Maitland/AMO Morning Monitor – Friday 22 May 2020
What really matters... COVID-19
Antibody testing roll out
Health Secretary Matt Hancock yesterday confirmed the government would roll out antibody testing next week, having signed contracts for 10 million tests initially. The Roche and Abbott Labs deal will be rolled out in a “phased way” with frontline NHS staff and care workers prioritised.
Hancock said a certification system would be developed for people who tested positive for coronavirus antibodies to “give assurances on what they can safely do.” He suggested that almost four million people had recovered from coronavirus. Antibody testing has been regularly billed by Boris Johnson and ministers as “a game changer” in the response to the virus.
An antibody surveillance study suggests that 17 per cent of people in London have had coronavirus. In the rest of the country the figure is 5 per cent or higher. An overall national average of 6.9 per cent infected suggested that Britain was still in the early stages of an epidemic. Hancock also announced that a 20 minute coronavirus test is being piloted in a trial with 4,000 people for six weeks.
Professor Chris Whitty, England’s chief medical adviser, said the rate of all-cause excess deaths was now down to the average for a winter.
Economic decline easing?
Tentative signs that the worst of the economic damage inflicted by the coronavirus pandemic has emerged from the UK, the eurozone and the US. Private sector output in all three economies continued to fall this month but bounced back more than expected from April’s record lows.
IHS Markit’s “flash” composite purchasing managers’ index, measures changes in output, new orders and employment in the services and manufacturing sectors. In the UK, factory and service sector bosses reported that activity remained very weak, with output slumping, new orders much lower than usual and unemployment up. But the pace of the decline did ease, with the composite PMI rising to 28.9, from 13.8. Economists warned that Brexit has added to British companies’ woes and the recovery will be slow and bumpy, and unlikely to resemble anything like a V.
Eurozone companies reported a similar picture rising to 30.5 from 13.6 – with Germany coping relatively well but Italy and Spain suffering a sharper slowdown. In America, another 2.4 million people filed unemployment benefit claims — pushing the total number of jobs lost over 38m. The US PMI report also showed a slump in activity, but with some signs that activity is picking up as the lockdown eases.
The CBI’s industrial trends survey showed Britain’s manufacturers suffered their sharpest fall in output in at least 40 years this month. Manufacturers reported a sharp drop in activity, with businesses in the motor vehicles and transport equipment industry suffering the most. Only pharmaceuticals and electrical engineering companies registered growth.
The economy shrank by 2 per cent in the first quarter of the year, even before the full effects of the lockdown began to emerge. The true scale of the devastation will come to light with the publication of second-quarter GDP figures.
Home working is working
The long-lasting nature of the disruption caused by the pandemic has been laid bare by the number of companies considering new ways of working as back-to-work strategies are finalised.
Royal Bank of Scotland Group has told more than 50,000 staff to work from home until at least the end of September. Just 400 staff in regulated roles, such as trading, will be asked to return in June. Facebook founder Mark Zuckerberg has revealed that half of Facebook’s workforce could shift to permanent home working by the end of the decade. The social media company will adopt a “more measured approach” to working outside the office, he said, and will also recruit staff to remote roles. New Zealand’s PM Jacinda Ardern also this week suggested a four-day working week, partly to boost tourism in the country.
Those that do return to the workplace face stringent safety measures to protect their wellbeing, including temperature checks at entrances to offices, limits on numbers in lifts, one-way corridors, bans on hot desking and empty desks and screens between employees.
Stock market moves
- Rising geopolitical tensions caused Hong Kong stocks to tumble on Friday after the Chinese government said it planned to impose national security legislation on the city. In early trading, the city’s Hang Seng index fell 3.4% over fears that the show of legal force could reignite mass protests. China’s CSI 300 stock index slipped 0.8%.
