistics, due to be released on Wednesday, are expected to show that GDP fell in the three months to June by 21%.  This follows a decline of 2.2% in the first quarter.

Despite the inevitable confirmation that the UK has entered a technical recession, alongside a survey released today by the Chartered Institute of Personnel and Development suggesting that one in three UK organisations are expecting to cut jobs in the third quarter of 2020, up-to-date indicators such as consumer spending and payments data suggest that the economy is already showing tentative signs of recovery. 

Q2’s GDP decline is largely attributed to the severe falls in economic activity in April and May following the imposition of lockdown restrictions while house prices actually hit a new all-time high in July according to the latest Halifax House Price Index.

An investigation is likely to recommend that the official daily death toll from COVID-19 may be permanently scrapped with speculation mounting that the Government may move to a weekly official death toll instead. 

The potential demise of the daily death total comes as official data has revealed that the number of people with COVID-19 receiving treatment in hospital in England has fallen 96% since the peak of the pandemic.  Hospital staff are now treating just 700 coronavirus patients a day in England, compared to about 17,000 a day during the middle of April, according to NHS England.

However, Britain as a whole reported 1,062 new positive tests for coronavirus on Sunday, the highest daily rise in new COVID-19 infections since late June.

Global cases of COVID-19 also continue to rise.  India recorded an all-time high of more than 1,000 daily coronavirus deaths on Sunday, a notable increase versus last week’s average of around 860 daily deaths.  India now has an official death toll of known COVID-19 fatalities of more than 44,400, the fifth-highest in the world.

 

WHAT ARE COMPANIES SAYING?

 

Industrial & Travel

FirstGroup Plc
FirstGroup released a statement that it welcomed the new funding round of £218.4m from the Department of Transport under the Covid-19 Bus Service Support Grant Restart programme to support the provision of vital services by regional bus operators in England. This extends the arrangements previously announced at the end of May for the next eight weeks.The programme FirstGroup said has already allowed the industry to increase bus service capacity while maintaining social distancing. First Bus operations across England have increased operated mileage from c.40% to almost 90% of pre-pandemic levels, with passenger volumes increasing from c.10% to c.40% since the low point.

Go-Ahead Plc
One of the UK’s leading transport companies welcomed the funding extension announcement from the Department for Transport. This announcement it said reaffirms the Government’s commitment to preserving the bus network for the long term and protects the vital bus services upon which so many people rely. Go-Ahead CEO, David Brown, said: “As communities return to work, services reopen and people begin travelling again, we are seeing customers returning to public transport.  However, passenger numbers are still below 50% of pre-COVID levels across our networks.  While social distancing is in place and sections of society remain closed, we welcome the Government’s continued support to keeping these critical services running.”

Clarkson Plc
The leading provider of integrated shipping services announced its interim results reporting underlying profit before taxation of £21.1m (2019: £20.1m) and a robust balance sheet, with £88.8m of free cash resources. The Board has decided to pay the equivalent of the deferred 2019 final dividend of 53p per share as an interim dividend and declared a further interim dividend for 2020 of 25p per share. Andi Case, CEO said “Stimulus packages are being rolled out around the world and the impact on the speed and shape of global trade recovery is still to be determined. As a result, guidance for the full year remains withdrawn.”

ContourGlobal
The power generation business highlighted in its interim results that the Company has had continued strong financial performance, with income from operations increasing 11% to $158m from $143m in H1 2019.  There was no meaningful impact on operations or financial performance experienced as a consequence of COVID-19 as they were classified as an essential business. The stability of the cash flow means ContourGlobal can deliver its targeted annual 10% increase in its dividend as well as its recent share buyback program. 

Carnival Corporation 
One of the world’s largest leisure travel companies, today announced it has closed its previously announced registered direct offering of 93,663,808 shares of its common stock at a price of $14.02 per share to a limited number of holders of its 5.75% Convertible Senior Notes due 2023. The Corporation used the proceeds from this closing to repurchase $836,284,000 principal amount of its Convertible Notes in privately negotiated transactions. The Corporation expects to close an additional 5.5 million shares as part of the registered direct offering on August 10, 2020.  

 

Retail & Consumer 

Superdry Plc

Superdry announced it has entered into a new financing facility that, together with its strong net cash position, will give it the necessary flexibility and liquidity going forward.  A new £70m Asset Backed Lending Facility has been agreed with its existing lenders,  HSBC and BNPP, extending the term until January 2023. Current trading in Q1 has been better than initial expectations, however, disruption from Covid-19 continues to materially impact its performance year on year. Total Group Revenue for the period is down 24.1% year on year, largely due to the impact of store closures as a result of Covid-19. Gradual reopening began at the start of FY21 and ~95% of stores have now re-opened. However, store revenue is down 58.1% in Q1 versus FY20. Ecommerce has continued to perform well, up 93.2% in Q1, normalising in recent weeks as stores re-open.

 

Financials & Real Estate 

Royal London
The insurer and asset manager released its interim results which showed operating profit before tax had decreased to £36m (H1 2019: £90m), reflecting reduced new business sales and increased digital investment. The firm reported a loss of £181m (H1 2019: profit of £397m) following falls in real asset values and a reduction in bond yields. Barry O’Dwyer, Group Chief Executive, commented: “Despite market volatility and economic uncertainty assets under management were stable at £139bn. Our capital position remains strong. New business sales for protection products grew by 15%, which was partly as a result of the pandemic reminding customers of the importance of life insurance, critical illness and income protection. Pension sales were lower as a consequence of the disruption to advisers’ ability to do business during lockdown.”

 

Healthcare

Syncona Limited
The leading healthcare company released their quarterly update this morning. Its Life science portfolio has increased in value by 35% since year end and net assets stood at £1,414.9 million. Discussing Covid-19 Martin Murphy, CEO saidIt is too early to assess its long-term impact, but against this unprecedented backdrop, Syncona has performed robustly and the value of developing long term clinical solutions has never been clearer. Our strong cash position and high calibre team, which we have enhanced during the quarter, continue to deliver and we are developing a pipeline of opportunities even as restrictions on travel and working practices remain.”

 

IN THE NEWS

Banks braced as pandemic poses biggest test since financial crisis The Financial Times

One in three firms set to cut jobs – The Telegraph

More than 1,000 test positive in biggest rise for six weeks – The Times

UK bosses take pay cuts ahead of pandemic – The Financial Times




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