By Powerscourt on 17/11/2020
Powerscourt Coronavirus Briefing – 17 November 2020
ANALYSIS
Another day, another set of shoot-the-lights out vaccine efficacy data, triggering another collective sigh of relief and a global stock rally.
Yesterday US biopharma Moderna Inc announced the first interim analysis data from its Phase III study with efficacy of nearly 95%, slightly better than the two previous vaccine candidates to have released interim efficacy data. The Moderna data, based on a trial of 30,000 patients, follows successful interim trial data from Pfizer and the Russian Sputnik V vaccine candidate last week.
None of these respective data sets are final. But all three vaccines have demonstrated efficacy comfortably into 90%, a very strong signal that the science has now proven itself and derisking the process of getting them approved for mass human use by regulators. Now onto the next challenge, getting them produced, distributed and administered around the world: still a lot of fences to jump.
“This news from Moderna is tremendously exciting and considerably boosts optimism that we will have a choice of good vaccines in the next few months,” Peter Openshaw, Professor of Experimental Medicine at Imperial College London, said.
The news is a remarkable validation for Moderna, a hitherto so-called “moonshot stock”, one of the world’s most-hyped biotechnology IPOs in 2018 which has until now been seen by many investors as overvalued because the company, focused around the experimental mRNA technology, has yet to bring a product to market.
Now, its stock up just under 10% Monday with a market value of just under $39 billion, investors are no longer doubting its value.
Global markets, predictably, surged on Monday on news that a third vaccine candidate has passed this first hurdle. The FTSE 100 closed up just under 2%, with the S&P closing up 1.2% and the Dow Jones Industrial Average reaching a new record closing up 1.6%.
Vaccine hopes have also stimulated sections of the global stock markets which have been in the doldrums since the crisis began at the start of 2020.
The rise in the Dow was largely fuelled by a rally in some of the previously beaten-down stocks which have been most exposed to COVID-19 economic restrictions, including banks, retailers, travel and oil companies.
The FT notes that investment has poured into so-called “value” stocks and out of the tech stocks which have become the largest players in the world’s major indices as a result of the crisis.
Meanwhile, US President Elect Joe Biden has been holding meetings with business and labour leaders in a bid to support America’s battered economy. Mr Biden and his Vice President-Elect, Kamala Harris, met leaders including Mary Barra, the chief executive of General Motors, and Satya Nadella, the head of Microsoft, as well as the American Federation of Labour and Congress of Industrial Organizations president, Richard Trumka, and the United Auto Workers president, Rory Gamble.
Following the meeting, Biden ratcheted up the rhetoric against the President Donald Trump saying more people would die from coronavirus if Trump refuses to cooperate with an orderly transition. Biden said the administration’s intransigence could lead to a bottleneck in allowing US citizens access to a vaccine once approved.
The UK government is again under pressure to provide a roadmap out of the latest lockdown, after its top health official admitted that restrictions could continue into the festive season, contradicting earlier assurances by the Prime Minister, Boris Johnson who has to isolated after an unmasked meeting with a colleague who has tested positive.
Matt Hancock, the secretary of state for health, admitted it was “too early to know” if restrictions imposed 10 days ago had begun to work in bringing infection levels down. Susan Hopkins, an adviser to NHS testing, said that the next phase of restrictions – currently scheduled to come into effect in early December – would probably be a phased plan which would be tougher than current restrictions.
Asian markets opened strongly on Tuesday on continued optimism on vaccine progress and good sentiment around economic recovery.
WHAT ARE COMPANIES SAYING?
Industrials
EasyJet
The airline has plunged to a £1.27 billion loss in the 12 months to the end of September, showing the extent of the impact of the pandemic on the company which had never before made an annual loss in its 25 year history. With travel at anaemic levels during the second wave of the virus in Europe, EasyJet said quarterly cash burn, a key metric watched by investors keen to see costs reduced, improved to £651 million from £774 million in the previous period. EasyJet also said on Tuesday that after talks with the Bank of England and the UK government’s finance ministry, it will extend its borrowing under a COVID Corporate Finance Facility, staggering repayments and relieving pressure on its balance sheet. The airline has repeatedly said it is keeping its liquidity position under review as the outlook for travel has worsened. The reported annual loss before tax of £1.27 billion compared to the £430 million profit it made in the previous year. On a headline basis, it made a loss of £835 million, in line with an October forecast. It is currently flying around 20% of planned capacity and said short-term uncertainty was such that it could not provide any financial guidance. To survive the pandemic so far, the airline has raised over £1 billion from sale and leaseback deals for its aircraft, taken a £600 million loan from the government, cut 4,500 jobs, and tapped shareholders for £419 million, and has said it could need to do more.
HomeServe
The British home repair services provider HomeServe posted a 16% rise in first-half adjusted profit, helped by a surge in demand for home remodelling during COVID-19 lockdowns, and raised its interim dividend by 7%. The company’s adjusted pretax profit for the six months ended Sept. 30 rose to 33.1 million pounds from 28.6 million pounds a year earlier.
Petra Diamonds
The company has reported a 58% drop in annual earnings and a 36% drop in revenue, recording a net loss of $223 million as it counted the costs of upheaval in the global diamond market caused by the coronavirus pandemic. Petra, which operates three diamond mines in South Africa and one in Tanzania, kept production guidance for 2021 on hold.
