Maitland/AMO Morning Monitor – Tuesday 2 June 2020
In the news
- House prices fell by the most in more than a decade in May, according to the Nationwide Building Society. Prices fell month-on-month by a larger than expected 1.7%, the sharpest fall since February 2009. Year-on-year house price growth slipped to 1.8% on the back of the fall. City economists had forecast a monthly fall of 1%and an annual rise of 2.8%.
- The Business Growth Fund proposes a state-backed scheme to aid indebted companies emerging from the pandemic to repay state-guaranteed coronavirus loans with funds totalling ££15bn. The fund, backed by big UK banks is seeking to raise the money from investors, the government and current shareholders.
- In what could be a beacon of hope for the travel industry, the UK government is reconsidering travel quarantine plans due to come into effect from 8 June to let arrivals from some countries in without having to self-isolate. The quarantine idea is viewed with astonishment from the Continent where intra-EU travel resumes fully between the Schengen countries on 15 June.
- The World Economic Forum has vowed to hold its annual meeting in Davos in January 2021.
- Ted Baker, the fashion chain has raised £95m in an emergency fundraising, tapping institutional but no retail shareholders.
- Primark has vowed to re-open all its 153 UK stores when restrictions end in two weeks’ time but will not slash prices on almost £2bn worth of yet unsold stock.
- Spanish telecom company MasMovil is to be acquired in €5bn private equity buyout by Providence, KKR and Cinven in a ‘take-private’ deal.
- Facebook employees revolted over Zuckerberg’s stance on Trump criticising the CEO’s stance of refusing to take action over posts by US president in response to the recent unrest.
- China has earmarked $56bn (Rmb400bn) to support lending to small businesses.
- The UK government is pushing to introduce a motion today to abolish the ‘hybrid’ proceedings where up to 50 MPs are present in the chamber and a further 120 participating by Zoom. If passed MPs will have to be physically present to vote which some fear could result in a 1 km long queue if social distancing measures are observed. Needless to say, not all MPs feel this is a realistic idea.
- London Mayor Sadiq Khan has called on Michael Gove to back an extension of the Brexit transition period as talks move to crunch point ahead of the 30 June deadline for an extension agreement. A poll in the Northern ‘red wall’ seat of Workington won by the Conservative party from Labour in last year’s elections showed that three quarters of voters want a deal at the end of Brexit negotiations and almost two thirds believe the government should offer an extension to the transition period if the EU asks for one. Senior sources in Brussels have indicated that the EU will compromise if the UK does the same and believe the UK’s chief negotiator is keen to counter the perception that negotiations are deadlocked.
Stock market moves
- Global stock markets seem to be little fazed by the US riots and US-China tensions. The S&P 500 closed up 0.4% to near 10% of its all-time high, with the FTSE-100 climbing 1.5% following better than expected PMI data. The Japanese Topix and Nikkei indices jumped 1.4% higher with Hong Kong, South Korea and Australia also ending higher.
- The German Dax-30 index opened higher at plus 2.5% and the FTSE-100 index in London opened 1.48% higher.
- Futures tip the S&P to open 0.4% lower when trading opens later today.
Corporate announcements* Maitland Client
Tesco PLC Directorate Change
- The group has announced that Alan Stewart has decided to retire as Chief Financial Officer of Tesco and leave the Company on 30 April 2021.
- Dave Lewis, CEO, said: “Alan has been an outstanding leader and partner at Tesco. He has made a huge contribution and on behalf of all of Tesco colleagues I would like to thank him for all he has done.”
- Alan Stewart, CFO, said: “Being part of the team that has delivered the turnaround at Tesco and set it up for the next stage means an incredible amount to me. I shall continue to focus on delivering the strategy, supporting the business and my colleagues through the next 11 months, knowing that the business is in a strong position as we move forward.”
- Group adjusted results broadly in line with expectations despite impact of COVID-19.
- Increase in Group revenue reflecting balanced organic growth and acquisitions.
- EBITDA fell 3% to £480m (2019: £493m).
