By Powerscourt on 12/11/2020
The vaccine cavalry are coming. In the past few days, signals of strong efficacy in interim data readouts from two of the front-running vaccine candidates and mounting excitement about imminent data from more developers have created hope around the world. But how long will it take the world economy to recover? And who will be the winners and losers?
Undoubtedly the approval of a vaccine will be a political and economic boon going into 2021. But it may take several years for demand to return to normal.
Different parts of the world will recover at different levels, with the rich world likely to benefit disproportionately at first, economists say.
Immediately after Monday’s news that the Pfizer/BioNTech vaccine candidate had reported strong data, the stocks that did best were those previously hardest hit. SSP Group, Cineworld and Rolls-Royce all bounced, while Reckitt Benckiser, which had soared during the first lockdown due in large part to demand for cleaning products, fell.
As the dust settles on the market’s initial euphoria, its clear that the world economy will be scarred by coronavirus for some time.
Christine Lagarde, the President of the European Central Bank, told a meeting of central bankers on Wednesday that investors should curb their enthusiasm. “While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved,” Lagarde said at an ECB forum in Frankfurt.
The Wall Street Journal interviewed a number of business leaders about what they expect from the post vaccine economy. “We’re having an upswing of positivity, but it’s going to be tricky next year,” said Ralph Findlay, the Chief Executive Officer of UK pubs chain Marstons. His comments are echoed by Tim Martin, the founder and chairman of pubs chain JD Wetherspoon, who has voiced his anxiety about the potential for COVID-19 restrictions to be kept on for many years after the end of the pandemic.
But Monday’s vaccine news has certainly shifted investor appetite in a more risk-on direction. Morgan Stanley, in a research note published Wednesday, is directing investors towards emerging markets, particularly economies which rely on natural resources, manufacturing or tourism – sectors hard-hit by the virus. Boeing has raised its outlook for the China market, predicting a “robust recovery” from the pandemic in the country”.
There’s more positive news on the vaccine front, as well. On Wednesday Russia’s sovereign wealth fund RDIF announced that the vaccine candidate being developed by the Moscow-based Gamaleya Research Institute has shown 92% efficacy in interim trial results. Meanwhile Moderna Inc., another biopharma company with a leading vaccine candidate, appears to be on the brink of publishing efficacy data, saying on Wednesday evening it has enough data to publish its interim analysis. Dr Anthony Fauci, the top US immunologist, speculated that the data could be ready within days.
None of this can come a moment too soon for the US. Hospitalisations from the virus hit a record high of 65,368 on Wednesday, with a single-day record of 136,000 new cases. New York has set a 10pm curfew for most bars and restaurants and will limit gatherings inside homes to 10 people.
Sweden, until recently the poster child for advocates of a relatively laissez-faire to management of the virus, is seeing cases rising faster than any country in Europe, an apparent rebuke to those who argue for allowing the virus to run its course through populations. Many senior members of the UK’s Conservative Party have argued for an approach more like Sweden’s.
Swedish epidemiologist Anders Tegnell won admiration from people at the more libertarian end of the political spectrum for his argument that this approach would allow for the natural creation of “herd immunity”.
US and European markets closed up Wednesday, but Asian markets were volatile into Thursday, with investors holding their breath for further vaccine news.
WHAT ARE COMPANIES SAYING?
Hill and Smith Holdings PLC
The international group with leading positions in the supply of infrastructure products and galvanising services to global markets, today offered a trading update for the four month period to 31 October 2020. The group saw encouraging recovery in trading, with revenue of £235.2m, 3% lower than the same period last year. Underlying operating profit was also ahead of the year due to improved margins and tight cost control. Medium term guidance remains difficult given the continuing uncertainties arising from the COVID-19 pandemic. However, assuming end markets continue to remain open, the group now expect FY20 operating profit to be slightly ahead of the top end of the current analyst forecast range
The specialist lanscape products group today issued a trading update with an improved outlook. Since half year, trading has improved, with the last four months returning to the same level as 2019 on a like-for-like basis. The trend of sales growth improved and in October 5% the Group was up 5% year-on-year. This has been driven by strong demand in the Domestic end market and a return to normal levels of trading in the public sector. The Group remains focused on developing future growth, underpinned by strong market positions, focused investment and a strong brand.
Grafton Group PLC
The building materials distributor and DIY retailer today released a trading update for the four months to 31 October. The news is largely positive, with revenue and profitability ahead of expectations. The net cash position before lease liabilities increased to £150 million at 31 October, and adjusted profit guidance for second half increased to £130 – £140m range. Total revenue was up by 5.1% to £1.0bn. Grafton are encouraged by this performance and remain in a very strong financial position.
National Grid PLC
One of the world’s largest investor-owned energy companies today announced its half year results. While underlying operating profit was down 12% to £1.1bn, this represented an increase in statutory operating profit of 13% up to the same figure. Underlying EPS was down 14% to 17.2p reflecting higher COVID-19 related costs including US bad debts, storm costs, partly offset by improved UK Gas Transmission and US revenues. The group is anticipating a COVID-19 underlying profit impact of approximately £400m for FY21.
One of the global leaders in molten metal flow engineering today announced that during Q4, they saw demand improvements which have led to an improvement in sales of 7% quarter on quarter and, while down 14.3% year on year, this is an improvement on the sales decline of 26.2% in Q2 compared to Q2 2019. As COVID infection rates continue to rise, the group remains uncertain about the speed of recovery in 2021, despite the partial recovery in 2020.
