Powerscourt

By Powerscourt on 25/11/2020

Powerscourt Coronavirus Briefing – 25 November 2020

ANALYSIS

The Dow Jones Industrial Average on Tuesday surged to close over 30,000 points for the first time, a signal that, with vaccines on the way, investors believe the economic threat of COVID-19 is finally coming to an end. But UK government borrowing is at staggering levels and the bill will have to be paid.

Critically, some of the asset classes to have been most damaged throughout the COVID-19 crisis are now back in fashion. Tourism, energy and leisure stocks are on a roll. Bitcoin, that riskiest of risk-on assets, has reached near-record highs in recent days.

Market exuberance points to optimism that the post-COVID bounce back is in sight. But the real economy still faces months, if not years, of pain.

UK Chancellor of the Exchequer Rishi Sunak will today set out a plan to spend £4.3 billion to stave off the potential of mass unemployment in Britain.

The Chancellor will tell Parliament that now is not the time to focus on mending the UK’s public finances – a counterintuitive message for a Conservative government and one which underlines the widespread concern about how the pandemic has impacted the livelihoods of ordinary people. For now, Sunak is focused on protecting jobs and supporting livelihoods hit by the pandemic, no doubt conscious that the UK’s impending exit from the European Union in January is likely to amplify the economic hit.

Bloomberg has an extraordinary number today. It surveyed 12 primary gilt dealers and estimates that the UK will borrow almost £100 billion from October to December taking totally borrowing for the year to £482 billion. It quotes Liam O’Donnell of Aberdeen Standard Investments: “The U.K. economy is on a large amount of life support right now.”
Greed – and hope – are back with a vengeance in the markets. But fear remains tangible in the real world.

The FT reports that UK public spending watchdog the Office for Budget Responsibility will warn that public finances won’t recover at least until 2024.

Stock market exuberance belies the real pain being felt by those people who are unable to avoid contact with the virus. Reuters features a harrowing account of how COVID-19 has hit rural communities in America’s Midwest. Over a quarter of a million people in the US have now died from the virus.

A slew of vaccines data over the past fortnight from drug developers confirms that science has essentially beaten coronavirus. But policymakers around the world are acutely aware that this puts populations into a dangerous situation as they wait for vaccines to be delivered.

With several weeks to go before the potential for vaccine rollout in even the most optimistic projections, and with seasonal festivities looming around the world, relief and compliance fatigue could prompt people to let down their guard with devastating effect.

European countries are setting out their stall to allow their citizens to enjoy a well-earned festive break without triggering a fresh wave of infection – a very delicate balance.

The UK government on Wednesday outlined plans to allow families to mix with two other households in a “Christmas bubble” under a planned five-day relaxation of social distancing rules. Restrictions on travelling between different parts of the UK will be relaxed between December 23 and 27. Inevitably, this has worried scientific advisers who are concerned this will prompt a post-Christmas infection spike.

France has signalled the start of a phased easing of lockdown restrictions. In a televised address, President Emmanuel Macron said the worst of the COVID-19 second wave was over as he said non-essential shops will be allowed to reopen and limited religious ceremonies to resume. Germany’s 16 federal states plan to allow gatherings of up to 10 people over Christmas, Reuters reports.

The US, still in the midst of a hugely damaging wave of infection, faces an unusually subdued Thanksgiving on Thursday. Dr Anthony Fauci, the rock star immunologist, on Wednesday dispensed his advice to the Wall Street Journal about how to play Touch Football – a Thanksgiving family tradition – in a socially-distanced fashion.

Inevitably where there is economic pain, someone is benefiting, notes WSJ. Americans are compensating for a socially distanced festive season by displacing their energy – and money – into splurging on festive decorations.

Fred Stewart, who owns a plumbing company in Rogersville, Missouri, told WSJ that he has bought four six-foot snowmen, an eight-foot Santa, 20 pink flamingos in Santa hats, and a four-foot hippo in a pink tutu to adorn his home.

“What else can we do?” Stewart told the paper.

Most major world stock indices closed up comfortably over 1% on Tuesday and Asia-Pacific stocks remained strong into Wednesday, with Australian and Japanese indices remaining elevated.

 

WHAT ARE COMPANIES SAYING?

