Shares in London are mixed with the FTSE100 up a little but more domestically focused indices down marginally. Our Trader writer Neil Wilson says: 'Markets in Europe got off to cautious start, trading mildly higher and trimming a chunk of early gains, with the usual tug-of-war as investors try to figure out just how far the virus spreads and just how bad the economic damage will be. There is not a huge amount of conviction out there, following a tough session on Tuesday that saw European and US equities down ~4 per cent. It looks like the month-end rebalancing juiced equities into the last days of March.' For Neil's full article, click here.
IC TIP UPDATES:
Centrica (CNA) says it is seeing more demand from residential customers as more people work from home and a concurrent reduction in demand from business customers. It expects an increase in working capital outflows and customer bad debt during this crisis as customers defer payments. The drop in oil prices is expected to reduce adjusted operating cash flow in the exploration and production division by around £100m. The Spirit Energy divestment has now been put on hold until markets settle. In response, the group is cutting capital expenditure by £100m and the final 3.5p dividend declared for 2019 has been cancelled, saving £204m. At the end of March, Centrica had £600m of cash and £2.7bn of undrawn credit facilities. Sell.
Volution (FAN) says lockdown restrictions in the UK, Belgium, Australia and New Zealand have resulted in a marked reduction in order intake and revenues in these countries. Ventilation has been classified as an essential product in the UK and the group is continuing to supply products to projects in the healthcare sector. Around 60 per cent of the UK workforce has been furloughed, almost all capital expenditure has been put on hold and senior management will take a 20 per cent pay cut for the next two months. As at 31 March, Volution had gross cash balances of £41m and £14m of undrawn borrowing facilities. We remain bullish on the long-term picture. Buy.
Camellia (CAM) says the imposed shutdown in India could lead it to lose the majority of its lucrative “first flush” of the tea season. Agricultural operations outside of India are operating largely as normal although disruption is likely to come from restrictions on movement elsewhere. In food service, Jing Tea has been severely impacted by the downturn in tourism and global retail. As at 31 December the group had £86.7m of cash, net of borrowings. It will not be recommending a final dividend and full year results, which were due to be published on 8 April, have been delayed. Sell.
Hollywood Bowl (BOWL) has extended its revolving credit facility by £10m and secured waivers to its debt covenants. The bowling operator will not be declaring an interim dividend as it Buy.
Close Brothers (CBG) has retroactively cancelled the interim dividend that was due to be paid on 22 April 2020, after “recognising the significant challenges currently faced by businesses and individuals, and consistent with our purpose of helping the people and businesses of Britain”. Close said its financial position remains strong, and that it will consider the payment of a full dividend in September, for its July-end financial year. The move echoes this collective cancellation of major high-street lenders this week, following pressure from the Bank of England. Under review.
Insolvency litigation financier Manolete Partners (MANO) has seen a bump in activity in March, despite some delays to court procedures. In the 12-month period to March, the group saw a 131 per cent increase in new cases and a 54 per cent rise in completed cases, though the uptick in gross proceeds was more sluggish, from £9.3m to £10.1m. Buy.
PZ Cussons (PZC) has said that following the announcement last December of the retirement of former chief executive Alex Kanellis in January 2020, it became aware of a number of cash withdrawals and payments made by Mr Kanellis over a period of years. These had not been disclosed to the board. When it became aware of the alleged activities, the board started an independent investigation led by an external law firm. The board has now concluded that Mr Kanellis’s conduct fell short of what was expected. The amounts involved were immaterial to the group and there is no need to restate any financial statements. But Mr Kannellis won’t receive any retirement settlement. The board has instructed a firm of accountants to perform a review of controls and compliance. On balance, we remain speculatively positive. Buy.
Segro (SGRO) confirmed that it would be paying the 14.4p final dividend on 1 May, after announcing that it had a substantial amount of headroom below its debt covenants. Rental income would have to fall by 80 per cent or asset values by 64 per cent before any debt covenants are breached, and it has no major maturities before 2023. At the quarterly rental payment date in the UK last week, the group collected 71 per cent of rent due - down on 96 per cent the same time last year - and 25 per cent is in “reprofiling” discussions. It is inevitable there will be some negative impact on earnings in the short-term, management said. Buy.
