Large cap equities have dipped with the FTSE100 dragged down by its exposure to oil majors after Shell cut its dividend for the first time in decades. For our full analysis of Shell's results today, click here. Meanwhile, our Trader writer Neil Wilson also looked at Shell in his Market Outlook column today: 'Shares in Shell slumped 7 per cent as it cut its dividend and reported net income in the first quarter almost halved. Whilst BP chose to absorb a $6bn rise in net debt to $51bn and gearing above 36x in order to preserve its precious dividend, Shell seems to be taking a more prudent approach in cutting its dividend for the first time since the 1940s. Arguably BP is better placed to weather the storm, but Shell is taking the more sensible course of action. Shell’s gearing ratio is down to around 28x, a more comfortable level for Ben van Beurden than it is for Bernard Looney.'
IC TIP UPDATES:
J Sainsbury (JDW) has deferred making a decision on its final dividend until later in the year when the toll of coronavirus will be better understood. The supermarket group reported a 26 per cent climb in full-year pre-tax profits to £255m, while net debt fell £399m to £6.9bn. Grocery and clothing sales grew 0.4 per cent and 1.2 per cent respectively, while a 2.9 per cent contraction in general merchandise income dragged overall retail sales down 0.4 per cent, excluding fuel. Under review.
G4S’ (GFS) revenue rose 2.5 per cent in the first quarter of 2020, with 2.9 per cent growth in secure solutions and a 2.3 per cent decline in cash solutions. Overall sales in March were flat, although the Covid-19 pandemic drove a 13.3 per cent dip at cash solutions. The group is now moving to preserve cash, cutting £100m of costs, deferring £50m of US tax payments and targeting £20m of discretionary capital expenditure savings. The final dividend declared for 2019 has been suspended, saving £95m. As at 31 March, G4S had £600m of cash and bank overdrafts and £500m of committed, unutilised credit facilities. It has since received around £450m from the disposal of the majority of its conventional cash business to Brink’s. Sell.
SIG (SHI) has started to reopen selected sites across its UK distribution and roofing businesses in response to increasing demand. It aims for the majority of its sites to be open by mid-May. All sites are open in France and trading is at near-normal levels in Germany, Poland and the Netherlands. The majority of operations in Ireland remain closed. The group has furloughed around 2,000 workers in the UK and is also temporarily lowering the pay of most UK and Ireland employees. As at 24 April, SIG had £142m of cash. Full year results are set to be released on 28 May and the group continues to expect underlying pre-tax profit of £42m, down from £73m in 2018. Sell.
FDM (FDM) said that its first quarter was marginally impacted by national lockdowns, with revenue up 6 per cent to £71m. It has placed 46 fewer consultants, or ‘Mounties’, than in the same period last year. Management noted that a number of Mounties have had their placements terminated by clients operating in sectors most badly affected by coronavirus. The group has also seen a reduction in the weekly number of new deals, but maintains that even in its worst downside scenario it should remain cash generative. Buy.
Reckitt Benckiser (RB.) reported like-for-like revenue growth of 13.3 per cent for the first quarter, driven by strong demand for its various hygiene and health products. Sales of Dettol and Lysol disinfectants and Nurofen pain-killers were all up despite challenging conditions. Meanwhile, e-commerce revenues rose by a half – reflecting the fact that consumers have been ordering online as they stay at home. The group said that plans to ‘rejuvenate sustainable growth’ are underway with a new structure expected to be in place by July 2020. Overall, in contrast to many companies around the world, Reckitt’s full-year performance is now expected to be better than original expectations – though the outlook remains uncertain. Buy.
Convatec (CTEC) reported a 6.9 per cent rise in revenues to $460m for the first quarter, helped by customers increasing their inventories to enable supply-chain resilience. The group has maintained its full-year outlook but said risk was increased due to the coronavirus crisis. Advanced wound care revenues are expected to be negatively affected particularly by reduced elective surgeries, and there are external risks across the business – including in the supply chain. Sell
C&C (CCR) has decided not to declare a dividend for FY2020 – with management believing it “is neither appropriate, nor prudent” to do so. Following the issue of about €140m in new US private placement notes, the group has current liquidity of around €570m of which €430m (unaudited) is cash. Bosses believe its existing liquidity position is more than sufficient for current and expected needs. The group is also eligible to issue commercial paper under the Bank of England’s Covid-19 corporate financing facility. Capital spend has been reduced significantly and there’s been an average 20 per cent pay cut across the workforce, with higher cuts among management. Under review.
KEY STORIES:
Reported pre-tax profits for Lloyds Banking Group (LLOY) sank to just £74m in the first three months of 2020, after the group booked a whopping £1.43bn impairment to reflect a soured economic outlook and some one-off restructuring-related charges. That more than halved the group’s return on tangible equity, while pressure is already starting to show on the group’s net interest margin, which dipped 6 basis points quarter-on-quarter to 2.79 per cent. One small source of optimism is the group’s capital ratio, which rose 40 basis points despite an uptick in risk-weighted assets, though the cancellation of the group’s final dividend will have played a role. The bullishness which greeted Barclays’ first quarter numbers yesterday was not repeated today, with shares in the UK lender down 5 per cent in early trading.
