Shares in London have started the week with further losses as oil dips below the $20 a barrel level. Our Trader writer Neil Wilson says: 'European shares were weaker again as crude oil came under more pressure and virus restrictions seem set to last for a long time. Crude oil dipped below $20 and made a fresh 18-year as the complete collapse in demand due to the coronavirus combined with the OPEC-led supply/price war create the perfect storm for prices.
As I noted two weeks ago: ‘The combination of a massive supply surge from OPEC and a complete collapse in demand create conditions in the market which are the most bearish imaginable. I think we see WTI under $20 before long as the build-up in crude stocks is just going to be massive. The amount of spare supply on the market in the coming months will be scary and crude prices will fall further.’ The thing to stress is that we simply do not have any idea when demand will recover – it could take months to get back to some semblance of normality.' For Neil's full article, click here.
IC TIP UPDATES:
SIG (SHI) says that following its announcement on 26 March, it has seen sales in the UK “fall away rapidly” as the Covid-19 outbreak hits construction activity. The group has temporarily closed all its UK operations as well as its trading sites in the Republic of Ireland. It will continue to supply critical and emergency projects such as for the NHS, energy and food sectors. European operations remain open. To further curb costs, SIG will also be asking all employees to take a pay cut during this period and board members will receive 50 per cent less pay from 1 April. The group says it will use the closure period to develop a revised strategy and organisational model. Sell.
Pennon (PNN) is guiding that performance for the year ending 31 March will be in line with expectations. Revenue from South West Water has fallen year-on-year driven by prolonged wet weather although it will end the current regulatory period, AMP6, in a net reward position on outcome delivery incentives (ODIs). Viridor is being sold to US equity Kohlberg Kravis Roberts for £4.2bn but saw growth in energy recovery over the last year as existing plants ramped up. The group has raised £840m of new or renewed finance over the past 12 months and has £1.6bn of cash and committed facilities to provide liquidity during the Covid-19 crisis. Buy.
Kier (KIE) says trading from 1 January has been in line with expectations and 80 per cent of its sites or workplaces are continuing to operate during the Covid-19 outbreak. Given the current situation, the disposal of Kier Living and evaluation of the property business have been paused. To cut costs, around 6,500 employees, including the executive committee and the board, are having their base salaries reduced by between 7.5-25 per cent for a three-month period. For the six months to 31 December, average month-end net debt was £395m. The group has £910m of total borrowing facilities of which £700m are due for renewal in 2022. Sell.
In light of the Covid-19 outbreak, Midwich (MIDW) does not intend to declare a final dividend for 2019. The specialist audio visual distributor has also suspended acquisitions activity and capital expenditure to preserve cash. End user markets have been adversely impacted by the pandemic “to varying degrees” although the group says it is supplying solutions for remote working and communication with recent customers including the UK and Italian governments. As at 31 December, the group’s adjusted net debt was equivalent to 1.4 cash profits (Ebitda). It signed a new three-year revolving credit facility in January, of which £37.8m in unused. Buy.
Macfarlane (MACF) says recent government guidance in response to Covid-19 has negatively impacted its markets and the group expects a “marked slowdown” in activity. While demand in the hygiene, household essentials, medical and food sectors has remained resilient, it has dropped off among automotive, aerospace and retail customers. The final 1.76p dividend for 2019 will not be paid, preserving £2.8m of cash. Although the group says that once normal trading resumes, shareholders will be compensated with an augmented regular dividend or special payout. All non-critical operational and capital expenditure has been stopped and the board will take a 25 per cent pay cut. Net debt had come down from £12.7m as at 31 December to £9.6m at the end of February. Buy.
Go-Ahead Group (GOG) subsidiary Govia will continue operating the Southeastern franchise following the award of a new contract by the Department for Transport that will start on 1 April and run until 16 October 2021, with the potential for further extension until 31 March 2022. Sell.
The global precious stones market is at a standstill because of Covid-19 travel restrictions, with Anglo American (AAL) subsidiary De Beers cancelling its third ‘sight’ of the year. De Beers said sightholders, as those with rough buying agreements are known, would be able to defer the purchases they would have made at the sale. Sightholders are locked in to buying at each sale, although De Beers has relaxed this in the past 12 months because of the weak diamond market. London returnee Gemfields (GEM), which mines rubies and emeralds, has also postponed its next auction due to travel restrictions and put its Kagem emerald mine into care and maintenance in Zambia. We maintain our buy rating for Anglo.
Purplebricks (PURP) expects revenues for the year to April to be below expectations after the government’s advice not to move house during the coronavirus lockdown. The online estate agency said it anticipated fewer instructions and had taken several steps to preserve its £35m in cash balances, including suspending all TV and radio advertising and significantly reducing online marketing costs. Sell.
KEY STORIES:
The onset of coronavirus and the imposition of national lockdowns across Europe has prompted easyJet (EZJ) to ground its whole fleet. The airline, which has agreed furlough arrangements with its cabin crew, said that it was unable to provide a date for the restart of its commercial flights. Full story here.
Hammerson (HMSO) collected just 37 per cent of UK rent due last week in respect of the second quarter, after receiving requests for deferrals or waivers from several tenants. The retail landlord has also offered temporary monthly rent arrangements with all brands in the Hammerson France flagship portfolio, ahead of the rent quarter payment day on 1 April. It has drawn a further £100m from its credit facilities but said its tightest gearing covenant was 150 per cent, against gearing of 65 per cent at the end of December and interest cover stood at a multiple of 3.3 versus a covenant multiple of 1.25.
