Equities in London are up, but only marginally as understandably weak PMI data holds back sentiment.Our Trader writer Neil Wilson says: 'The economic damage from these lockdowns is still providing some remarkably ugly numbers, but I think equity markets have already discounted the worst. France’s services PMI slid to 10.4 in April, while the composite index slipped to 11.2 vs 26 forecast. Germany’s composite PMI was a little better, but services were also uber-weak at 15.9. This follows some hideous PMIs overnight as Japan’s services PMI sank to its weakest since 2007. It’s notable that the severe lockdown measures that we have across Europe are not in place in Japan. Australia’s services survey down to a record low 19.6, but Australian exports climbed 29 per cent in March thanks to a bounce back in iron ore shipments to China after a sharp decline in January and February.' For Neil's full article, click here.
IC TIP UPDATES:
For its latest debt juggling act, roadside recovery group AA (AA.) has drawn down the full £200m on a senior term facility originally agreed to enable the refinancing of its A3 bonds. The use of the facility, which carries a 1.75 per cent above Libor, has been used alongside other funds to pre-pay the associated intercompany loan. AA said it “intends to continue to proactively manage its capital structure”, if market conditions allow it to refinance two large bonds due in 2022. Sell.
Vistry (VTY) has announced that it will recommence work on 90 per cent of its partnership sites and a significant number of its housing sites from 27 April. The initial focus on private housebuilding units will be on those where the group has “clear visibility” on completion. In the four weeks since lockdown commenced the group has taken 212 gross private reservations and 132 net of cancellations. It has exchanged on 170 homes and legally completed a total of 193 private sales. Buy.
Luceco (LUCE) saw a 3.1 per cent constant currency increase in revenue to £172m in 2019, with statutory pre-tax profit surging from £3m to £17m. The gross margin improved by 7.2 percentage points to 37.5 per cent on the back of manufacturing efficiency gains and lower cost product designs. Net debt came down 15 per cent to £27.4m, equivalent to 1.1 times adjusted cash profits (Ebitda). Meanwhile, free cash flow jumped from £5.4m to £13m. The Covid-19 pandemic has seen sales drop to around 50 per cent of normal levels in the second quarter of this year, translating to a £0.5m cash outflow per month. But with £24.5m of undrawn borrowing facilities, Luceco believes it has adequate liquidity to fund this rate of loss. Buy.
Tullow Oil (TLW) has had a big week, first hiring a new chief executive and then announcing it had worked out a new deal to sell its Uganda holdings to Total for $575m (£465m). The new boss, Rahul Dhir, currently runs private Africa-focused oil and gas company Delonex Energy. He starts on 1 July. The Uganda deal comes after Tullow’s previous arrangement to hand Total its one-third holding of the gas project for $900m lapsed last year when the government would not sign off based on the linked tax arrangement. Sell.
Next Fifteen Communications (NFC) posted an 11 per cent increase in group net revenue to £248.5m in its year ended in January. The digital communications group expects two-thirds of its portfolio will be impacted by coronavirus, but said that it has not seen a material impact on trading to date. It anticipates that its revenues and profits will be affected from May as some clients reduce spend due to the uncertainty. Still, the group said that it is looking to the ‘Post Covid’ era for appropriate acquisition opportunities, product development and operational improvements. Under review.
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Taylor Wimpey (TW.) has announced plans to reopen construction sites from 4 May, although sales centres, show homes and regional offices will remain closed. The housebuilder reported a 14 per cent reduction in completions during the 16 weeks to 19 April and the order book has remained broadly flat since February. However, management said that cancellations represented just 0.8 per cent of the order book and those sites that were sold were done so at prices equivalent to the first quarter average. It also said it had started to look for new land on a “selective” basis.
As its first quarter fund flow disclosures last week showed, Jupiter Fund Management (JUP) has had to drastically adjust its expectations for Merian Global Investors, the business it agreed to acquire in February. In a further sign of how much has changed in two months, the active fund group has confirmed that the £50m bond issued to buy Merian will carry an eye-watering initial annual coupon of 8.875 per cent. The callable subordinated debt, which mature in a decade, are expected to be issued on Monday.