Centamin (CEY) has tapped former Toro Gold boss Martin Horgan as its new chief executive, after Andrew Pardey left in December. Finance chief Ross Gerrard has been in the interim job since then. Mr Horgan’s former company was bought out by fellow African gold miner Resolute Mining (RSG) last year, after building the Mako mine in Senegal. Centamin is trading 13 per cent lower than a month ago, after recovering from a dip below 100p two weeks ago. Buy.
Moneysupermarket.com (MONY) posted a 2 per cent increase in revenue for its first quarter in 2020 in a trading update. The growth was driven by its insurance division, up by 8 per cent. The price comparison website said that it initially saw strong demand for travel insurance due to consumer concerns over the virus outbreak, but both its TravelSupermarket and travel insurance have weakened since the travel ban. The company withdrew its guidance for 2020 but has maintained its proposed 2019 final dividend of 8.61p per share. Buy.
Wood Group (WG.) has cut its final dividend, saving $160m (£129m) as it faces a slowdown in work in its oil and gas services division. The company said it could also cut or postone $25m in spending previously forecast for this year. Its share price was up 7 per cent on the news, to 160p, although it is still trading at half its valuation before the 9 March selloff.
KEY STORIES:
In a lengthy trading update published this morning, litigation financier Burford Capital (BUR) has said it expects some of its existing legal cases to slow as courts adjust to the impact of Covid-19. New business is also likely to take a hit, though management is bullish on the prospects of an eventual uptick in litigation caused by the pandemic. The Aim group’s own liquidity – including $161m of cash on hand, $180m of “shorter duration investments” and $758m of third-party funds – is apparently “more than sufficient for its needs”, though a final dividend for 2019 will not be recommended.
Retirements and cruise group Saga (SAGA) has announced a raft of measures to shore up its balance sheet. While its insurance business remains cash generative and “largely unaffected”, the group has had to model the full cancellation of all cruise departures over the next six months, followed by a slow recovery. To improve liquidity, the group has drawn down £50m of its revolving credit facility, suspended its final dividend for the year to January 2020, and is cutting back operating expenses. Most critically, Saga’s creditors have agreed to an amended covenant profile which will allow net debt to heavily adjusted cash profits to rise from a ratio of 3.5 to 4.75 for the next year.
Assura (AGR) confirmed that it had collected quarterly rental payments at the same level as this time last year and that it would proceed with the 0.697p dividend to be paid on 15 April. The healthcare centre landlord made 13 acquisitions during the first three months of the year and expanded the annual rent roll to £109m over the 12 months to March 2020. While the outbreak of Covid-19 may delay the timing of some of its pipeline, the group said it had an immediate development pipeline totalling £77m in schemes, which it expects to be on site within 12 months.
easyJet (EZJ) has acknowledged a request from the company’s founder and biggest shareholder Stelios Haji-Ioannou for an extraordinary general meeting. Mr Haji-Ioannou has called for the removal of Andreas Bierwirth as an easyJet director, having threatened to call an EGM every seven weeks until the airline cancels a £4.5bn aircraft order with Airbus.
Carnival (CCL) has lifted the size of its bond sale from $3bn to $4bn and disclosed a hefty coupon of 11.5 per cent. It has also reduced the size of proceeds it seeks to raise for the issuance of shares from $1.25bn to $500m, and has priced the new shares at $8 each.
LondonMetric (LMP) collected 85 per cent of advance quarterly rental payments due on 1 April and expects a further 7 per cent to be received shortly. Given some tenants are experiencing huge pressure on their cashflows, the warehouse landlord expects 17 per cent its rent will be paid monthly compared to 13 per cent previously, following occupier discussions. The group said valuations would need to fall by around 32 per cent or rent would need to fall 58 per cent before testing its debt covenants and it would be proceeding with the 2p a share third quarterly dividend on 16 April.
