Maitland/AMO Morning Monitor – Wednesday 25 March 2020

25th March 2020

What really matters... COVID-19


Best day in a decade

The global rebound in equities is gathering strength. Overnight US lawmakers and the White House finally inked a behemoth bailout package worth $2 trillion. Investors in US stocks, already anticipating an agreement, pushed the S&P 500 up 9% yesterday in its biggest one-day gain since 2008 (and third biggest in 90 years). Asian markets took their cue from Wall Street today. Japan’s Topix gaining for a third day and taking its weekly gains so far to almost 10%. European stocks have opened higher, the FTSE 100 is up 3.7% and US Futures are pointing to a strong start.

A monster deal

They’re calling it the biggest economic stimulus package in US history. In the early hours of Wednesday morning, Republicans and Democrats finally clinched a deal that will pay cash directly to American families and lavish funds on struggling states and businesses devastated by the pandemic. The deal nearly fell apart after Democrat lawmakers insisted on tougher oversight over a $500bln fund to support struggling companies, on fears the White House could pick ‘winners’ in a post-COVID economy. The plan is expected to be put into law in the coming days. President Trump meanwhile has insisted that the ‘cure cannot be worse than the problem’, and called for strict lockdown measures that are hurting the economy to be lifted by Easter- three weeks away. Health officials are worried that could prolong the pandemic.

Dire data

That deal to support the world’s biggest economy will be welcomed around the world. PMI data out of the UK and Europe yesterday pointed to a savage recession on the horizon, with key measures of economic activity in services and manufacturing plunging to record lows. Britain’s biggest housebuilders downed tools, shutting construction sites despite Government advice to keep them open. Norway’s unemployment rate climbed to 10.4%, the highest level since World War 2. Eurozone bosses are cutting jobs at the fastest pace since July 2009. Yesterday the ECB reported the steepest demand for cash since October 2008, as consumers ramped up spending and stockpiled food and supplies. Meanwhile, the Bank of England has opened an emergency liquidity scheme to help commercial lenders and ensure they have enough cash. The BoE’s Contingent Term Repo Facility or CTRF offers unlimited, cheap funding for commercial banks.

Have we already reached herd immunity?

Modelling by Oxford University suggests we might have. The study suggests as much as half the UK population may already have been infected, implying that fewer than one in a thousand of those infected need hospital care. If confirmed, the results would mean the UK has already acquired so-called ‘herd immunity’, allowing the Government to lift its lockdown more quickly. Ministers aren’t taking any chances, with plans to add 35,000 staff to the NHS and launch a national volunteer body to cope with an anticipated surge in infections. Health Secretary Matt Hancock also announced a pop-up hospital in London with 4,000 beds. UK coronavirus cases rose to just over 8,000 on Tuesday, with 422 deaths.

Meanwhile global infections have reached 400,000, with the death toll exceeding 18,000. US cases have surged ten-fold in a week to reach 50,000. France became the fifth country to record more than 1,000 deaths. India has imposed a three-week lockdown on its 1.4 billion citizens.

Export bans

Is COVID-19 reversing globalisation? Trade barriers are being erected and borders sealed as countries race to slow the spread of the virus. Now governments are moving to preserve domestic food supplies, banning exports and buying up stocks. Kazakhstan has banned exports of flour, sugar and potatoes. Russia says it may consider export bans. China has pledged to buy even more rice from its domestic harvest, adding to its already massive stockpiles. That’s raising concerns about food supply chains, just as consumers increasingly stockpile essentials. It’s also affecting pharmaceuticals. India has banned the export of hydroxychloroquine, which is used to treat malaria. Demand surged after President Trump touted it as a possible treatment for COVID-19 patients. Meanwhile, the UK has banned the parallel export of 80 medicines used to treat patients in intensive care units, including morphine and insulin.

Media goes viral

The coronavirus pandemic looks set to leave a permanent mark on the UK news media landscape. On the one hand, almost all news titles are witnessing a huge surge in readership as people trawl the web for the latest news on the outbreak. On the other hand, most titles have seen a dramatic slump in advertising revenues that is forcing them to look at hard choices and perhaps may even sound the death knell for some print titles. Maitland/AMO Partner Clinton Manning offers his insights on the media environment in general here.

