Sunak doubles down on keeping economy open with jobs, loans and VAT support

Jamie Gordon
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Sunak doubles down on keeping economy open with jobs, loans and VAT support
Perhaps almost as eagerly anticipated as the prime minister’s public address earlier in the week, Chancellor of the Exchequer Rishi Sunak today addressed Commons with his Winter Economy Plan, which doubled down on keeping the economy open, while providing support to businesses and their employees. The Chancellor began his statement by saying he felt “cautiously optimistic”, both concerned about keeping the economy open but taking heart from three months of consecutive economic growth, and believing the government had learned a lot of lessons from the spike in Covid cases earlier in the year. He added, that while almost any measures to stem the spread of the virus would “threaten the recovery”, he said that the UK needs to adapt to the fact that:
“the economy is likely to undergo permanent change”
With businesses facing ‘uncertainty and reduced demand over winter’, Mr Sunak said that focus needed to shift away from a revival of the furlough scheme. He said furlough had been the right measure for the time, with people asked to stay at home needing immediate and expansive support to stay afloat.

Sunak’s new Job Support Scheme

Now, however, the Chancellor emphasised the need to keep the economy open, and as part of that, protect what he described as ‘viable jobs’. These jobs, he said, would be protected by the implementation of the government’s new Job Support Scheme, which will support ‘viable jobs’, which are those in which employees work at least one third of their regular working hours. Under the scheme, people in viable jobs will work for at least the requisite amount of time and be paid accordingly, and then the government will subsidise the shortfall in their regular pay, up to two-thirds – essentially a training wheels initiative, between furlough and regular work. Mr Sunak added that companies will be eligible for the new scheme, even if they didn’t sign up to the furlough scheme earlier in the year. He also said that the Job Support Scheme will last for six months, and that the self-employed grant will also be extended under similar terms and conditions to the new job scheme.

Protecting cash flow with more loan and VAT goodies

Perhaps necessarily kicking the can further down the street, the Chancellor also announced a series of measures to support businesses, via loan and VAT repayment deadline extensions. On loans, Mr Sunak said that bounce-back loans had provided £38 billion in support, and that repayment of these loans would now be subject to ‘pay-as-you-grow’ criteria. This, in practice, means that loan paybacks have been extended from six years, to up to ten years, and that businesses can now apply for interest-only payments, or even to suspend all payments for up to six months. The Chancellor added that 60,000 businesses had taken out business disruption loans, and that the government now plans to extend the guarantee on these loans to up to 10 years, in order to help lenders provide additional support. He added that the government would extend the deadline to apply to any of their loan schemes until the end of the year, and that it would be introducing a ‘new successor’ loan guarantee scheme In January. On VAT, the Chancellor noted that more than 500,000 businesses had deferred over £30 billion in VAT so far this year, and that payments would now be spread out. As opposed to paying out in one block in March, businesses can now spread the payments owed over 11 smaller amounts with no additional interest, and self-employed income tax payers will be able to extend their payment over 12 months, starting from January. His final concession was to the ailing hospitality and tourism sector, to whom he has offered to extend the current low rate of VAT – currently at 5% but previously due to revert back to 20% on 13 January 2021 – until March 31 of the new year, which he stated will help support the 2.4 million jobs in these sectors. Responding to Mr Sunak’s statement, Shadow Chancellor, Anneliese Dodds, said the measures were welcome but too hesitant. According to Ms Dodds, she had proposed targeted wage support and repayment extensions exactly forty times, only to be rebuffed on several occasions. She added that the deadline for redundancy consultations by large schemes before end of furlough scheme was last week, so these new schemes were sufficiently late enough to give a lot of people sleepless nights. Overall, she did say that it was a “relief that the government has u-turned”.