Aggreko
Aggreko has committed to reach net-zero carbon emissions by 2050 and set the profit guidance for 2021. The supplier of temporary power generation and temperature control equipment said it at least halve the diesel fuel used in customer solutions as well as cutting local air quality emissions of those solutions by 2030. It will also achieve net-zero emissions across its business operations by 2030, extending it to all services by 2050. During the energy transition, revenue is expected to grow 5-10% in the medium term, driving 18-19% group margin. Capital expenditure is estimated to be £250-350mln per year. In a separate statement, the FTSE 250 firm said next year’s profit before tax is forecast to be in the range £170-190mln if the Tokyo Olympics contract proceeds as planned.
Telsa
Tesla is set to join the S&P 500 in December, a major win for Chief Executive Elon Musk that boosted the electric car maker’s shares 14% in anticipation of a $51 billion trade by index funds adjusting their holdings. S&P Dow Jones Indices announced that the company would join the S&P 500 index prior to the opening of trading on Dec. 21, potentially in two tranches making it easier for investment funds to digest. “(Tesla) will be one of the largest weight additions to the S&P 500 in the last decade, and consequently will generate one of the largest funding trades in S&P 500 history,” S&P Dow Jones Indices said.
TMT
Huawei
Huawei Technologies is selling its budget brand smartphone unit Honor to a consortium of over 30 agents and dealers in a bid to keep it alive. The deal comes after U.S. government sanctions have restricted supplies to the Chinese company on grounds the firm is a national security threat – which it denies. The consortium issued a statement on Tuesday announcing the purchase, which will be made via a new company, Shenzhen Zhixin New Information Technology. Huawei will not hold any shares in the new Honor company after the sale, the statement said. In Huawei’s statement, the company said its consumer business has been under “tremendous pressure” due to the “persistent unavailability of technical elements” for its phone business.
Dassault Systemes
French technology and software company Dassault Systemes issued a new financial outlook on Tuesday, forecasting solid growth in its cash flow over the next few years. “Our revenue initiatives will likely drive our Cloud footprint up significantly, representing about 2 billion euros in potential cloud software non-IFRS revenue by 2025,” said Dassault Systemes Chief Operating Officer and Chief Financial Officer Pascal Daloz. Adding, “we also see significant growth in operating cash flow, with an average annual operating cash flow of about 1.5 billion euros over this 2020-2024 timeframe, enabling us to maintain significant financial flexibility to advance our strategic priorities”.
Vantage Towers
Reuters reports that Vodafone today will detail the prospects for Vantage Towers, the infrastructure spin-out it plans to list next year, with an pro-forma adjusted earnings forecast of 530-540 million euros this financial year. Vantage Towers, which will IPO in Germany, Vodafone’s biggest market, will operate around 68,000 macro sites across nine European countries, with commitments to build 7,100 new sites by financial year 2027, Vodafone said. Vantage Towers CEO Vivek Badrinath said: “The growth potential in the towers sector is fuelled by the requirement for data as well as the roll-out of 5G technology and new and wider network coverage obligations across Europe. “These factors will increase the number of tenants renting space on our towers and we have also received firm commitments to build 7,100 new sites for our customers.”
Consumer & Retail
Imperial Brands
Tobacco company Imperial Brands has reported higher full-year sales today, as demand for tobacco offset a drop in its e-cigarette business. The maker of Gauloises and West cigarettes reported full-year adjusted group revenue of £7.99 billion, up 0.8% in the full year ended September 30. Adjusted earnings per share were 254.4 pence, down 5.6%. The company said a “comprehensive” strategic review was underway, with a capital markets update scheduled for January 27.
Financials & Real Estate
Berkshire Hathaway
Warren Buffett’s Berkshire Hathaway has said it has begun investing in the stocks of four large drugmakers, betting on an industry that could benefit when the world begins emerging from the coronavirus pandemic. In a regulatory filing detailing its U.S.-listed stock holdings as of September 30, Berkshire disclosed $5.7 billion of new healthcare stakes, including more than $1.8 billion each in Abbvie Inc, Bristol-Myers Squibb Co, Merck & Co and $136 million in Pfizer Inc. Shares of the drugmakers rose in after-hours trading. The filing signals where Buffett and his portfolio managers Todd Combs and Ted Weschler see value. Buffett normally handles large investments for Berkshire’s $245.3 billion stock portfolio himself. James Armstrong, presiden of Henry H. Armstrong & Associates in Pittsburgh, which owns Berkshire stock, said: “COVID-19 has made us think differently about healthcare.”
Experian
Data credit company Experian is bullish on revenue growth in the third quarter after a ‘resilient’ performance in the first half of the year, despite the backdrop of the pandemic. Revenue for the first half of the year at constant currency grew three per cent after a strong performance in the second quarter. Experian reported a two per cent drop in revenue in the first quarter, offset by a five per cent rebound in the following quarter. Second quarter growth was at the top end of the FTSE 100’s guidance range, and its outlook is far more positive than in May when it warned of a 10 per cent revenue hit in the first quarter if lockdown restrictions continued. Experian expects organic revenue growth in the range of three to five per cent in the third quarter. The strong performance was mainly driven by growth in North America and Latin America where revenue jumped seven and five per cent respectively. Performance in the UK and Ireland and EMEA/Asia Pacific was considerably weaker, with organic revenue down 12 and 18 per cen t respectively. Experian said the “stand out performance” across the group was in consumer services where it boasts nearly 100m free consumer memberships.
IN THE NEWS
Global M&A recovers on vaccine hopes and US political stability – FINANCIAL TIMES
Vaccination rescue plan is given a fresh boost – THE TIMES
Covid lockdown looms over Christmas – THE TELEGRAPH
