If you have any questions around how our Capital Markets team can support you and your business through the current environment, or if you would like to receive this as a daily newsletter, please get in touch with Emma Burdett, Partner and Head of Capital Markets: firstname.lastname@example.org
We have seen an overall reduction in Covid-19 specific updates compared with this time last week. Companies communicating to the market are automatically including Covid-19 and economic landscape updates in all communications which seems to be becoming a ‘new normal’.
Today’s specific Covid updates from the FTSE 350 were limited to Halma plc, Landsec Group, Petropavlovsk plc and Whizz Air Holdings. Halma plc released an update on the impact of the Covid-19 pandemic “In what are challenging and changing times, we have taken a considerable number of actions to date and will continue to monitor matters closely”, stating that no further change to forecasts since their 19 March update, but that after discussions with their auditors they are delaying final results by just over a month to 14 July. Landsec Group announced that its board of directors are contributing to their Covid-19 support fund by waiving 20% of base salaries for an initial three-month period. Whizz Air Holdings issued a covid corporate financing facility update highlighting that it is eligible for the UK governments covid corporate financing facility.
In terms of retail, John Lewis plc (announcing for John Lewis Partnership plc) released its trading update and 2020 annual report and accounts this morning. As expected, short term trading has been significantly affected by Covid-19 as all 50 John Lewis branches remain closed. “This is a time of great uncertainty and volatility and the full year picture is impossible to predict. We are therefore looking at a range of different possible outcomes and how these might affect profits, sales and cash flow.”
As company announcements continue to evolve and adapt to Covid-19, we are starting to see more firms highlight the safety of their employees and wider stakeholders at the top end of announcements. For example, todays John Lewis plc release was structured as follows: 1) Covid-19 summary, 2) prioritising safety, 3) supporting partners/stakeholders, 4) trading, 5) cash/liquidity, 6) final statement (emerging stronger).
The UK DMO announced its latest result of sale by auction issuing £3.2bn of treasury gilts maturing in 2025. The gilts were covered 2.83 times showing demand remains strong for government debt. The bids ranged from highest accepted (Price £102.352/Yield 0.164%) to lowest accepted (Price £102.317/Yield 0.171%).
As an AGM update; Aviva, Spectris and RIT Capital released notice of their 2020 AGM, London Stock Exchange Group hosted it AGM today, although they were unable to host shareholders in person due to Covid-19. XP Power Ltd announced the results from its AGM. Elementis plc updated its 2020 AGM amending previously arrangement “to ensure the safety of employees and shareholders”
Views from the investment community
- Consumers in Asia – Consumers in a Pandemic: Asia Sector and Stock Implications
Jefferies: Clicks vs. bricks. Ecommerce is benefiting from the shift to online. Based on the survey results, we maintain our view that online shopping will revive first, followed by food delivery and last local travel. Issues on logistics supply is largely resolved with higher demand for staples vs discretionary. In food delivery, we see capacity recovering first, followed by supply of merchants and lastly demand.
- Market & Economics – Why global recovery may not look like China’s
Vanguard: It seems natural that economy-watchers would look to China for clues about other economies’ recoveries from the COVID-19 pandemic. China appears to have moved past the worst of the coronavirus outbreak, and economic activity is bouncing back…
Extrapolating China’s experience into outlooks for developed economies won’t likely reveal a true picture, however. The economic structures are simply too different, and Vanguard believes the pace of recovery will thus differ significantly. Although we see China’s economy returning to normal by the end of the year (assuming no significant second wave of infection), we believe it will take three or four additional quarters before developed markets’ economies return to normal, likely toward the end of 2021.
Vanguard sees three fundamental reasons why developed economies’ recoveries won’t mirror China’s. First, not every government has been as forceful as China’s in its containment measures. China’s national lockdown in late January was effective in containing the first wave of the virus relatively quickly. Second, China is still “the world’s factory.” The predominance of manufacturing in China’s economy mitigates the influence of the face-to-face services sector, which will likely be slow to recover in China, as it will in countries where it accounts for a far greater percentage of GDP. And third, China has more capacity than most developed nations for fiscal policy intended to stimulate demand on top of measures being taken globally to cushion the immediate blow of economies in freefall.
- UK Life Insurance – Maintain our preference for low asset risk, revise20e/21e earnings by -14%/-11%
J.P. Morgan: UK life insurance sector is down 32% YTD and has underperformed the European Insurance sector by 2% and FTSE100 by 9% with best relative performer being PHNX and worst being Aviva. The reason for UK life insurers underperforming in our view is largely due to its higher than average asset risk to back the annuities liabilities (Just Group, LGEN and Aviva), US macro risk (Prudential), asset management type operations (MNG and SJP).
- UK Housebuilders – UK Housebuilders and COVID-19 (pt. 3)
Deutsche Bank: Given that forecasts suggest this will rank among the most acute economic downturns on record, scope exists for a commensurate fall in house prices. As we enter a period in which volumes will likely remain low – making meaningful data points difficult to obtain – some time may elapse before the full impact comes into sharper relief. As such, negative house price prints will likely manifest alongside the ashes, not the flames, of the coronavirus.
UK house prices could fall 20% or more. Although prices in London fell c32% in1989/1993, >20% would be unprecedented for the UK at large. In previous recessions, falls have been cushioned by base rate cuts (14% to 6% in 1989/1993;5.75% to 0.5% in the GFC). As scope to reduce the base rate from its c300 year low is limited, today’s cushions seem somewhat threadbare and uncomfortable.
Regulation and Corporate Governance
Please find the latest news on UK regulation below:
- 21/04/2020: FRC publishes further guidance on modified auditors’ opinions and reports during Covid 19 crisis.
- 21042020: The Financial Times reports Chris Woolard, interim chief executive of the Financial Conduct Authority, says that coronavirus is first serious test of post-2008 banking rules. But he admits that FCA’s ability to take action over lenders’ behaviour remained “limited”.
- 20/04/2020: The Financial Times reports that ShareAction, the responsible investment charity, has called on all FTSE 100 companies to hold virtual AGMs in 2020. The charity found that two out of three of the index’s annual meetings announced so far are set to be held with just the minimum of participants, with no opportunity for shareholders to question the board in real time.
- 20/04/2020: The Financial Times reports that regulators across Europe are asking asset managers for new information about their ability to meet investor redemptions as they seek to stave off a liquidity crunch sparked by the coronavirus market sell-off. The French and German financial watchdogs have started demanding daily updates of investor withdrawals from open-ended funds, while the regulators of Luxembourg and Ireland have also stepped up their monitoring of the sector.
- 20/04/2020: The Times reports that some of the most senior figures in the City, including Peter Hargreaves, Andy Bell, Sir Brian Williamson and Martin Gilbert, are calling for listed companies seeking equity capital in the weeks to come to try to accommodate private investors. In an open letter to plc chiefs, to be published today, the owners of investment platforms, small investor groups and mainstream fund managers have united to express deep concern that private investors are being disadvantaged and short-changed.