Gold nears 6 week low against dollar gains

Bronte Carvalho
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Gold nears 6 week low against dollar gains
The price of gold hit a six-week low on Thursday, wavering against the “robust” performance of the US dollar. A lack of additional economic stimulus from central banks has seen investors lose some interest in the precious metal, which is often treated as a safe haven-esque hedge against inflation and market turbulence. August saw gold extend a record-breaking rally to a high of $2,000, on one of its longest consistent upward trajectories in recent history. The Financial Times explained that investors flocked to the metal due to economic uncertainty, reporting a “surge in revenue stems from a sharp rise in interest among investors for exposure to gold — either as a hedge or as a bet on rising prices — and rare anomalies thrown up by disruptions to global gold deliveries”. A brief pause in gold coin production helped to spur on the rise in prices, with a sudden supply shortage prompting investors to respond to the “sense of urgency”. The Financial Times Advisor pointed out that it was not just “experienced retail investors” leading the charge, but also some first-time buyers dipping their toes into the precious metal stocks for the first time. “Once reserved for the use of wealth managers and financial advisers, the proliferation of fintech apps and other platforms has laid the gold-buying marketplace open to all”. The breakneck rally came to a crashing end just a week later, with prices plummeting in the largest one-day drop since 2013 to $1,872.19, with market analysts pointing out that the rally was never expected to be sustainable anyway. IG Markets analyst Kyle Rodda stated that the “euphoria” had drained from the gold market, citing the importance of the strength of the US dollar in determining the value of gold. Continuing a recent downward spiral, the price of gold fell 4.64% in the past week, with spot gold falling to $1,857.72 per ounce at midday on Thursday – its lowest level since August 12. The drop comes as somewhat of a surprise, given that gold tends to thrive in periods of market uncertainty. Doubts about an economic recovery gripped equities around the world earlier in the week, careering to a 2-month low among fears of a second wave of coronavirus. Meanwhile, reports of a slump in business activity in both the United States and Europe also dampened hopes of a steady revival of the global economy. Nevertheless, precious metal revenue at the world’s 50 largest banks is predicted to hit some $2.5 billion by the end of 2020, spurred on by the burst in interest over the summer, according to a report by consultancy firm Coalition. Standard Chartered analyst Suki Cooper weighed in: “Gold is currently taking its cue from the dollar … and the dollar strength continues to weigh on gold. We could see a retest of the lows from early August, the next technical support level thereafter is around $1,840 per ounce, however prices are closing in on oversold territory”. However, chief market strategist Phillip Streible from Blue Line Futures added that gold is still a valuable investment to consider in the months ahead, and investors should not be overly discouraged by the recent fall: “Long-term uncertainties are still looming and no investor would lose the opportunity of adding gold to their portfolio when prices are low”.

Cineworld faces curtain call with $1.6bn loss and shares falling 10%

Jamie Gordon
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Cineworld faces curtain call with $1.6bn loss and shares falling 10%
Ailing cinema giant Cineworld (LON:UK) watched its shares slide as it posted its results for an extremely challenging six months of trading. With attendance greatly hampered by lockdown and a lack of new releases thereafter, the company saw revenues fall year-on-year by 66.9% for the six months ended 30 June, down from $2.15 billion, to $712 million. This slide also saw group earnings EBITDA contract by 93%, from $759 million to $53 million, and a swing from a $140 million profit for the six month period in 2019, to a $1.64 billion loss during the same period in 2020. The situation was equally bleak for the company’s shareholders, with both basic and diluted earnings per share swapping from 8.6c earnings, to 115.3c losses, respectively. Similarly, the company. Similarly, while the company will be pleased to have raised a much-needed $361 million of cash from sale and leaseback agreements, it also meant cancelling its dividend back in April, with this suspension having being sustained in Thursday’s announcement. Looking ahead, the company says it has reopened 561 of it 778 sites, with the majority of those yet to open being in the US (200 still closed). It added that negotiations are ongoing with banks, in efforts to obtain covenant waivers in respect of December 2020 and June 2021 – Cineworld might also attempt to carry out similar negotiations with its landlords, should more Covid restrictions come into force in the coming months.

Cineworld continued, saying that there can be no certainty as to the future impact of Covid, though it stated that further restrictions could see it close its estate once again, and further push back movie releases.

Speaking on the results and the company’s outlook, Third Bridge Senior Sector Analyst, Harry Barnick, said the following:
“In today’s climate, content is king and trading is likely to remain subdued until the pipeline improves. Additional delays in Black Widow and Soul could further limit attendance levels in what was already a challenging environment pre-covid. If James Bond is also delayed, the full year outlook for the UK is bleak.”
“The results confirm that capacity constraints have not limited sales and that the challenge now lies in stimulating demand in a cautious consumer environment”.
“As expected, Cineworld will not follow AMC in shortening the theatrical window. Management has been clear that the model simply doesn’t make sense. This poses a challenge to the current deal as Universal will struggle to make decent returns on wide release movies without Cineworld and Cineplex also agreeing to a shortened theatrical window.”
“With rents making up a large proportion of fixed costs, support from landlords will be crucial to limiting cash burn”.
“Despite the Paramount Consent Decrees being abolished, studio resources are being allocated towards streaming platforms and a move into exhibition is unlikely. The more likely candidates to enter the theatrical space would be streamers like Netflix or Amazon, who are looking to attract renowned film-makers with the prospect of a theatrical release.”
Following the news, Cineworld shares slid by more than 10%, before recovering slightly, down 9.32% or 4.52p, to 44.00p a share 24/09/20 11:20 BST. The company’s p/e ratio currently stands at 2.88.

