“Hard times are here” as UK plummets into recession

Bronte Carvalho
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“Hard times are here” as UK plummets into recession
On Wednesday, data collected by the Office for National Statistics (ONS) showing two quarters of consecutive GDP decline confirmed what many have been expecting since the impact of the coronavirus pandemic first struck the economy at the start of the year: the UK is officially in recession. After a record contraction of 20.4% between April and June – the UK’s largest economic slump on record – the country nosedived into its first “technical recession” since the global financial crisis between 2008 and 2009, and the biggest quarterly decline since records began in 1955. The ONS’s record-breaking figures were reported by The Guardian to show that the UK economy shrank “more than any other nation” during the pandemic, as the government also faces mounting criticism after it was revealed that the UK suffered the highest coronavirus death rate in Europe. GDP only slid by 2.2% in the between January to March, but this was well before the full extent of the coronavirus pandemic had fully hit the UK, and when confirmed cases were still reportedly in the single digits. The outbreak began to wreak havoc on the economy during March, when the government imposed a nationwide lockdown and forced businesses up and down the country to close to the public. With a comparatively late response compared to other European nations, and with lockdown relaxing at similarly later dates, the UK suffered the deepest economic decline out of all of the G7 countries – more than double the 10.6% fall seen in the US. The ONS’s report stated that the pandemic had effectively erased 17 years of economic growth in just two quarters – forcing GDP to regress back to levels not seen since June 2003. Even as the economy began the recovery process once businesses reopened in June, GDP still only rose by 8.7% – 17.2% below the levels recorded in February 2020. Commenting on the expected – yet nonetheless depressing – figures, Chancellor Rishi Sunak sought to soothe fears with a message of optimism amidst criticism of the government’s handling of the crisis: “I’ve said before that hard times were ahead and today’s figures confirm that hard times are here. Hundreds of thousands of people have already lost their jobs and, sadly, in the coming months many more will. But while there are difficult choices to be made ahead, we will get through this and I can assure people that nobody will be left without hope or opportunity”. Financial analyst Connor Campbell stated that the ONS’s report is nonetheless evidence of the “bungling nature” of the government’s handling of the pandemic. Shadow chancellor Anneliese Dodds pointed the finger squarely at Prime Minister Boris Johnson, saying: “A downturn was inevitable after lockdown – but Johnson’s jobs crisis wasn’t. We’ve already got the worst excess death rate in Europe – now we’re on course for the worst recession too. That’s a tragedy for the British people and it’s happened on Boris Johnson’s watch”. It may not be entirely doom and gloom, however, as Luke Davis (CEO of IW Capital) assured that the numbers may appear worse than they seem:

“These figures are not wholly surprising given the catastrophic impact that lockdown had on many business. The word recession in the context of previous years is normally a by-word for low confidence, but in this case that is not necessarily true. Many firms are optimistic about their prospects and want to grow. Resilience is an important part of any business and firms that have survived this period will now be looking forward to growth and opportunity”.

That being said, Twitter was rampant with criticism for the government’s approach to the pandemic.  

