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News & Tips: Shares bounce, Legal & General, WH Smith & more

Signs of improvement in data from Europe's coronavirus hot spots has lifted sentiment
April 6, 2020

Shares in London started the week on a positive note as signs that infection and death rates may have peaked in Italy and Spain lifted some of the gloom. Our Trader writer Neil Wilson says: 'European bourses traded broadly higher on Monday after a strong session in Asia. Tokyo rose 4 per cent, while Hong Kong rose more than 2 per cent. The ASX in Australia rallied 4 per cent. The FTSE 100 managed to rise 3 per cent in early trade, with the DAX in Frankfurt up 4 per cent. US futures also pointed higher after Friday’s soft close. Global stocks are supported by signs of progress against the coronavirus, with investor sentiment apparently boosted by evidence that lockdowns are working. The swifter the lockdowns work and flatten the curve, the quicker we get back to normal, or at least some semblance thereof.' For Neil's full article, click here. 

IC TIP UPDATES: 

After giving “careful consideration” to the PRA’s letter that insurers balance their shareholder distributions with their support of the economy, Legal & General (LGEN) has decided to press ahead with its proposed 12.64p per share final dividend. The life insurer said its solvency position “remains robust” despite market volatility, and notes the “importance of dividend income to many institutional and retail shareholders, particularly in the current environment”. Shares in the group are up 14 per cent in early trading, and are a buy.

WH Smith (SMWH) confirmed that it had secured new borrowing facilities of £120m that are contingent on raising new equity. As a result, the retailer will conduct a placing, offering a maximum of 13.7 per cent of its issued share capital. Buy.

Restaurant Group (RTN) has increased its senior revolving credit facility to Wagamama from £20m to £35m, while board members have agreed a swathe of pay and bonus cuts. Non-executive director and remuneration committee chair Mike Tye will also step down from the board. Sell.

Grainger (GRI) said it expects lower rental growth during the second half of the year, compared with 3.4 per cent during the first-half, as people defer moving. However, while leasing activity will likely slow, churn among existing customers should also reduce, the private-rented sector specialist said. However, rent collection rates held up at 95 per cent in March, in line with historic trends, and the group has significant headroom within its debt covenants and £527m in available cash and undrawn facilities. Buy.  

LXI Reit (LXI) expects to approve a final dividend of  1.4375p a share alongside its full-year results in May. However the commercial landlord said it collected only 67 per cent of its rent due for the second quarter and was in discussions with tenants representing 30 per cent of the annual rent roll over payment plans. However, the group’s loan-to-value ratio stands at 20 per cent, against a covenant of 50 per cent and its interest cover is around 600 per cent versus a debt covenant floor of 300 per cent. Buy

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Having had his first attempt at removing an easyJet (EZJ) director rebuffed over its £4.5bn aircraft order with Airbus, founder Stelios Haji-Ioannou has now called for the removal of chief financial officer Andrew Findlay. Sir Stelios, who holds around 34 per cent of the company’s shares, also said that he would not inject any equity into the company during any potential fundraise while the Airbus contract remained in place.

SThree (STEM) has withdrawn its guidance for the 2020 financial year in light of the Covid-19 pandemic. The group has ceased hiring of new consultants and is managing its headcount to reduce the cost base. Senior management is taking a temporary 20 per cent pay cut. The final 10.2p dividend declared for 2019 has been cancelled, saving £13.5m. Total accessible liquidity of £57.4m as at 31 March comprises £2.4m of net cash, a £50m revolving credit facility which has been fully drawn down and a £5m overdraft.  

Rolls-Royce (RR.) has seen flying hours for its widebody engines fall by 25 per cent year-on-year in the first quarter, with a 50 per cent decline in March. It expects further deterioration in April and beyond as airlines continue to ground their fleets. The group has withdrawn its 2020 guidance and cancelled the 7.1p dividend declared for 2019, saving £137m. It is also cutting costs to save at least £750m in 2020. Rolls has fully drawn down its £2.5bn revolving credit facility (RCF) and secured an additional £.15bn RCF from a consortium of banks. This gives it gross cash balances of £6.7bn. A $500m (£407m) bond is due for repayment in the second half of the year.

On 12 March, Arrow Global (ARW) chief executive Lee Rochford told us the looming potential credit crunch facing firms and individuals across Europe is “exactly the kind of situation” his company is geared to. To date, the distressed debt investor is yet to see an operational or financial impact from the coronavirus crisis. But today, in a bid to conserve capital and maximise financial flexibility, Arrow’s board has decided to pull its proposed 8.7p per share final dividend, saving £15m.

Oil and gas contractor and infrastructure specialist Petrofac (PFC) has cut its final dividend for 2019 and announced reductions in spending and operating costs, in the face of the weak oil price. Hopes of a resolution between Saudi Arabia and Russia that would have led to a drop in supply were dashed over the weekend after the two countries continued to argue. Petrofac said it had not yet had any major operational issues from Covid-19, although travel restrictions in Iraq and India have seen some projects slow down. The company has cancelled its final dividend of 25.3c, and will cut capital spending by 40 per cent, or $60m, and reduce "overhead and project support costs" by $100m. Its share price is down a quarter from the start of March. 

Reach (RCH) has suspended its financial guidance and will no longer propose a final dividend for the financial year ending 2019. The news publisher said that it has taken measures to conserve cash including the removal of discretionary spend, renegotiations with suppliers, cancellations of orders and negotiated payment delays. 20 per cent of staff are being furloughed  and the company has requested discussions around a deferment of current contributions to the group pension funds.

Sage (SGE) said that it was ‘too early’ to quantify the impact of the coronavirus on its  full financial year to 30 September. The software group believes that organic recurring revenue growth will be below the previously guided range of 8 to 9 per cent. The company anticipates that its customers will defer purchase decisions, leading to a slowdown in new customer acquisition, licence sales and professional services implementations. Sage said that it had identified mitigating actions to manage costs and cash in the near-term, although did not provide any further details. The group had approximately £1.3 billion cash and available liquidity as at 31 March 2020, including more than £400 million of undrawn facilities.