Go-Ahead swings to loss

Safiya Bashir
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Go-Ahead swings to loss
Go-Ahead group swung to a £200,000 loss in the year to 27 June. The loss is compared to a £97m profit in the same period a year earlier. Shares in the group, however, rose slightly on Wednesday after the transport group said that regional services were back to 50-60% capacity. Despite the fall in profits, total revenue grew 6.1% to £3.9bn. Most of the losses are related to £30.4m due to failings in the German operations. David Brown, the group’s chief executive, said: “Our financial results for the year have been significantly impacted by the pandemic despite only four months of the crisis period falling within our financial year.” “While our German rail contracts have not been materially impacted by the crisis, this business continues to face significant operational and commercial challenges associated with the delayed delivery of trains and driver shortages. “Through management action, we have seen operational performance improve and we have a clear plan to deliver profitability over the medium term.” Go-Ahead’s basic earnings per share, before exceptional items, were down 69.5% to 51.6p. Coach provider National Express also posted a loss on Wednesday as the travel industry was hit by the pandemic, however, shares rose after it traded “slightly above” its expectations.  

National Express shares rise as group is “slightly above” expectations

Safiya Bashir
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National Express shares rise as group is “slightly above” expectations
National Express shares (LON: NEX) are trading almost 10% higher on Wednesday after it traded “slightly above” its expectations. The transport group has been awarded an up to a nine-year contract to run 240 buses in Lisbon, Portugal as well as a five-year, paratransit contract for 75 vehicles in California. “We continue to be pleased that our strong customer relationships are sustaining high levels of revenue during the pandemic’s on-going uncertainty. We are grateful to our customers and the public authorities who have recognised the essential role our services play in maintaining the ability of people to get to work and to keep the economy functioning, even during such challenging times,” said Chris Davies, Interim Group Chief Executive and Group Finance Director. “This robust revenue collection and on-going tight cost control is underpinning positive EBITDA and cash flow projections. We are encouraged to see continued passenger growth across the Group, as our services provide safe and reliable services to those choosing to travel. “We remain resolutely optimistic about the longer term opportunities for the Group. The enduring strength of our customer and stakeholder relationships during the pandemic demonstrate that our reputation for safe and excellent service has provided a crucial resilience as we navigate this uncertain period. In addition – as the recent contract wins in Lisbon and California demonstrate – they also provide the platform for future growth once we emerge from the pandemic,” he added. National Express shares (LON: NEX) are trading +9.28% at 136,00 (1101GMT).

DFS shares rise despite £57m loss

Safiya Bashir
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DFS shares rise despite £57m loss
After trading was on pause during the lockdown, DFS posted a £56.8m loss for the year ending 28 June. Despite the fall in profit and a slump in revenue from £724.5 million a year earlier to £271.7m, the furniture company said that sales have been strong thanks to a pent-up demand post-lockdown. All stores have reopened and online sales remain strong. “We believe that this growth is due to a combination of pent up demand from lockdown, consumers spending relatively more on their homes and the strength of the DFS and Sofology propositions in particular,” said chief executive Tim Stacey. “While the reported decline in profit is undoubtedly disappointing in headline financial terms, a significant proportion of this profit has already been recovered in the current year as we resumed customer deliveries,” he added. The group has forecast an additional £226m of revenues for this next financial year. Peel Hunt analyst Jonathan Pritchard said: “DFS has enjoyed another strong month of trading since the last update. Customers are continuing to trade up, a nod to the stronger ranges across the DFS group.” The group said earlier this year that cut jobs as part of a restructuring programme. DFS shares (LON: DFS) are trading +2.74% at 172,60 (1010GMT).    

