Maitland/AMO Morning Monitor – Tuesday 26 May 2020
In the news
- India surprised everyone by imposing a draconian lockdown on its 1.4bn population in late March with everyone but essential workers confined to home. The economy cratered. Now Prime Minister Modi wants Indians to go back to work with observers and Indians worried the lockdown has been wasted, as infections continue to rise.
- Australia will counteract Chinese influence in the Pacific region by broadcasting TV shows Neighbours, Masterchef and other series into island nations.
- Amazon is accused of selling hundreds of products that make bogus claims to shield consumers from 5G mobile waves, including underpants.
- Zoom meetings cannot replace face to face completely - the tussle between the US (Lockheed Martin) and UK (AgustaWestland) to supply the South Korean Navy with helicopters has been delayed for months by travel rules.
- This week on Wednesday Nissan will seek to revive its alliance partners Renault and Mitsubishi, and will publish annual results.
- VW’s ad agency (Voltage – part of Omnicom) that created a (since deleted) racist Instagram video ad is investigating whether it came about through an act of deliberate sabotage. VW, which spends Euros 1.5bn on advertising annually, has also launched an internal investigation.
- Sir Richard Branson’s Virgin Orbit tested a rocket over the Pacific. The rocket booster was launched from one of Virgin’s converted old jumbo jets, but it didn’t work.
- The Guardian and Telegraph report that the UK’s National Cyber Security Centre will conclude that US sanctions against Huawei will make it impossible to use its technology in planned 5G networks.
- UK parliament in recess until next Tuesday (2 June). Coronavirus briefing as usual at 5pm.
- On Friday the UK Government will give more information on easing (or not) of lockdown restrictions.
Stock market moves
- A quiet start to the week with US and UK markets closed yesterday. A rosy-ish survey of German business morale helped the Euro STOXX index rise 1.2% on Monday.
- Asian markets rose overnight led by Japan. In Hong Kong China sought to reassure that its proposed national security law, that many fear will impinge on Hong Kong’s autonomy, would instead make the Asian hub more business friendly. The Hang Seng plunged last Friday amid rising political turmoil, and has managed an anaemic recovery (of sorts) since then.
- The FTSE 100 is up nearly 2% in early trading this morning, while US Futures as of 8:15BST also point toward a positive open this afternoon.
Corporate announcements* Maitland Client
Ferguson PLC Mike Powell to step down as Ferguson CFO
- Ferguson PLC announces that Mike Powell, Group CFO has resigned in order to take up a role as Group CFO of Mondi PLC.
- Mr Powell is committed to assisting the Company with an orderly transition and the search for his successor is underway. The Company will confirm his leaving date in due course.
- The new Group CFO role will in future be based at Ferguson’s Newport News, Virginia headquarters in the US.
- easyJet PLC announces that Andrew Findlay has advised the Board of his intention to leave easyJet and resign his position on the Board as CFO.
- In adherence with his contractual obligations he is expected to leave easyJet in May 2021.
- In the meantime, Andrew will continue with his existing responsibilities and the search for his successor will now commence.
- The Board announces that following discussions, Dr Andy Palmer and the Board agreed that he would step down as President and Group CEO and as an Executive Director of the Company on 25 May 2020.
- The Board announces the appointment of Tobias Moers, as CEO. Tobias, 54, will be appointed to the Board as an Executive Director and will take over from Dr Andy Palmer. He will be based at the Company’s headquarters in Gaydon, Warwickshire and will join on 1 August 2020.
- In the interim period Keith Stanton, currently Vice President and Chief Manufacturing Operations Officer, is appointed interim COO to support the Executive Chairman, Lawrence Stroll.
- The Company has traded satisfactorily during the period and delivered growth in revenue, gross profit and operating profit. Cash receipts from customers have remained broadly in line with normal trends.
- There remains a high degree of uncertainty in the coming months and Softcat is not immune to the challenges faced by the wider economy.
- The Company has moved seamlessly to a remote working model and the Board is encouraged by the resilience of the business thus far.
- The Group’s unaudited NAV per share as at 30 April 2020 was 2,729.9p, a decrease of 65.0p (-2.3%) from the NAV per share as at 31 March 2020.
- As at 30 April 2020, investment income added 0.8p (+0.0%) while valuation losses were 12.4p (-0.4%), foreign exchange movements were -49.8p (-1.8%), and expenses and taxes were -3.6p (-0.1%).
- Undrawn commitments to investments stood at £530m as at 30 April 2020, calculated using exchange rates at that date. As at 30 April 2020, PIP’s £175m multi-currency revolving credit facility, which was redenominated as a US$163.0m facility and a €59.8m facility, remained undrawn as at the month end.
- As described below, today PIP is announcing that it has increased the size of its facility from £175m to £300m, which when redenominated brings the Company’s facilities to a total of US$269.8m and €101.6m respectively.
- The Group notes the UK Government’s announcement of a bus, tram and light rail restart programme to facilitate a phased increased in local services in England.
- UK Government guidance to public transport operators in England on social distancing means that the current capacity of services and associated passenger revenue is significantly reduced. The Government has now confirmed it plans to pay for more comprehensive services.
- The Department for Transport has announced that it is making available a further £254m for buses and £29m for trams and light rail to help increase the frequency and capacity of services as steps are taken to ease lockdown measures in England.
- Stagecoach CEO, Martin Griffiths, said: “With the comprehensive safety measures we have put in place and the support of our passengers and our employees, we stand ready to restore our services to closer to pre-COVID levels. We will continue to work with our local authority partners and other key stakeholders on making the best use of increased capacity.”
- India Capital Growth Fund has significantly underperformed its benchmark, the BSE Mid Cap Total Return Index, in the recent past. This underperformance means the Company is likely to fail the second part of its three-yearly assessment. As a result the Board has been carefully assessing, in the interests of the Shareholders, the best options for the future of the Company.
- The choice is between winding up the Company at a time when Indian Mid-Cap and Small-Cap equities are trading at close to their 15-year lows; or taking strong measures to improve performance and provide Shareholders with a way to redeem the bulk of their holdings, if they wish, at a set date in the future.
- The Board has weighed both options and is now setting out a proposed way forward. These include extensive measures to improve performance, a redemption offer at the end of 2021 and a reduction in the fee the Company pays to the Investment Manager, Ocean Dial.
- The Directors are recommending that Shareholders vote in favour of these measures at an Extraordinary General Meeting of the Company which will be held on 10 June 2020.
- Revenue growth of 18% (17.5% organic) to £178.8m (2019: £151.3m).
- Adjusted pre-tax profit increased 9% to £25.5m (2019: £23.3m).
- Diluted EPS rose by 9% to 15.1p (2019: 13.9p).
- The Group has implemented several cost and cash containment measures, which include placing staff on furlough, pausing recruitment and reducing all non-essential expenditure, including deferment of the capital investment relating to the proposed new office in Belfast. These will result in significant cost savings on the prior year cost run-rate.
- Notwithstanding a strong cash balance (£40.8m) and the cost reduction measures already implemented, in order to preserve liquidity, the Board considers it prudent to maintain flexibility on dividends at this stage. Accordingly, the Board has decided not to declare a final dividend for FY20 and to take the opportunity to review the dividend position later in the year, when the impact of the Coronavirus pandemic becomes clearer.