Just Eat shares up as H1 results reveal 44% increase in revenue

Bronte Carvalho
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Just Eat shares up as H1 results reveal 44% increase in revenue
Dutch-owned food delivery tycoon Just Eat Takeaway N.V. (LON:JET) has published its half-year results, celebrating a 44% increase in revenue to €1 billion and a similarly impressive 34% growth in gross profit to €630 million. Shares at the company have risen more than 4% on the news. Just Eat reported that its adjusted earnings before interest, tax, depreciation and amortisation leapt 133% to €117 million, mainly driven by gross margin growth. Despite this, the company still sustained a loss of €158 million- compared to a loss of €27 million in the first half of 2019 – related to the acquisition of American food delivery firm Grubhub. In June, Just Eat announced its plans to buy the US-based delivery app for $7.3 billion. The move, which is reportedly “progressing well”, is set to make Just Eat the world’s largest food delivery firm outside of China. Company CEO Jitse Groen acknowledged Just Eat’s “fortunate position” during the coronavirus pandemic as food delivery demand surged. It was one of the few companies to benefit from the global lockdown during the first half of 2020, with restaurants and eateries shut in a number of Just Eat’s key markets between March and July. During the peak of the pandemic, Just Eat also launched a charity initiative with FoodCycle to help deliver free food parcels to the most vulnerable of the millions in isolation across the country. At the announcement of the project, UK Managing Director Andrew Kenny stated that Just Eat had “never been more important” and was committed to helping those “who need it the most”. Over the past twelve months, Just Eat has enjoyed a record number of new restaurants and active consumers, with the number of orders from returning customers also increasing – indicating its recent success may be here to stay. Despite their current strong growth, management at the firm believes the brand has seen underinvestment in recent years, and announced plans to “expand or recapture market-leading positions throughout our territories” through an “aggressive investment programme” targeted at the United Kingdom, Canada, Australia, Italy, Spain, France, and “several other ex-Just Eat markets”. Just Eat’s share price surged at midday by 4.49% to 9,068.00p BST 12:02 12/08/20, continuing its trend over the past 6 months which has seen shares increase by 8.95% – making it a rare success story to emerge from the coronavirus pandemic.

Admiral shares up as profits jump 30pc

Safiya Bashir
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Admiral shares up as profits jump 30pc
Admiral Group’s (LON: ADM) shares rose over 5% this morning as the car insurer revealed a jump in first-half profits. Pre-tax profits for the six months of 2020 grew by 30% to £286.7m, helped by a fall in motor insurance claims as people stayed at home over lockdown. The board has set an interim dividend of 70.5p per share – higher than the 2019 interim dividend of 63p. Over the course of the pandemic, the group paid customers a £25 ‘stay at home’ rebate, costing the group £110m. Admiral’s chief executive, David Stevens, said on the results: “Our response to that pandemic highlighted two of Admiral’s key strengths – competent execution in the short term and sustainable values for the long term.” “We adapted quickly to the new circumstances, pirouetting from one working model to another and compressing years of learning and development into a matter of weeks through a phenomenal collective effort across the company at all levels. Alongside this adaptability, we also stayed true to our long-term commitment to balanced outcomes for all our stakeholders, notably through our £25 a vehicle ‘Stay at Home’ rebate.” “This year’s interims benefit again from our consistently competent underwriting and conservative reserving on past years, feeding into another strong set of results in the core business and beyond. Thank you to all our staff, shareholders and customers who have made this possible.” Shares in Admiral (LON: ADM) opened over 5% on Tuesday morning and are currently up 4.59% at 2,641.00 (0904GMT).  

Zotefoams set for record second half

Andrew Hore
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Zotefoams set for record second half

Zotefoams (LON: ZTF) had a tough second half of 2019 and the first half recovery was hampered by COVID-19.
The foams manufacturer reported interim revenues 18% lower at £34.6m, while pre-tax profit was 44% down at £2.82m. Gross margin held up at 34.8%, helped by lower raw material prices.
Volume demand for Polyolefin foams was sharply lower. That was a continuation of the second half of 2019 and then disruption from COVID-19. There was a smaller fall in HPP products, but footwear demand is building up.
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Debenhams to cut additional 2,500 jobs