Industrials

United Utilities
The company responsible for water and wastewater services in the North West of England, posted half year results for the six months ended 30 September 2020. Underlying profit after tax of £174m was down 16%, reflecting new price control. Despite Covid-19 and the support of 142,000 customers facing financial difficulties through support schemes, household cash collection remained strong. Steve Mogford, Chief Executive Officer, said: “We now have a clearer understanding of the impact of COVID-19 on our business which remains robust and supported by a strong balance sheet.”

Rotork
The global flow control and instrumentation group, today issued a trading update covering the four months to 1 November 2020. The company report that although there remains uncertainty on the continuing impact of the Covid-19 pandemic, and risks of temporary factory closures and logistics issues, they expect 2020 adjusted operating profit to be at, or slightly above, the top end of the range of current market expectations: £124m-136m.

Babcock
The leading provider of engineering services, announced half year results for the period ended 30 September 2020. The company reported resilient revenue but noted that operating profit falling 55% from £168.7mn to 76.2mn reflects disposals, the impact of civil nuclear insourcing, COVID-19 and weakness in civil aviation. Their order book grew from £16.9bn to £17.2bn. David Lockwood, Chief Executive Officer, said: “While demand for our critical services has remained resilient overall, the additional costs incurred and inefficiencies created have impacted our profitability.”

Financials & Real Estate 

Virgin Money
The UK’s sixth largest lender posted full year financial results for 2020. Given higher impairment charges due to the pandemic, underlying profit before tax stood at £124mn, underlying CIR stood at 59% and CET1 remained resilient at 13.4%. Providing support to those in need during the difficult time, the company have distributed £900,000 to local Covid-19 support charities. David Duffy, Chief Executive Officer, said: “It has been an extraordinary year of disruption for all of us. Our priority has been to support our customers and colleagues through this period, and we will continue to do so during the challenging economic environment ahead.”

Liontrust Asset Management
The independent fund management group, today announced its Half Yearly Report for the six months ended 30 September 2020. Adjusted profit before tax was £22.3mn, an increase of 31% compared to the equivalent period last year. Assets under management and advice were £20.6bn, an increase of 28% since the start of the financial year and 41% compared to 30 September 2019.

Brewin Dolphin
One of the largest British investment management and financial planning firms, announced results for the year ended 30 September 2020. The manager posted strong total discretionary fund inflows of £2.8bn and total discretionary net flows of £0.9bn, representing an annualised growth rate of 2.2%. Total funds increased to £47.6bn (H1 2020: £41.4bn, FY 2019: £45.0bn), up 15.0% since 31 March 2020.

HICL Infrastructure
The long-term investor in infrastructure announced Interim Results for the six months ended 30 September 2020. Net asset value grew 1.7p to 154.0p per share compared to 152.3p in March 2020, alongside an annualised total shareholder return of 7.8%. The Company note that their diversified portfolio underpinned this steady performance during a period of market uncertainty caused by the ongoing pandemic and is on track to deliver aggregate target dividends of 8.25p per share for the current financial year ending 31 March 2021.

 

Consumer & Retail

Genus
The leading global animal genetics company, publishes the following trading update for the period from 1 July 2020 to 24 November 2020. Research and Development investment for the four months was lower than the prior year due to some collaboration activity with external research institutions being delayed due to the effects of COVID-19 lockdowns. Group trading was ahead of expectations, with adjusted profit before tax showing strong growth compared with the same period in the prior year. Net debt at the end of October 2020 was lower than expected.

 

TMT

Future
The global platform for specialist media, today publishes results for the year ended 30 September 2020. Group revenue grew 53% to £339.6m, driven by a combination of organic growth and acquisitions. The increase was also underpinned by continued online audience growth of 56% compared to a revenue decline of 29% for the magazines division. Future also announced that it has agreed the terms of a recommended offer to acquire the entire issued and to be issued share capital of GoCo Group, who own Go Compare.

 

IN THE NEWS

Covid rules relaxed for Christmas – The Times

Rishi Sunak to set out £4.3bn plan to tackle threat of mass unemployment – Financial Times

Tougher Covid tiers are coming – and with them another potential Tory revolt – The Telegraph




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