Investor confidence remains fragile with London shares subsiding into the red again today. Our Trader writer Neil Wilson says: 'Global stocks got off to a soggy start in April as economic damage wrought by the coronavirus was laid bare and investors felt there was not yet enough to show the virus was at or near its peak in Europe or the US. President Donald Trump reflected the mood as he warned of weeks of pain still ahead, a stark change from his rather casual approach thus far. He also called for another $2tn for infrastructure spending. A bit of a gloomy start to April, like a sharp frost killing off the buds that appeared too soon.' For Neil's full article, click here.
IC TIP UPDATES:
BP (BP.) will reduce spending this year as it faces a major fall in revenue from oil prices dropping to around $20 (£16) per barrel (bbl). The supermajor said it would cut its organic capital spending by 25 per cent, to $12bn. This will see a production drop at its onshore US operations of around 70,000 barrels of oil per day (bopd). In the first quarter, BP’s production was 2.55-2.6m bopd. The balance sheet will take a $1bn impairment hit from the fall in the oil price, as the company changes its 2020 forecasts. Sell.
QinetiQ (QQ.) says performance in the fourth quarter to 31 March has been in line with expectations despite the Covid-19 outbreak. Still, the group is postponing the decision on whether to propose a final dividend until later in the year. The pandemic is affecting all key markets and there has been some disruption to customer trials and product shipments. QinetiQ expects to end the year with £60m of net cash and has an undrawn committed revolving credit facility of £275m. To preserve cash, the chief executive and chief financial officer will see their salaries reduced by a third while the wider board will take a 25 per cent pay cut. Buy.
Renew (RNWH) expects trading for the six months ending 31 March will be in line with market expectations. It says the impact of Covid-19 on the second half of the year is unclear at this stage. Around 80 per cent of the group’s activities are in areas deemed critical to the pandemic response. It therefore remains operational in rail and highways, water and telecommunications. Services in civil nuclear have been disrupted with work at Sellafield and Springfields temporarily halted. Net debt as at 31 March is expected to be between £15m-17m. The group anticipates it has headroom in its borrowing facilities of around £55m plus a £15m uncommitted accordion facility. To preserve cash, the interim dividend has been suspended. Buy.
Helical (HLCL) announced that it had collected 84 per cent of the March quarterly rents, with a further 9 per cent due to be paid in instalments over the next three months. For food and beverage occupiers, which account for 1.4 per cent of passing rent, the office landlord has agreed to defer payment to the next quarterly collection date. The group said it did not expect Covid-19 to materially impact its results for the year to March 2020 but is considering whether paying a final dividend was appropriate. Under its debt covenants, the value of its properties has to fall 30 per cent until the maximum loan-to-value is reached and net rental income would 47 per cent before the minimum interest cover ratio is hit. Buy.
Currency exchange business Argentex (AGFX) has reported a 30 per cent rise in revenue for the 12 months to March, thanks to a rise in corporate clients and strong demand during recent volatility. Encouragingly, there has not yet been a change in the trend of bad debts, though management continues to monitor client profiles. The shares are up 16 per cent in early trading. Buy.
KEY STORIES:
Carnival (CCL) intends to raise $6bn, split across $3bn of three-year bonds, $1.75bn on bonds that are convertible into shares and $1.25bn in new shares. The cruise operator has paused its operations in response to coronavirus, and fully drew down a $3bn borrowing facility on 13 March.
In another blow to income seekers, the UK’s largest listed banks – HSBC (HSBA), Lloyds Banking Group (LLOY), Barclays (BARC), Standard Chartered (STAN) and Royal Bank of Scotland (RBS) – have all agreed to suspend dividends, dividend accruals and buybacks. The lenders, which made the move after considerable (and eventually public) pressure from the Prudential Regulation Authority, have also promised to retroactively cancel final or fourth quarter pay-outs for 2019. “We do not expect the capital preserved to be needed by the banks in order to maintain adequate capital positions,” said the PRA, “but the extra headroom should help the banks support the economy through 2020.”
Taylor Wimpey (TW.) announced that its executive directors would take a 30 per cent cut to their base salary and pension for the duration of the government-imposed lockdown, and the annual bonus and 2 per cent salary increase due to come into effect from today have also been scrapped. Non-executive directors will also take a 30 per cent trim to their fees. The board said it would review remuneration from 30 June, in the event the lockdown is extended.
Now is not a great time to be a geographically-diverse, highly-leverage provider of high-cost consumer credit, as investors in International Personal Finance (IPF) now no doubt know. In a filing today – 12 days after the group’s last Covid-19-themed update – IPF notes a raft of emergency consumer lending legislation in its markets and a significant deterioration in its home-collect credit operations. In response, credit issuance has been “significantly restricted”, costs are being reduced and discretionary expenditure curtailed. That includes the retroactive cancellation of a 7.8p per share final dividend, which will save £17.3m, while liquidity has apparently been stress-tested by “various scenarios” that still leave “adequate operational headroom” against debt facilities. The market is less confident, and has sent shares down 15 per cent to a fresh low of 65p.
Primary Health Properties (PHP) had received 79 per cent of rent due in respect of the first quarter, with the balance expected over the next two weeks. That is slightly higher than the same time last year. The medical centre landlord said it had a loan-to-value ratio of 44.8 per cent, which meant the value of its portfolio would need to fall by 42 per cent for debt covenants to be breached. Management also confirmed its intention to pay a second quarterly dividend of 1.475p a share on 22 May.
Savills (SVS) has deferred its annual general meeting that was due to take place on 6 May until the 25 June and has withdrawn plans to pay final ordinary and supplemental interim dividends totalling 27.05p. However, the real estate services group said it would consider whether to pay an enhanced interim dividend at the date of the AGM after considering the impact of the Covid-19 outbreak on its cash reserves.
OTHER COMPANY NEWS:
ContourGlobal (GLO) has announced a £30m share buyback programme commencing today until 30 June. The maximum number of shares it will purchase is 20m. "ContourGlobal's share price does not reflect the value of the underlying business,” says chief executive Joseph Brandt. “We therefore think it is in the interests of all shareholders to commence this programme."
Glencore (GLEN) will hold off on its 20c (16p) dividend for 2020 because of the Covid-19 impact on commodity prices. The mining and trading company said its aim was to keep paying down debt and maintain its Baa/BBB credit ratings, which are important for its trading business. Glencore has also added $200m to its $9.975bn 12-month revolving loan and extended another $4.6bn billion loan’s maturity to 2025. The company will see a big hit to income from its copper and oil operations due to recent price drops.