Infrastructure investment firm John Laing Group (JLG) is pressing ahead with a final dividend of 7.66p per share (including specials), after today reassuring investors that its balance sheet and liquidity position remain strong. Only two of the FTSE 250 firm’s 16 projects have seen complete site closure, though both are preparing to re-open “subject to appropriate workplace protocols”, and construction works have continued with only some delays due to lower staffing and material availability. Separately, John Laing announced that sector veteran Ben Loomes is to join as chief executive from next week, three months after Olivier Brousse said he would be stepping down.
Hikma (HIK) has made a strong start to the year despite the challenging market backdrop, and has reiterated its guidance for 2020. The pharmaceuticals company said its injectables business is performing well with increased demand across its portfolio in the US and Europe, driven partly by the Covid-19 outbreak. That injectables portfolio includes products most in need by hospitals such as anaesthetics, analgesics and anti-infectives. The group’s generics business has also started the year well, with good demand for nasal sprays and a better than expected contribution from new products such as its first-to-market generic launch of everolimus tablets. Subject to approval at today’s AGM, Hikma plans to pay a final dividend of 30c per share (about 23p a share).
British American Tobacco (BATS) saw a “strong operational performance” in 2019 and achieved its financial targets, with revenue growth of 5.7 per cent. The group said that despite ongoing uncertainties resulting from the Covid-19 pandemic, the resilience of its supply chain meant that management is confident of its ability to continue to deliver. BAT has maintained its guidance of high-single-figure constant-currency adjusted diluted EPS growth.
OTHER COMPANY NEWS:
Meggitt (MGGT) has secured a $78m (£63m) contract to design and install a live-fire training facility in the Middle East. The aerospace and defence engineer’s training systems business is the global leader in virtual and live-fire small-arms training.
Galliford Try’s (GFRD) buildings division has secured a place on the £1.5bn YORbuild major works contractors framework in the north of England. The group has been selected for Lots 1 and 2, which comprise general building works worth £10m-30m and over £30m respectively. Running for four years with a possible two-year extension, they serve public sector bodies as well as third party organisations.
Wealth management group St James’s Place (STJ) saw a rise in both gross and net inflows in the first three months of 2020, despite a punishing period for the value of client assets. The period ended with £101.7bn of assets, and the group’s balance sheet in good shape. However, the group has taken the decision to withhold 11.22p of the final dividend for 2019, and instead pay just 20p per share as a second interim dividend for 2019. The ex-dividend date remains next Thursday, 7 May.
Lancashire Holdings (LRE) saw around $35m of Covid-19-related claims in the first three months of 2019, principally in relation to property-related policies. The group’s total net investment return was also negative, in line with the broader market. But in a bullish trading update today, the insurer said it had “more than adequate liquidity and solvency headroom”, while yesterday’s annual general meeting saw “strong support” from shareholders for the board to pay a previously-announced final dividend of 10¢ per share.
Unsecured home credit provider International Personal Finance (IPF) saw a 15 per cent contraction in credit issued in the first three months of 2020, as the group took rapid steps to protect its business in response to the global pandemic. However, in a sign of deteriorating conditions in its 11 international markets, “estimated collections effectiveness” has dropped to 76 per cent this month, down from 87 per cent in March and 95 per cent in the first quarter. Lending is currently focused on long-standing customers with stronger credit profiles, and restricted to less than a third of IPF’s original budget for the year. Critically, management believes active management of cash flow will be sufficient to retain adequate headroom against funding facilities, as shown by the group’s ability to meet £21m payment of the annual coupon on IPF’s €406m Eurobond. Refinancing that debt, which matures next April, is described as a priority.
James Fisher (FSJ) says that while trading in the first quarter was in line with expectations, the impact of the Covid-19 pandemic became evident towards the end of the period and has continued to be felt. Travel restrictions are adversely affecting projects in the Asia Pacific in the specialist technical business and there is a lack of subsea projects in West Africa. Oil price pressures have driven an immediate drop in demand in Norway, which accounts for 3 per cent of revenue. Ship-to-ship services and tankships have seen little disruption to date. The group increased its committed facilities to £280m and had £64m of headroom as at 31 March. It also has £13m of headroom on uncommitted overdraft facilities. Full year guidance has been withdrawn.
Flutter Entertainment (FLTR) will complete its all-share combination with The Stars Group (CN:TSGI) on 5 May. In the long-term, the gambling group intends to change its structure following the deal’s conclusion from five divisions to four, merging TSG International activities with Paddy Power Betfair before moving Paddy Power into a new UK & Ireland segment alongside Sky Betting and Gaming.
J D Wetherspoon (JDW) has raised £141m via a share placing. The pub group announced yesterday evening that it intends to reopen its sites in or around June.
Network International (NETW) said that following lockdown measures, its merchant solutions business saw revenue decline around 60 per cent year on year. Its issuer solutions business, which generates just over half of total revenue, saw a less pronounced decline of around 10 to 15 per cent. The company has paused its circa $40m capital expenditure related to expansion in Saudi Arabia and its separation from Emirates NBD.
BATM (BVC) said that it anticipates a temporary slowdown in its Networking and Cyber division due to project deferrals and travel restrictions. The group’s diagnostics kit to detect Covid-19 received certification in March, and since then management said production and sales have been ‘ramping up’. Last week it announced that it had received a €29m order from a European government to provide 1,000 ventilators, receiving an upfront fee of €7.25m.
GlaxoSmithKline (GSK) said this morning that the US’s Food and Drug Administration (FDA) has approved its supplemental new drug application for Zejula, a treatment for advanced ovarian cancer for women who have responded partly or completely to chemotherapy.