Consumer & Retail
The leading public transport operator today released a strong trading update, as the trend of improving revenue performance continued, seeing 70% of last year’s revenue secured in October, compared to 60% in August. The Company continues to deliver positive EBITDA, with October delivering the highest monthly total to date. This has been punctuated by significant wins in Portugal with a 200 urban bus contract and a UK contract to become a major employee shuttle.
B&M European Value Retail
The UK’s leading variety goods value retailer today offered a strong set of interim results to 26 September 2020. Group revenue increased by 25.3% to £2,242.1m on a constant currency basis. Furthermore, the group gross adjusted profit before tax increased 128.5% to £253.6m. Outlooks are positive, with 9 gross new UK B&M stores being offset by 8 closures in H1 and the group on track to open 40 to 45 new UK stores this financial year, offset by 10 closures.
The leading retailer in news, books and convenience today announced preliminary results for the year ended 31 August 2020, reporting a strong position for recovery. The headline is a loss of £69m, however this is underpinned by improved performance prior to the current lockdown. The group saw resilient performance from the High Street business, with steady recovery since the first lockdown and they will continue to focus on opportunities for growth as they open new stores in North America. The group is well positioned as travel markets recover.
GVC Holdings PLC
Today the global sports-betting and gaming giant is holding a presentation for investors and analysts to outline its ambitious plans for the future under its two core strategic pillars – sustainability and growth. These plans will be driven by the Group’s leading proprietary technology platform and supported by a range of strategic initiatives, a number of which are being launched today. There is very strong current trading performance and as the Group is renamed Entain PLC to reflect its ambition to be a world-leader in sports betting and gambling entertainment, it is in a very strong position to begin these plans.
The designer fashion retailer released its Interim Results for the period to 26 September 2020 today. H1 FY2021 saw a 31% revenue fall with adjusted operating profit down 75%. However, recovery is underway with sequential improvement from comparable store sales to -6% in Q2 FY2021 from -45% in Q1 FY2021 and returning to growth in October. Q2 also FY2021 saw strong double digit growth in Mainland China, Korea and the U.S.; EMEIA, Japan and South Asia Pacific remain impacted by the significant reduction in tourism. The group has made strong strategic process despite COVID and remain optimistic as such.
Financials & Real Estate
The specialist lending and retail savings group today issued a trading update for the period 1 July to date. The group delivered strong performance in the three months to 30 September 2020 and generated organic originations for the combined group of £725m in that period. The group remain extremely optimistic over their forecasts for the future, having performed so strongly in this period.
The Kings Hill based housebuilding company has today issued a trading update for the period from 1 July to 11 November 2020. They are in a strong position, on track to deliver FY20 profit before tax around £130 to £140m, while anticipating an even stronger position next year as they look to boost this to around £310m. The group is outperfoming expectations, seeing FY20 net debt far lower than anticipated and this is in part due to the fact there has been no impact to operations from switching to COVID-secure measures. The group is on track to retain maximum 5-star HBF customer satisfaction rating for 2020.
Qinetiq Group PLC
The British multinational defence technology company today released interim results underlining strong recovery performance through the COVID-19 crisis. The Group saw a 37% increase in orders, with 17% on an organic basis. This led to 24% revenue growth, along with a 16% increase in underlying operating profit. The group is entering the second half with confidence and a significant order backlog, strong customer focus and an evolved strategy recognising changing consumer needs. As a result, the group is increasing its full year guidance while managing risk from further COVID-19 disruption.
The British Media Giant today announced its Q3 results. Total external revenue was down 16% at £1,860m year-on-year. Broadcast revenue specifically was down 13% at £1,270m with ITV total advertising down 16% and online revenues up 2%. With no Love Island in the summer, online viewing was down 6% and fewer episodes of soaps meant viewing levels were lower however, monthly active users were up 1% with a 6% increase in dwell time. The group continues to deliver on its strategic priorities with BritBox performing well, hitting over 1.5m subscribers and they have used this time as an opportunity to set new environmental targets to achieve by 2030.
Spirent Communications PLC
The leading test, measurement, analytics and assurance technology company today issued a trading update for Q3 to 30 September 2020. The group is pleased to see continued strategic momentum and the Board remains confident that the Group will show progress in 2020. Expectations for the full year remain unchanged. Trading in the third quarter was similar to that experienced in the second quarter where 5G-led demand for assurance solutions continued to show strong growth, offsetting some market softness in order placement for Positioning products from US government contractors, which were affected by COVID-19 with many office and lab closures. Its year to date revenue growth is tracking broadly in line with their stated mid-single digit target.
The international private healthcare services group saw robust performance under challenging circumstances. Revenue was down 7% to £1 411m, 5% in constant currency and was significantly impacted by April 2020 due to sudden onset of COVID-19 restrictions. Adjusted operating profit is down 54% at £66m with reported operating profit down 57% to £64m. As the group attempts to navigate the pandemic it remains optimistic due to its clinical excellence and has little doubt it will begin to mount a recovery.
IN THE NEWS
How coronavirus will change the world forever – THE TIMES
Record surge in redundancies pushes UK unemployment to 4.8% – FINANCIAL TIMES
NHS told to prepare for Covid mass vaccinations from December 1 – THE TELEGRAPH