Stock market moves

  • America’s $2 trillion stimulus package propelled stocks higher in Asia. Japan’s Topix finished the day up 6.9%, in South Korea the benchmark Kospi rose 5.5%. China’s CSI 300 added 2.7%, Hong Kong’s Hang Seng rose 3.1%, Australia’s ASX 200 ended the day up 5.5%
  • The FTSE 100 opened 3.7% higher while in Europe, Eurostoxx 600 is trading up around 3.3%
  • As of 8:30am GMT, US futures point to the S&P 500 experiencing a further 11% rise at the open, extending yesterday’s strong gains
  • GBP is trading slightly higher against USD at $1.18
  • Brent Crude is up almost 2% at $27.66

In other news

  • Some of Britain’s biggest house builders including Barratt, Taylor Wimpey and Bovis have all announced plans to shut construction sites to slow the spread of the virus, despite Government advice to stay open
  • Volkswagen plans to impose shorter working hours on 80,000 employees in Germany. The car giant has idled its factories across Europe in the wake of the pandemic
  • Nike’s chief says the worst of the COVID-19 crisis could be over in the ‘near future’. The sportswear company has reopened around 80% of its 7,000 stores in greater China
  • Companies are rushing to draw down on credit lines to shore up their balance sheets. Research shows 130 companies across Europe and the Americas have tapped $124bln from banks in recent weeks
  • China’s central bank may allow the country’s banks to cut the interest rate they pay on deposits for the first time since 2015. That could help lenders to boost profits just as they’re been asked to support the economy
  • The Russian government has ordered nightclubs, cinemas and childrens’ parks across Russia to be closed after a senior official warned President Putin that official data was underestimating the number of infections across the country

Politics today

  • 10.15am GMT UK health experts including Professor Neil Ferguson and Patrick Vallance give evidence to the Science Committee
  • 12pm GMT – Prime Minister’s Questions
  • Afternoon – Coronavirus Bill remaining stages in UK’s House of Lords
  • Evening – UK’s House of Commons to rise for recess until 21st April