Unilever (ULVR) has withdrawn its guidance for 2020, explaining that it cannot reliably assess the impact of coronavirus across its markets. But, the group has maintained its quarterly dividend payment. Management noted that demand patterns for Unilever’s products are changing. As the crisis hits countries around the world, there have been uplifts in sales of hygiene and in-home food products - but “near cessation” of out-of-home consumption, which is particularly affecting the group’s food service and ice-cream business. Unilever is adapting to those patterns and preparing for lasting changes in consumer behaviour in each country. For now, the group’s portfolio and financial stability means that management believes it is well-positioned to weather the storm. First-quarter revenues were flat, landing at €12.4bn.
OTHER COMPANY NEWS:
DIY investor platform AJ Bell (AJB) saw a 9 per cent increase in customer numbers in the three months to March, as its users bucked the gloom surrounding financial markets to deposit net cash of £1.6bn with the platform. This helped to offset a 12 per cent decline in assets under administration. Chief executive Andy Bell – who is donating his wages for the current quarter to a fund supporting Covid-19 efforts – described the quarter as “without doubt one of the most dramatic we’ve witnessed”.
Mortgage Advice Bureau (MAB1) has furloughed around 13 per cent of its advisers and drawn down on a £12m credit line, in the most significant efforts to shore up a sharp slowdown in mortgage activity since mid-March. In a wide-ranging update accompanying financial results for 2019, the advisory firm said it had seen “a heightened awareness of the importance” of protection products, as well as an uptick in re-mortgage and product transfer markets.
Meggitt’s (MGGT) organic revenue grew 5 per cent in the first quarter of 2020, with 15 per cent growth in defence. But the last few weeks have seen some softening of revenue and forward orders in the civil aerospace business. The division is expected to see a significant reduction in demand for both original equipment and aftermarket products. The group is reducing the size of its workforce by around 15 per cent, freezing new hires, and cutting operating costs. It aims to reduce cash expenditure by £400m-450m this year. As at 31 March, Meggitt had £1.67bn of committed facilities with £668m of headroom. It is eligible for the Bank of England’s Covid corporate financing facility.
Smart Metering Systems (SMS) has completed the sale of a minority of its meter asset to Equitix, receiving a net cash consideration of £282m. The group now has £45m of cash at bank and a £300m undrawn revolving credit facility. As at 1 April, the total retained index-linked annualised recurring revenue (ILARR) was £75.8m. Despite the Covid-19 pandemic, SMS expects underlying profitability and cashflows will be in line with expectations for 2020.
Keller (KLR) saw a swift deterioration in activity in the second half of March on the back of national and regional travel restrictions. But the impact was less than expected with first quarter trading still “materially better” than the same period last year. April trading has been mixed with the Asia Pacific and ‘Europe, Middle East and Africa’ (EMEA) more impacted than North America. At the end of March, Keller’s net debt was £251m, equivalent to 1.3 times cash profits (Ebitda). While the payment of the final 27.4p dividend is under review, the rescheduled AGM means the ex-dividend date in now 30 July, with a payment date of 21 August.
Devro (DVO) does not envisage any change to its prior volume guidance for 2020. It said this morning that “absent any negative Covid-19 impact”, management’s expectation for good progress this year is unchanged. The group’s edible collagen volumes edged up by about 2 per cent during the first quarter, buoyed by a combination of growth initiatives and higher short-term demand tied to coronavirus. Devro has taken steps to protect cash, including cutting discretionary and operating expenditure. It has also decided to delay the payment of its 2019 final dividend, withdrawing this motion from the upcoming AGM. The group cited a strong financial position and available liquidity of about £59m comprising cash and undrawn debt facilities.
Computacenter (CCC) has scrapped its final dividend but says that its current trading has been more robust than it had anticipated at the start of the coronavirus crisis, with profitability in-line with the first quarter last year. There has been a surge in demand from some of its customers to enable business continuity around homeworking and network resilience. However in the industrial sector a ‘large number’ of its clients have had to cease production, meaning that its engineers and consultants are unable to work.