LandSec (LAND) received 65 per cent of rent due in 25 March after many of the stores at its shopping centres, outlets and leisure assets were substantially closed. The group said it had also been informed by hotel chain Accor that it had closed 15 of the 21 hotels in the commercial landlord’s portfolio. The group has cancelled its third interim dividend due to be paid on 9 April, but said that it had a significant headroom beneath its debt covenants. Using September 2019 valuation numbers, it can withstand a valuation fall of 62 per cent or an adjusted cash profit reduction of £385m before its covenants prevent further bank drawings.
OTHER COMPANY NEWS:
Private client service provider JTC (JTC) has acquired US-based fund administration services group NES Financial in a deal worth “£32.3m or $40m”, comprised almost entirely of newly-issued JTC shares. Last year, NESF recorded $13.2m of revenue and generated underlying cash profits of $1.8m.
Hays (HAS) says that between 1 January and 13 March, like-for-like net fees were down 5 per cent, in line with expectations. Since then, Covid-19 has driven a material deceleration in client and candidate activity with the impact felt most keenly in Europe, permanent recruitment and the private sector. It is guiding that operating profit for the year will be materially below consensus expectations of £190m. In response to the crisis, Hays is freezing new hires, stopping all non-essential capital expenditure and deferring tax payments of more than £100m. Cancelling the 1.11p interim dividend will save £16.3m. As at 27 March, the group had £35m of net cash and £165m of undrawn borrowing facilities. It has also announced an equity placing, aiming to raise gross proceeds of £200m.
Serco (SRP) says it had a strong first quarter with organic revenue growth of around 10 per cent. But with the uncertainty of the Covid-19 pandemic, it has withdrawn its guidance for the full year. Focusing on the public sector it currently sees no material threat to its ability to be paid by its customers. The group will defer £35m of VAT payments to early 2021. The 1.0p final dividend declared for 2019 has been withdrawn, saving £12m. At the start of the year, Serco had adjusted net debt of £215m and £508m of committed credit facilities with headroom of £286m.
Bunzl (BNZL) says revenue in the first quarter to 28 March increased by 6 per cent at constant currencies with 3 per cent organic growth. Trading across grocery, retail, healthcare and hygiene has strengthened more recently but foodservice and retail have been increasingly negatively impacted by Covid-19. Given the uncertainty, the group is withdrawing its guidance for 2020. All discretionary spending and acquisitions activity has been stopped and senior management is taking a 20 per cent pay cut during the second quarter. The final 35.8p dividend declared for 2019 has been cancelled. Net debt was 1.9 times cash profits (Ebitda) as at 31 December and the group has “significant” headroom in its committed facilities of over £600m.
National Grid (NG.) says results for the year ending 31 March are expected to be in line with prior guidance. The group says it has yet to see a material impact on its financial performance from Covid-19, but is starting to see disruption to its capital programme. In the US, debt collection and customer termination activities have been halted which could increase the level of bad debt and associated provisions. The group has £5.5bn in undrawn committed bank facilities.
In response to the Covid-19 crisis, Robert Walters (RWA) has reduced its cost base by more than 15 per cent and is applying for government subsidies around the world. The final 11p dividend declared for 2019 has been cancelled. As at 29 February, the group has net cash balances of £74m. The group is due to provide a first quarter update on 8 April.
Hotel Chocolat (HOTC) has cancelled its proposed interim dividend, which was due to be paid on 15 April. The board believes it is more prudent to retain cash in the business and intends to reinstate the payment when appropriate.
Domino’s Pizza (DOM) has appointed former Ei Group chief financial officer Neil Smith as its interim CFO, following the passing of former finance head David Bauernfeind in December 2019.
Bakkavor (BAKK) has withdrawn its guidance for 2020, issued on 27 February. All non-essential capital investment and discretionary expenditure has been put on hold. The group has also decided to suspend the proposed final dividend. Covid-19 has created significant challenges. The UK - accounting for 90 per cent of adjusted cash profits - has seen a reduction in orders across all categories, primarily in salads and food-to-go products. US orders have reduced too. In China, there was a big impact earlier in the year but customers have now reopened most of their stores.