- Dr Ronnie van der Merwe, CEO, said: “A high degree of uncertainty remains regarding the progression of the pandemic and its full impact, which may well continue for at least the next 12 months. As a Group, we are preparing for a variety of eventualities while simultaneously endeavouring to continue making available our wide range of acute inpatient, outpatient and day case care services. We will remain agile in our approach, seeking to overcome challenges and creating opportunities. Throughout this pandemic, and afterwards, the Group’s values of being client centred and patient safety focused will not waver.”
- NAV fell 29.9% to £544.9m (2019: £881.5m).
- 1 year share price fell 35.5% to 198.6p (2019: 323.5p).
- Richard Laing, Chairman, said: “Shareholders will understandably be extremely concerned and disappointed by these poor results, which follow on from previous years’ underperformance. The Company’s Board of Directors, almost all of whom are shareholders themselves, share these concerns. Our patience ran out and on 6 April 2020 the Company served Invesco Fund Managers Limited with protective notice of termination of the investment management contract, following this extended period of underperformance of the Company’s benchmark. This decision was not taken lightly, particularly given the current market environment, but the Board had previously made it clear that it was concerned with the Company’s poor performance and this continued for the most recent financial year, which ended on 31 March 2020.”
- The trust notes that towards the end of 2019, investors began to factor in a 2020 revival in global cyclical prospects and, following the clear-cut General Election outcome, an improvement in the UK market’s performance. However, these expectations were turned on their head by the spreading COVID-19 epidemic in February, which caused a dramatic fall in global equity markets.
- The group’s portfolio fell steeply in this changed environment, noting that 2020 has been a disappointing time for its shareholders, with its -17% total return to the end of May trailing that of its benchmark.
- It’s 12% underperformance has been due mainly to the underperformance of its underlying portfolio (9%), exacerbated by being geared into a market fall (2%), with an additional 1% being the cost of the early repayment of its 2025 6.125% Secured Bonds.
- However, the Board is confident that, following a poor showing during this especially turbulent time, its managers will return to form, enhanced by the changes made and the broader range of opportunities offered by the benchmark adopted at the turn of the year.
- Net Asset Value at year end of £1.2bn represents a positive NAV total return of 0.1% in the year.
- 15% increase in EPRA earnings per share to 3.50p (2018: 3.03p) driven by acquisitions made in 2018 and successful asset management in 2019.
- 11.3% total shareholder return underlining the continued attractiveness of a large diversified REIT with a low risk profile.
- Ken McCullagh, Chairman, said: “We delivered strong earnings growth in 2019, primarily as a result of a number of successful asset management initiatives during the year under review and the benefit of receiving a full year of income from acquisitions we secured throughout 2018. ESG continues to be an important focus, so we are also pleased to report a 9% reduction in like-for-like greenhouse gas emissions across our portfolio. Looking ahead, the current crisis has resulted in significant pressure on the Company’s revenue account with rent collections for the second quarter standing at 68% as at 24 April 2020. However, we believe that UKCM continues to have strong fundamentals in place both at a property and corporate level that will help the Company navigate these unique circumstances, giving us the confidence to have announced in April that we intend to continue paying a dividend to shareholders.”
- Lower impact of Covid-19 within the Group’s retirement communities, than the general over 65 population.
- Following the easing of some restrictions by the Government, the Group has taken a gradual and measured approach to re-mobilisation of both sales and build, which are scheduled to commence in phases from 8 June.
- The Group continues to maintain a strong balance sheet and, as at 30 April, its available cash balance was c.£146m (after drawdown of its £200m Revolving Credit Facility).
- John Tonkiss, CEO, said: “We have seen a lower impact of Coronavirus in our developments, than the general over 65 population, and this proves more than ever that our communities are safe, resilient and supportive places to live. By providing independent apartments with the right level of on-site care and assistance, retirement communities are an effective ‘Third Way’ to the current options of remaining in a family home or moving into residential care. The UK must now learn the lessons from this crisis and redefine how best to support our ageing population. We need a joined-up and long-term plan, starting with more and better housing for older people.”