Twelve days after issuing bullish statements alongside a strong set of full-year results, Alpha FX (AFX) now expects a reduction in foreign exchange activity as clients delay or cancel commercial activities until the global trading outlook improves or becomes clearer. Management says forecasting remains difficult, but no longer thinks 2020 results will improve upon last year. Worse still, Alpha is considering whether to increase its bad debt provision, as the value of clients’ forward contracts have sharply deviated and are now facing margin calls. One client is currently unable to pay the £30.2m it owes to the group, which partly explains the suspension of the final dividend and an employee share scheme. Shares in the group have been summarily walloped by 46 per cent in early trading.
In a further sign that consumer credit issuance is drying up in riskier markets, doorstep lender Morses Club (MCL) has stopped lending to new customers. Home-collected loans have also been suspended – which the lender oddly describes as supportive for cash flows – as well as a “significant tightening of online lending decisions, cutting discretionary expenditure and the increased focus on collections”. Financial guidance has been withdrawn and a dividend scheduled for payment in July has been pulled.
OTHER COMPANY NEWS:
Ted Baker (TED) shares dropped nearly 20 per cent on the news that acting chief executive Rachel Osborne will retain her role in a permanent capacity. Ms Osborne joined the company as chief financial officer from Debenhams in November 2019. Ted Baker remains on the hunt for a chairman.
AstraZeneca (AZN) made two announcements this morning: first, the Farxiga Phase III DAPA-CKD trial will be stopped early after overwhelming efficacy in patients with chronic kidney disease. This follows a recommendation from an independent data monitoring company. Second, the group’s Imfinzi (durvulumab) product has been approved in the US as a first-line treatment for adult patients with extensive-stage small-cell lung cancer.
Following the Irish government’s new restrictions on all non-essential businesses, Grafton (GFTU) has closed its Woodies’ DIY, home and gardens business and significantly scaled down its distribution business in the Republic of Ireland. It will now only supply materials to essential health, critical road and utility infrastructure projects and well as home and business emergencies.
Convenience food manufacturer Greencore (GNC) “is playing a systemically important role in a reset food industry that has become a critical component of the UK infrastructure through this pandemic”. While there has been a marked reduction in demand for the group’s food to go categories, this has been partly offset by sustained volume in growth in its other convenience categories. Greencore is tightening its food-to-go production network and furloughing impacted workers. The board and no-executive directors have voluntarily agreed to take a 30 per cent pay cut for three months. Greencore has suspended financial guidance for 2020. It will also defer a substantial portion of previously planned capex and won’t pay a 2020 interim dividend. It had cash and undrawn committed bank facilities of about £265m last Friday.
Signature Aviation (SIG) says both its ‘Signature’ and ‘engine repair and overhaul’ businesses are essential critical infrastructure providers and will continue trading during the Covid-19 pandemic. Flying across the US network through to the third week of March was in line with expectations, however, in the past few days, flight activity has declined on average 65 per cent per day as lockdown measures are imposed. To preserve cash, the final 10.57¢ (8.57p) dividend declared for 2019 has been suspended, guided capital expenditure of $100m-110m is under review and labour costs are being curbed. As at 31 December, the net debt to adjusted cash profit (Ebitda) ratio was 2.2 times, below the 4.25 times covenant of its $400m revolving credit facility.
FirstGroup (FGP) has agreed a new contract running from 1 April to 31 March 2023 to continue operating Great Western Railway services.
Though it has suspended the publication of full-year results until 15 April, Chesnara (CSN) has proposed a 3 per cent increase in its final dividend to 13.9p per share. The life and pension consolidator says it remains “operationally resilient”, despite a slightly dip in new business activity in Holland and Sweden in the first quarter of 2020. The balance sheet is also well-capitalised, with an estimated solvency cover ratio of 164 per cent even after payment of the final dividend. Buy.
Quilter (QLT) now expects to complete its £375m share buyback programme by 29 May, three weeks later than originally planned. The wealth management-led investment platform made the decision to “provide additional flexibility in administering the programme during volatile markets”. So far, £27.9m-worth of shares have been retired.
Microfinance group ASA International (ASAI) says lockdowns in several of the countries it operates in will “materially impact the income generating capacity” of clients and the company’s ability to collect loan instalments. As a result, guidance for 2020 has been withdrawn. Mitigation efforts include enhanced client interaction by smart phone or collections from a group leader, changes in collection plans, and group cost savings.
Numis Corporation (NUM) expects revenues for the six-month period to 31 March to rise 10 per cent compared with the first half of the prior year, after a “materially stronger performance” from equities trading and a higher average transactional fees compensated for subdued investment banking deal volumes and a narrow windows to execute deals. The brokerage is now focused on supporting its corporate clients from the impact of Covid-19, and has reassured the market that its own capital position and liquidity remain strong.
Atalaya Mining (ATYM) will stop production at the Riotinto copper mine in Spain, after the government tightened restrictions to halt the Covid-19 outbreak. Atalaya said the shutdown would last until at least 10 April. Last week, the miner said it would release its 2019 results after the two week delay requested by the Financial Conduct Authority (FCA) ends on 5 April. Atalaya was down 7 per cent in early trading after the shutdown news, and is 42 per cent down from its price before the 9 March selloff.
Ernst & Young has resigned as the auditor of Travelex owner Finablr (FIN), over concerns about the company’s link to NMC Health, the composition of the board, corporate governance and its financial arrangements. The payments group also announced the resignation of two directors from the board.
