Maitland/AMO Morning Monitor – Wednesday 3 June 2020
In the news
- UK services PMI data for May will be released today. City economists expect a reading of 28, a fraction higher than the 27.8 recorded in last month's flash survey and up from the 13.8 recorded in April.
- Nissan has warned that its plant in Sunderland would be unsustainable if the UK did not reach a Free Trade Agreement preserving tariff-free access to Europe. His comments come despite the Sunderland site surviving this week's announcement on the Japanese giant's global restructuring programme
- Zoom, the video conferring provider published results on Tuesday which showed that the daily peak number of users had risen from 10m to 300m due to people working from home during the crisis. Its revenue soared 169% to $328m in the three months to April. The news lifted its market capitalisation briefly to $61bn, an increase of $42bn from the start of the year.
- The UK’s non-bank lenders are discussing access to cheap funding with the BoE, which could result in them accessing funds through special purpose vehicles via the bigger banks and building societies to provide ‘bounce back’ loans to SMEs under the BoE’s ‘Term Funding Scheme’. Under the state-backed bailout schemes, £31.3bn has already been lent to 745,000 of the UK’s smallest companies, with two-thirds distributed through so-called light touch ‘bounce-back’ loans.
- GIP and Brookfield are said to close in on a $15bn Abu Dhabi gas pipeline deal, nearing agreement to take a 49% stake in unit of emirate’s state-run energy group
- Bermuda-based reinsurer RenaissanceRe is aiming to raise $900m in the industry’s biggest equity issue of crisis, seeking more capital to take advantage of higher prices
- In a rare bright spot for an industry pummelled by the coronavirus outbreak, South Korean shipbuilders’ shares jumped on a $20bn order from Qatar to build more than 100 new LNG carriers.
- Britain will not walk away from the people of Hong Kong and will have "no choice" but to offer them a route to UK citizenship if China strips them of their freedom, Boris Johnson has warned. Writing in The Times today, the prime minister has made offering the island’s residents “an alternative” to Chinese citizenship a matter of national honour in a dramatic escalation of the confrontation with Beijing
- Indicating that political discourse is going back to pre-crisis times, the leader of the Labour opposition party, Sir Keir Starmer in an interview with the Guardian has accused the PM of causing a collapse in public confidence over the handling of the crisis, saying No. 10 will be directly responsible if the infection rate starts to rise again. He also questioned whether the timing of some decisions over the relaxation of the lockdown rules had been taken “to try to deflect attention away” from the Dominic Cummings affair – an episode, he said, that showed Johnson was too weak to sack his chief adviser.
Stock market moves
- Global stocks and oil prices jumped on hopes of central bank actions offsetting geopolitical risks and aiding a global recovery from the crisis, as well as indicative faster than expected rebounds attributed to large government stimulus packages. On Wall Street the S&P 500 closed up 0.8% higher at a three-month high, with the Dow Jones Industrial Average rising 1.05%. Investors in Europe also looked to the possibility of addition ECB measures with the German Dax index closing up 3.75% and the French CAC-40 index rising 2%.
- In Asia Tokyo’s Nikkei and Hong Kong’s Hang Seng both forged more than 1% higher.
- Brent Crude climbed back to above $40 a barrel for the first time in three months with prices buoyed by hopes that OPEC+ nations would extend production cuts for another month.
- Futures markets tipped the E-mini S&P 500 June to open up by plus 0.4% at time of writing.
- The FTSE-100 and Dax-30 on opening were respectively higher by 0.87% and 0.9% at time of writing.
Corporate announcements* Maitland Client
Wizz Air Holdings PLC Final Results
- Underlying net profit grew 29.9% to a record €344.8m and underlying net profit margin was 12.5%.
- Total revenue increase of 19.1% to €2,761.3m.
- Total cash at the end of March 2020 was €1,496.3m of which €1,310.5m was free cash.
- József Váradi, CEO, said: “It is too early to provide a detailed outlook for FY21 due to the ongoing uncertainty caused by COVID-19. However, Wizz Air’s market positioning and our ever-disciplined attitude to cost mean that we will emerge from this crisis as an even more formidable business and will continue to deliver significant shareholder value, environmental benefits and employment opportunities for years to come.”
- TUI and Boeing have agreed on a comprehensive package of measures to offset the consequences of the grounding of the 737 MAX.
- While the details of the agreement are confidential, it provides compensation which covers a significant portion of the financial impact, as well as credits for future aircraft orders.
- The compensation will be realised over the next two years.