- Wall Street declined overnight as President Donald Trump claimed China was behind a disinformation and propaganda attack on the US and Europe. The S&P 500 closed down 0.8% and the technology-dominated Nasdaq was 1.0% lower. US Futures as of 8:15 point to a further dip at the open this afternoon.
- The FTSE 100 and Euro Stoxx 600 are both down in early trading following concerns about a global pickup of the virus from the WHO.
In other news
- Government borrowing in April is predicted to have surged to £62.1 billion – the highest figure for any month on record – after heavy spending in the face of coronavirus. The Office for National Statistics said Government borrowing was £51.1bn higher than the same month last year.
- British retail sales fell 18.1 per cent in April compared with the previous month despite a spike in online sales as people stayed indoors and non-essential shops were shut.
- China’s National People’s Congress has not set a gross domestic product target for the first time. Instead Beijing will “give priority to stabilising employment and ensuring living standards”. China’s fiscal deficit was expected to be over 3.6 per cent of GDP this year.
- The Treasury and FCA are set to extend mortgage payment holidays for struggling homeowners for another three months.
- Passengers will be made to wear face masks, in-flight sales of duty-free will be banned and non-travellers will be barred from terminals under new European aviation safety protocols.
- AstraZeneca has secured orders for at least 400 million doses of an as yet unproven Covid-19 vaccine being developed with Oxford university and would begin delivering them in September.
- 46,440 residential sales completed in April, 46.1 per cent lower than the previous month and 53.4 per cent lower than April last year.
- Bank of Japan will boost lending to SMEs by providing banks with zero interest loans for up to a year.
- Online travel company On the Beach has launched an emergency share placing for about a fifth of its existing share capital to help it survive the near total shutdown in international travel.
- Dart Group, the listed company behind the Jet2 package holiday airline, has successfully raised £172 million in a placing of new shares.
- Senior managers at some of the City’s biggest banks are under investigation by financial regulators over whether they have improperly put pressure on borrower clients to award them lucrative equity-raising mandates during the crisis.
- Shoe retailer Clarks will axe 900 jobs and plans more store closures.
- Australia is seeking an exemption from a requirement that travellers arriving in the UK quarantine for 14 days.
- Boris Johnson has reversed a decision to force migrant care workers and NHS staff to pay a mandatory £400 annual surcharge for using the health service, the first major U-turn of his premiership.
- Priti Patel, the home secretary, will today announce plans requiring arrivals to quarantine for a fortnight from early June, regardless of their mode of travel. Exemptions will include lorry drivers, scientists researching coronavirus, fruit and vegetable pickers, border officials and police. The restrictions will be reviewed after three weeks.
- Boris Johnson has instructed civil servants to identify Britain’s main economic vulnerabilities to potentially hostile foreign governments as part of a broader new approach to national security code named “Project Defend”.
- Senior civil servant Simon Case has been promoted to a new role overseeing the government’s handling of the coronavirus crisis.
Corporate announcements* Maitland Client
Vodafone Group PLC* Board Appointment
- The Group today announces that Jean-Francois Van Boxmeer will be appointed as a Non-Executive Director following the Company’s Annual General Meeting on 28 July 2020, subject to shareholder approval.
- It is the intention that he will succeed Gerard Kleisterlee as Chairman of the Board on 3 November 2020.
- Gerard Kleisterlee, who has been Vodafone’s Chairman for nine years, will step down and retire from the Board on that date.
- Revenue up at £1,859.3m (2019: £1,818.5m).
- Underlying profit after tax of £429.6m up 5% on prior year (2019: £407.9m).
- £56m of costs associated with COVID-19 treated as adjusted items.
- Around £1.2bn of available liquidity.
- RCV gearing of 62% supports A3 stable credit rating with Moody’s.
- Underlying results for 2019/20 and robust liquidity, support paying final dividend in line with AMP6 policy.
- Revenue down 3% to £2,633m (2019: £2,720m).
- Adjust operating profit down 5% to £1,774m (2019: £1,861m).