Corporate announcements

* Maitland Client

United Utilities Group PLC Trading Statement
  • Current trading is in line with the group’s expectations for the year ending 31 March 2020.
  • The company’s revenues are fixed under the regulatory revenue control for the next five years, with shortfalls in any year being recoverable in later years. In addition it has a robust liquidity position extending out for 24 months which is at the upper end of its policy range. This means that the company is well protected against financial shocks that may be experienced as a result of the COVID-19 outbreak in the short to medium term.
  • Group revenue is expected to be higher than last year, largely reflecting our allowed regulatory revenue changes.
  • Underlying operating profit for 2019/20 is expected to be higher than 2018/19. Underlying infrastructure renewals expenditure in the second half of 2019/20 is expected to be higher than the first half of the year.
Rentokil Initial PLC Trading Update
  • In this period of unprecedented uncertainty the company is consequently withdrawing its previous guidance for 2020. It will update the market on its Q1 trading performance and further on the potential impact of the Coronavirus on 16 April 2020.
  • Group trading to mid-March was not materially impacted by the virus outbreak. China trading was largely suspended in early February with a gradual return to service for 56% of customers at the end of that month and is now servicing around 75% of customers.
  • Within the last ten days, however, the impact on our global businesses has significantly increased. COVID-19 has affected the majority of the key countries in our Group with many markets in advanced stages of lockdown. The impact of the virus on our businesses to date has been varied, dependent on factors including the rate at which the virus has spread, individual government response and required levels of customer service.
  • Andy Ransom, CEO, said: “While we had made a good start to the year, the ongoing uncertainty and turmoil presented by the COVID-19 outbreak will mean we will have a difficult second quarter and potentially beyond. However, we are taking appropriate cost and cash action to protect the business and our liquidity, and to put us in the best position to support the recovery phase.”
Persimmon PLC Covid-19, Capital Return Plan and AGM Updates
  • Following enhanced Government and Public Health England guidance on Monday 23 March, the company is now taking further measures including closing all of Persimmon’s sales offices from Thursday 26 March until further notice.
  • In light of the current uncertainty caused by the Covid-19 virus and its operational impact on UK economic activity, and in line with the Group’s strategy of minimising the financial risk through the cycle, the Board believes that conserving cash and maximising financial flexibility is in the long term best interests of the business and all its stakeholders.
  • Accordingly, the Board of Persimmon has decided to: (i) cancel the proposed 125p per share interim dividend payment of surplus capital to shareholders on 2 April 2020; and (ii) to postpone the proposed annual, final dividend payment of 110p per share on 6 July 2020 and reassess it later in the calendar year when the effects of the virus will be clearer.
  • At this stage, given the level of continued uncertainty around economic and business activity, it is not possible to provide financial guidance for the FY20 financial year.
  • Dave Jenkinson, CEO, said: “The Group’s long-term strategy of minimising financial risk and maintaining capital discipline over the long term through the housing cycle, ensures that we are well placed as we enter this period of uncertainty.”
Meggitt PLC Chairman succession update
  • The Succession Committee led by Guy Berruyer (Senior Independent Director) has agreed with Sir Nigel Rudd and the Board of Directors that Sir Nigel will stay on as Chairman until further notice.
  • Although he still intends to retire in due course, the Board believes that there is significant benefit in continuity at this time.
Halfords Group PLC Current trading and COVID-19 update
  • Recent trading has been in line with expectations, and, in fact, very strong in the last couple of weeks, but delivery of the FY20 profit outturn is dependent on sales performance in the final two weeks of the financial year.
  • Given the latest Government guidance the company believes there is a high likelihood that sales will drop sharply and, if so, that the shortfall will have an impact on profitability, such that FY20 underlying profit before tax, on a 52-week and pre-IFRS16 basis, could be at the lower end of, or slightly below, the current guidance range of £50-55m.
  • The Group has access to substantial liquidity through a £180m revolving credit facility (RCF) and a £20m overdraft facility, provided by a syndicate of major banks, expiring in September 2022.
  • Despite an improvement in recent sales performance, the company expects that volumes could now see a material reduction. It has modelled a range of disruption scenarios, with its median scenario assuming significant sales declines for the three-month period from April to June, followed by weakness for the remaining nine months. Over the course of the full year, this would result in a sales decline of 25% (c. £300m) with the most material impact being seen in the first quarter of the new financial year.
  • Graham Stapleton, CEO said: “While significant uncertainty exists on the impact of COVID-19, we are taking immediate and significant measures to contain our costs and protect our financial position. We have a strong balance sheet, with significant liquidity headroom and low levels of financial debt. This is an unprecedented challenge for all of us, but I am confident that the actions we are taking to successfully navigate the current situation will put the business in a position of strength, enabling us, over the medium term, to refocus on our strategic transformation.”
Vivo Energy PLC Update on the impact of COVID-19
  • The company is supporting local communities and host Governments in their efforts to manage the situation, including donations of fuel to Ministries of Health, funding to support the fight against the spread of COVID-19, and blending hand sanitiser for the Kenyan Government at its lubricants blending facilities in Mombasa.
  • Trading for the year to date has been in line with expectations as there has been minimal impact from the COVID-19 virus due to the small number of confirmed cases in our 23 African operating countries to date.