- Fritz Joussen, CEO of TUI Group, commented on the agreement with Boeing: “We have reached a fair agreement that strengthens our long-standing relationship with Boeing. The agreement provides TUI with compensation for a large part of costs that were incurred due to the grounding of the 737 MAX. The new delivery schedule gives us considerable flexibility because we will have fewer new aircraft delivered in the next years. This enables TUI to rapidly adapt its fleet growth to the currently challenging market environment. And it supports our plan to downsize the aircraft fleet and reduce the capital requirements for aircraft investments in the Group.”
- Revenue of £1,214.6m: down 2.7% at constant currency; 3.7% at actual exchange rates.
- Like-for-like sales down 8.4%: heavily impacted by Covid-19 and the closure of most of the global t Simon Smith, CEOravel markets during March.
- The impact of the virus has been significant, but the company has taken all the appropriate actions to ensure that, even with extremely low sales, it has sufficient liquidity to manage through a prolonged crisis and slow recovery.
- Simon Smith, CEO, said: “Looking forward, and with sufficient liquidity to manage a pessimistic trading scenario, I believe the actions we have been taking during this crisis will make us a fitter and stronger business, well placed to deliver for all our stakeholders as the travel market recovers.”
- Group revenue declined by 39% for the five months to 31 May 2020, with a year-on-year decline of 86% in April and 62% in May.
- The Group entered the Covid-19 crisis with net debt (pre IFRS 16) of £43.2m at 31 December 2019.
- The Group has access to a £150m revolving credit facility which runs to July 2022, which is presently fully drawn.
- Despite the economic circumstances created by Covid-19, the Board remains confident that the Group is well positioned to take advantage of the attractive long-term market fundamentals in order to continue delivering sustainable shareholder value.
- Net revenue increased 7.8% to £1,719.3m.
- Operating profit increased 10.4% to £116.4m.
- The shutdown of the hospitality sector has materially impacted the business, with no revenue generated in the on-trade channel since March.
- Stewart Gilliland, Interim Executive Chairman, said: “The ongoing closure of the hospitality sector has material implications for our business and earnings potential, with approximately 80% of our revenue derived from the on-trade channel…We entered this crisis with a robust balance sheet and have further strengthened that position with additional liquidity enhancing actions. The Group successfully issued approximately €140m of new US Private Placement notes in March of this year.”
- First full financial year with NAV and revenue growth further validating the investment strategy.
- £422.9m of new equity raised and fully deployed.
- Full year target dividend of 5p per share is fully covered by distributable earnings.
- Merck Mercuriadis, Founder and Investment Adviser, said: “While we would not have wished for a pandemic to demonstrate this it has indeed done exactly that and that has been reflected in our strong performance. We have become a FTSE 250 company in only 20 months, which I’m told is the fastest of any company ever on the index.”
- Revenue increased 37% to £191.0m (2019: £139.3m).
- Underlying profit before tax increased 144% to £24.2m (2019: £9.9m).
- All businesses have remained open despite the challenges caused by COVID-19.
- Michael Ord, CEO, said: “Noting the challenges presented by the coronavirus pandemic, some positive timing differences which benefited the first half, and with approximately 95% of expected H2 revenue already in the order book or delivered to date, the Board’s expectations for the full year are unchanged.”
- The Group saw a sharp decline in sales volumes from late March as the Government measures to control the Covid-19 pandemic began to take effect and construction and housebuilding customers closed sites.
- As the construction and housebuilding sectors have begun to return to work over recent weeks, trading conditions have started to improve.
- Overall, Group revenues for the three months to 31 March 2020 were down by approximately 10% compared to the comparative period, with a decline of around 75% in the two months to 31 May 2020.
- The Group has collected over 80% of April 2020, and at time of writing, over 76% of May 2020 of Grit attributable contracted rental revenues.
- Grit has additionally collected US$3.15m in prepaid rents for the 2020 calendar year over this period.
- Given the potential for slower cash collections due to the ongoing uncertainty created by the COVID-19 pandemic, the Board therefore considers it prudent to revise its dividend guidance for the current financial year.
- The Board is now targeting to pay a full-year dividend of at least US$8.75 cps, which equates to 72% of the level of the prior financial year. The interim dividend declared in February 2020 and paid in April 2020 was US$5.25 cps.
- Future Metal Holdings Limited (“FMHL”) – 44.5% of NAV: As announced on 18 May 2020, the local management team is actively pursuing sales orders from domestic construction companies who have all commenced operations and the Company expects the quarry to build up to full production levels in 2020, generating free cash flows from the business.
- Infinity TNP – 7.3% of NAV: In late 2019, construction was completed of the Tellus Niseko residential apartments, which were subsequently leased out to guests in January 2020. During January, average occupancy at the property was between 80% and 90%, which was in line with management’s expectations.
- John Croft, Chairman, said: “Despite the ongoing global impact of the COVID-19 pandemic, the Company remains relatively well positioned due to our resilient and diversified portfolio of pan-Asian investments and strong liquidity position.”