- EPS down 64% to 29.8p (2019: 81.7p).
- Cash balances of £887m (2019: £837m).
- In order to limit the impact of the outbreak on business, the Group has implemented mitigating actions to contain costs and protect its financial position. These included renegotiating rents, restricting recruitment, travel and other discretionary spending.
- In Banking, the loan book reduced by 1.2% to £7.53bn in Q3 (31 January 2020: £7.62bn) and the net interest margin decreased slightly to 7.7% year-to-date (H1 2020: 7.8%), reflecting the impact of Covid-19 on new business levels and lower fee income, particularly in April.
- Asset Management continued to achieve good annualised net inflows of 10% year-to-date (H1 2020: 12%), while managed assets were impacted by negative market movements, reducing to £11.8bn (31 January 2020: £12.7bn).
- Winterflood experienced a substantial increase in trading volumes since the COVID-19 outbreak recording third quarter daily average volumes almost double those in the first half.
- Preben Prebenson, CEO, said: “While it remains too early to know the full impact that Covid-19 will have on the UK economy, we are confident that our tried and tested business model and the deep experience of our people leave us well prepared to respond to the challenges and opportunities ahead, protect our colleagues, and continue supporting our customers and clients.”
- Revenue up 33% at £144.3m (2019: £108.7m).
- Operating profit up 147% at £24.7m (2019: £10.0m).
- Diluted EPS up 151% at 21.8p (2019: 8.7p).
- Covid-19 impacted the end of the period, driving an acceleration of audience growth which with a diversified revenue strategy helped to offset the impact of a significant slowdown in newstrade.
- Online users have grown to 253m in H1 (2019: 201m), up 26% year-on-year, 31% organic growth. The global lockdowns have resulted in audiences around the world searching for advice and recommendations resulting in the Group achieving a record-breaking 329m online users in March 2020, up 66% year-on-year.
- London & International bus performance is robust through contracts in London, Singapore and Ireland.
- Resilient financial performance in UK rail franchises offset by weaker than expected German rail operation.
- The Group is cash generative and is expected to have around £200m available in unutilised facilities and cash at the year end.
- The Bank of England has confirmed its eligibility for up to £300m additional financing through its COVID Corporate Financing Facility.
- Adjusted net debt to EBITDA is expected to remain within target range at the year end.
- With the impact of COVID-19 and support measures, overall Group operating profit for the year ending 27 June 2020 is now expected to be in the range of £63m to £75m (£54m to £66m on a pre-IFRS 16 basis).
- Group LFL sales declined by 12% in the period. Disposals reduced sales by 9%, partly offset by a 1% favourable foreign currency exchange movement, resulting in a 20% decrease in reported sales.
- After a 9% decline in the first quarter (preliminarily disclosed as 10%), April’s performance has been in line with revised expectations, with LFL sales down 21%, most notably in North America and in the academic research and automotive end markets.
- The Group continues to be highly cash generative, with a cash conversion of over 150% for the period. At the end of April, we had net cash of £59.9 million (£33.5 million at 31 December 2019), with a cash balance of £244.2 million and gross borrowings of £184.3 million.
- The Group has £827.5 million of committed banking facilities and has access to a number of uncommitted and bank overdraft facilities.
- Mike Ashley has sent a letter to all individuals within the Frasers Group in order to thank them for their support during the lockdown period.
- The letter also notes the Government’s proposals for the phased reopening of retail stores, which whilst not guaranteed may potentially see the Company’s stores begin to open from June 1st 2020.
- The Company has decided payments to virtually all directly engaged employees, including those on casual contracts, will remain at 100% of normal salary levels for May. This applies to both furloughed and non-furloughed employees.
- Senior management including Chris Wootton (CFO), Sean Nevitt (Head of Commercial) and the non-executive directors, will remain on a reduced annual salary capped at £40,000 at this time. As per normal, Mike Ashley will not be drawing a salary.