  • As fuel is a critical resource, its retail sites remain open and it has continued to supply to commercial customers, but has naturally seen a reduction in aviation and transport volumes from the restrictions.
  • As a result of the current uncertainty, the Group has decided to withdraw the guidance it published on 4 March 2020, but will continue to monitor developments and provide further updates as necessary.
Morgan Sindall Group PLC COVID-19 Update
  • The Group is now experiencing disruption to its operations in a number of areas. Certain construction sites have already closed under instruction from the relevant clients and this is expected to increase across a number of divisions and activities.
  • Given the evolving and dynamic nature of the situation, it is too early to quantify the impact and so the Group is withdrawing its previous market guidance until greater clarity returns.
  • The Group continues to benefit from a strong financial position. At 31 December 2019, the Group had year-end net cash of £193m (of which £57m was held in jointly controlled operations or held for future payment to designated suppliers).
  • In the light of the current economic uncertainty, the Board believes it is prudent to cancel the final dividend of 38p per share as announced on 20 February 2020.
  • John Morgan, CEO, said: “These are clearly challenging times and we continue to take the appropriate action to mitigate the impact of Covid-19. The Group remains well funded, with good cash liquidity and an orderbook of c£7.6bn, underpinning our confidence in the Group’s long-term prospects.”
Diploma PLC Half Year Trading and Covid-19 Impact
  • As of today all of the Group’s business facilities are open and operating effectively.
  • The Group performed well and in line with expectations. Prior to the week beginning 16 March 2020 the Group saw very limited impact from COVID-19 and expected to report positive results for the first half in line with expectations.
  • However, the outbreak of COVID-19 has led to a rapid change in market conditions, affecting Diploma’s trading from around 16 March 2020, particularly, until now, in Continental Europe where public mobility has been most restricted, and in sectors most affected by the crisis such as Civil Aerospace.
  • This change in market conditions as a result of COVID-19 is now affecting trading in many of our businesses. However, it remains too early to assess the impact that this unfolding situation will have on trading for the full year.
  • The Group’s balance sheet is strong and working capital is well controlled. On a pre IFRS16 basis, net debt at 31 March 2020 will be ca. £35m representing ca. 0.3X EBITDA, against a covenant of 2X EBITDA.
  • Johnny Thomson, CEO said: “In light of the robust trading to 16 March 2020 and progress on our strategic objectives, we had intended to confirm our full-year profit outlook for FY2020. However, with the dynamic situation unfolding with COVID-19, it is too early to quantify its impact on current trading or on results for the year ending 30 September 2020. Our immediate priority is to safeguard the health and wellbeing of our colleagues, and to continue to serve our customers and operate effectively with our suppliers.”
Bellway PLC Interim Results
  • Revenue increased 3.6% to £1,541.4m (2019: £1,488.0m).
  • Gross profit decreased 5.6% to £356.5m (2019: £377.5m).
  • The unprecedented challenge and uncertainty presented by COVID-19 will result in a period of substantial disruption. There is a significant risk to production capability and customer demand in the weeks and months ahead.
  • The outlook will be determined by the U.K.’s ability to recover from the threat posed by COVID-19. Looking beyond this risk, Bellway has a strong balance sheet and a good operational capacity to continue supplying much needed new homes in the future.
  • Jason Honeyman, CEO, said: “We are taking the threat posed by this virus very seriously and our immediate focus is to ensure the health and safety of our employees, subcontractors and customers. In addition, we have been adapting our business continuity plans to deal with the evolving risk.”
Hilton Food Group PLC Trading Update
  • Hilton Food Group PLC, today announces a delay in publication of its preliminary results at the request of the Financial Conduct Authority (FCA). Hilton was ready and intended to release its preliminary results on 26th March 2020.
  • Hilton’s trading outlook remains positive, with significant growth prospects underpinned by the expansion plans in Australia, in Central Europe and in New Zealand, as well as further opportunities arising from the move into fish via the Seachill acquisition and the roll-out of vegetarian products.
  • Hilton’s financial position remains strong, having completed 2019 with net bank debt of £87m (net of cash of £110m) underpinned by good operating cash flow and with incremental facilities to fund additional expansion opportunities.
  • Overall, during the currently evolving Covid-19 outbreak, the company remains focussed on the wellbeing of employees and working with its customerscto help meet the currently increasing consumer demand for protein-based products.
Centamin PLC FCA Results Guidance and COVID-19 Update
  • In accordance with the FCA’s request, Centamin will postpone publishing its 2019 Annual Results, for the twelve months ended 31 December 2019.
  • As of 24 March 2020, Centamin has no cases of COVID-19 amongst its workforce and has experienced no material disruption to operations, supply chain or gold shipments.
  • A COVID-19 Executive Committee has been established with a clear management and site support framework in place, including daily workforce and supply chain risk reviews.
  • Centamin is a strong, resilient business with zero debt and US$348.9 million in cash and liquid assets, as at 31 December 2019.
St. Modwen Properties PLC Adjournment of AGM and trading update
  • In response to the rapidly evolving COVID-19 crisis and the limitations this imposes on travel and gatherings of people, the Board of St. Modwen intends to adjourn the Company’s AGM.
  • In line with expectations, see-through net borrowings have increased from £291m at the end of November 2019 to £346m as of this week due to the investments in its pipeline, including £37.5m of cash held on deposit in our NCGM JV.
  • As a precautionary approach to future planning, the company has stress-tested its interest cover covenants for a scenario of a severe and prolonged downturn. It believes the areas of income which are most at risk in such a scenario are housebuilding profits and retail rents.