Funding Circle shares down on £113m loss

Safiya Bashir
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Funding Circle shares down on £113m loss
Funding Circle shares (LON: FCH) fell over 6% on Wednesday on the group’s half-year results. The lender revealed an operating loss of £113.5m for the six months to 30 June, compared to the £31.3m loss it recorded for the same period a year earlier. “Early Covid-19 trends suggest a permanent change in the SME borrowing market that we believe will benefit Funding Circle in the medium to long term,” said Funding Circle. “Government support has demonstrated the strategic importance of small businesses to economic growth. A higher proportion of SMEs are now accessing finance as a result and we believe this is likely to continue in the future.” Samir Desai CBE, CEO and Founder, said: “We started Funding Circle after the financial crisis to help small businesses access funding, and we are proud that since becoming accredited to SME government guarantee programmes in the UK and US, we have approved more than £2 billion of loans, and are the 5th largest CBILS lender with c.20% market share of loans approved.” “We believe that Covid-19 has led to an acceleration in the adoption of online small business lending and small businesses are increasingly drawn to the unique Funding Circle model, which provides access to finance in a fast and affordable way with excellent customer service. Our Instant Decision lending technology launched this year is already transforming the SME borrowing experience with average loan applications being completed in 6 minutes, and decisions in 9 seconds. “Our advanced data driven credit assessment and the actions we have taken are protecting investor returns – after applying our central Covid-19 stress scenario, we expect all cohorts in the UK to deliver positive annualised returns to investors,” he added. Funding Circle shares (LON: FCH) fell on Wednesday morning and are now trading -6.61% at 57,90 (0913GMT).

Pets at Home shares surge 17% on strong sales

Safiya Bashir
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2
Pets at Home shares surge 17% on strong sales
Pets at Home shares (LON: PETS) rallied on Wednesday after strong sales through the eight weeks to 10 September 2020. The retailer said that it expects full-year profit to be ahead of the current market expectations. “This is testament to several factors, not least the inherent resilience in our pet care model and the underlying pet care market,” said Pets at Home. “We continue to benefit from the adaptability of our operations to changes in customer behaviour and preferences, our continuing investment in omni-channel capacity and customer acquisition channels, and the clear advantages of our unique owner-managed First Opinion veterinary model.” “Although Pets at Home did not discount the threat of a second UK-wide lockdown the retailer said it maintained a “strong balance sheet and liquidity,” the group added. Pets at Home shares (LON: PETS) are trading +16.97% at 357,00 (0838GMT).  

Pubs: one quarter of hospitality sector may collapse

Safiya Bashir
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Pubs: one quarter of hospitality sector may collapse
A new survey has suggested that one quarter of pubs and restaurants could collapse by Christmas without government help. The new 10 pm curfew has been called ‘devastating’ by the hospitality sector who warned the pandemic could have let to 675,000 job losses by February. The British Beer & Pub Association, UK Hospitality and the British Institute of Innkeeping carried out a survey to find that 23% of pubs, bars and restaurants said they would expect to collapse within three months under the new rules. BBPA chief executive, Emma McClarkin, said: “This research shows pub businesses were already teetering on the edge.”

“Now the prime minister has announced even more restrictions for them, it is clear much more support will be needed from the government to ensure they survive.

“An immediate stimulus package is required for our sector in the form of an extension to the furlough scheme and business rates relief, plus continuation of the VAT cut to food and soft drinks and a significant cut to the UK’s excessively high beer duty,” added McClarkin.

So far, one in eight hospitality members of staff has been made redundant, with many more job losses expected following the furlough schemes end.

“The future of the sector is still very much in the balance,” said Kate Nicholls, the chief executive of UK Hospitality.

“The additional restrictions announced this week place even further burdens on a sector that is operating with razor-thin margins and needs all the help it can get. It is vital that these restrictions are reviewed regularly.” Chancellor Rishi Sunak will unveil his new “winter economy package”. Sunak is not having his November Budget because “now is not the right time to outline long-term plans and people want to see us focused on the here and now.”      

Frenkel Topping propositions NAHL

Andrew Hore
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Frenkel Topping propositions NAHL

Specialist IFA and asset manager Frenkel Topping (LON: FEN) has made an indicative all-share offer for personal injury claims generator NAHL (LON: NAH) although there is no confirmed bid. There is some overlap between the businesses, but this may not be the right deal for Frenkel Topping.
NAHL says that it is considering the proposal. The announcement added 8.8p to the NAHL share price taking it to 57.4p, which values the company at £26.5m. That is one-third of the level it was less than three years ago, which was well below the all-time high.
As ever in these deals, Frenkel Topping management...

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