  • The duration and magnitude of this disruption and hence the impact on financial results are impossible to predict at present, so the company’s current focus is on making sure employees and customers are safe, its balance sheet remains strong and liquidity remains high.
Sirius Real Estate Limited Covid-19 update
  • The Board does not expect any material impact to its trading profit for the year ending 31 March 2020, as a result of Covid-19.
  • In response to Covid-19, all meeting room and conference facility hire has been put on hold until the end of April, which will have a marginal impact on revenues and cash flow.
  • The other noticeable effect on the business to date has been a 50% reduction in the run rate of core enquiries for new tenants, which it expects will translate into a 10% reduction in new lettings in March and a 35% – 40% reduction in monthly new lettings throughout April and into May.
  • The Company is seeing an increase in demand for storage space from both new and existing commercial tenants as well as new self-storage customers. Storage makes up 35%* of space in Sirius’s portfolio.
  • Andrew Coombs, CEO, said: “We are maintaining a very close eye on the situation as it develops with the interests of our staff and tenants very much at the forefront of deliberations.”
International Public Partnerships Market Update
  • The Company notes the market-wide announcement by the Financial Conduct Authority on Sunday 22 March 2020 requesting a delay of at least two weeks to the forthcoming announcement of preliminary financial accounts in light of the Covid-19 pandemic.
  • Although the Company believes it is in a position to release its full year results this week, in accordance with this new FCA guidance, this release will now be delayed until the earliest possible alternative date.
  • The Market Update replaces the full year results announcement planned for this week and will instead provide investors with performance metrics for the 12 months ended 31 December 2019 and a general update on the portfolio.
Unite Group PLC Coronavirus Update
  • The balance sheet and liquidity position is robust with significant headroom against debt covenants. The Company has £291m of cash and undrawn debt facilities available.
  • In order to protect the long-term reputation of the business and despite a strong contractual position, the Company will offer to forgo rent for students who choose to return home for the remainder of the 2019/20 academic year. This implies a reduction in Group cashflow of £90-125m in 2020.
  • The company is implementing a number of actions to mitigate this cash shortfall, including deferring development and non-essential operational capex and cost savings, which would retain an additional £95-105m of cash in the business in 2020.
  • Given risks to its rental income as a result of Coronavirus, the company is suspending guidance for like-for-like rental growth and EPRA EPS for 2020.
  • The medium to long-term outlook for the business remains positive thanks to demographic growth in the UK, rising participation rates for Higher Education and supportive Government policy to grow international student numbers over the next decade.
McCarthy & Stone PLC AGM & Business Update
  • Strong balance sheet of c.£687m TNAV at 28 February 2020 provides additional cash generation opportunities
  • All cash measures announced today (including current financing facilities) ensure that the business would be able to operate with no sales revenue for a period of c.2.5 years.
  • The Group has a strong balance sheet with a Tangible Net Asset Value at 28 February 2020 of c.£687m and gearing of 8%.
  • The Board has already withdrawn Resolution 4 in relation to the final dividend payment of 3.5p per ordinary share (resulting in a cash saving of c.£19m)
  • John Tonkiss, CEO, McCarthy and Stone said: “As set out on 18 March, we are mindful of the significant impact of COVID-19 on trading in the coming months, so as a Board we feel it is imperative to take the right steps as soon as is practicable to ensure the long-term strength of the business. We have a strong balance sheet and are now focusing on conserving cash while balancing the long-terms needs of the business, ensuring that we are able to continue to address the chronic under-supply of suitable housing for older people.”
Biffa PLC Covid-19 Update
  • Whilst the Group has started to see the initial impacts of COVID-19, these are not expected to have a material impact on the results for the year ended 27 March 2020 (FY20).
  • In light of the developing impact of COVID-19 on the UK economy, the Group now expects significant disruption to its operations which is expected to continue for several months.
  • The principal impact of COVID-19 on Biffa will be a very significant reduction in demand for Industrial & Commercial collection services, as many customers are forced to cease or drastically reduce trading.
  • At the FY20 year end, the Group expects to have combined available cash and RCF headroom of over £150m.
  • No final dividend will be recommended for FY20.
SSP Group PLC COVID-19 Trading Update
  • In its recent update on 26 February 2020, the company indicated that it had seen sharp declines in passenger numbers across the Asia Pacific regions (which account for approximately 8% of SSP’s Group revenue) in February.
  • In terms of the financial impact of COVID-19, the expectation is that for the month of March 2020, revenue across the Group will be approximately 40% to 45% lower YOY. This is expected to reduce Group revenue by approximately £125m – £135m, with a corresponding reduction in operating profit of approximately £50m – £60m.
  • SSP has considered a very pessimistic scenario assuming an almost total shutdown of the travel market for the whole of the second half of the financial year, with Group revenue being down approximately 80% to 85% in H2 2020 against the same period last year.
  • Simon Smith, CEO, said: “The COVID-19 outbreak is an unprecedented crisis and is having a severely negative impact on the travel sector. We’ve had to take significant action to reduce our costs while doing everything we can to limit the impact of this on our colleagues. However, we have had to close a number of units given the extent to which passenger numbers have decreased. These decisions have not been taken lightly and I sincerely hope that we can re-open our units and welcome back our teams as soon as possible.”