Safiya Bashir
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Debenhams to cut additional 2,500 jobs
In the latest blow to the high street, Debenhams has announced plans to axe 2,500 jobs in its department stores and warehouses. In addition to the 4,000 roles the retailer has cut since May, Debenhams will be cutting up to a third of its total workforce in an attempt to survive the pandemic. The department store has been hit hard amid the Coronavirus and since the lockdown has announced the permanent closure of 20 stores. “The trading environment is clearly a long way from returning to normal and we have to ensure our store costs are aligned with realistic expectations,” said the group in a statement. “We have to ensure our store costs are aligned with realistic expectations,” it added. “Such difficult decisions are being taken by many retailers right now, and we will continue to take all necessary steps to give Debenhams every chance of a viable future,” said a spokesperson. Debenhams went into administration in April for the second time in a year. Sofie Willmott, a retail analyst at consultancy firm GlobalData, said about the struggling department store: “The department store chain was already in trouble before the Covid-19 pandemic hit and the sharp shift in consumer shopping habits will only speed up inevitable changes in the UK market. Weaker retailers without a unique selling point will be weeded out, with many unable to survive the year.” Department stores are struggling to survive the pandemic, with House of Fraser and John Lewis also announcing wide-scale redundancy plans and closing stores. According to new figures from the Office for National Statistics, unemployment in the UK has reached an 11-year high. Despite the furlough scheme still in place, many high street retailers including Boots, Marks and Spencer, and WH Smith have announced job cuts.    

Cineworld shares soar 30% after US antitrust law dissolved

Bronte Carvalho
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Cineworld shares soar 30% after US antitrust law dissolved
British cinema chain Cineworld (LON:CINE) has seen its share price soar more than 30% on Tuesday after a landmark US court decision to lift the Paramount Decree – a sweeping anti-trust law which banned private Hollywood studios from being able to own theatres.

What was the Paramount Decree?

Essentially an extension of the 1890 Sherman Antitrust Act – which regulates competition within industries so to prevent disadvantageous monopolies from forming – the Paramount Decree was a landmark Supreme Court ruling between the US government and film studio Paramount Pictures in 1948, designed to stop studios from having the exclusive rights over which theatres would show their films, and thus prevent a brewing monopoly wherein theatres would only distribute the productions that their parent company had produced.

What does this mean for Cineworld?

The dissolution of the Paramount Decree opens the door for Cineworld to be bought up by a privately-owned Hollywood studio. With more than 500 sites across the US, it could prove a lucrative opportunity for a studio looking to offset the near-paralysis of the film industry during the coronavirus pandemic. Back in April, Cineworld shut all of its 787 cinemas worldwide as lockdown measures came into force, forcing a number of highly-anticipated blockbusters to postpone their release dates. The chain announced in June that it would be reopening its UK sites on July 31st with extensive social distancing measures in place to protect the health of staff and customers, while reopening dates in the US vary from state to state, with many sites slated to keep the doors shut until mid-August.

Investor insight

Cineworld’s share price leapt in response to the US court’s decision, rising 30.8% at BST 13:00 11/08/20 to 53.68p. The chain’s shares plummeted to a record low of 21.38p in March, and overall shares are still down more than 77% over the past 6 months.

RBC WM Managing Director tells us how we can teach children money management

Jamie Gordon
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RBC WM Managing Director tells us how we can teach children money management
Writing on week sixteen of lockdown, RBC Wealth Management’s Managing Director and Head of Relationship Management – Annabel Bosman – tells us this is an ideal time to start teaching children about the world of money management and financial skills. Having had to juggle a busy work life and childcare, Bosman tells us how she has turned the family’s dining room table into a joint work space, has incorporated stock market discussions into maths lessons, and even added extra money management lessons to the school work her children have been set. While this may sound like another story of life optimisation and the sort of successful responsibility-juggling that many of us can (and perhaps, should) only aspire to, the RBC Director’s personal story is filled with nuggets of advice we ought to give some thought to.

Money management in mundane tasks

As well as finding that children can be often more logical than adults (allegedly), Bosman states that children are naturally more inclined to fit new ideas into their existing schema of understanding. Between these traits, children are well-equipped to pick up some of the key – if rudimentary – philosophies of wealth management and philosophy. The ability to pick up these skills, she says, is something that will help them in later life, and their development can be seamlessly integrated into their everyday activities. For instance, she talks about generational differences in junior savings attitudes and opportunities. While some developments, such as apps, games and in-service products, make it easy for money to be spent instantly; and in turn lessen the opportunity for pocket money to be seen as tangible and valuable commodity. We should also note that new tech-enabled opportunities actually help children understand the realities of budgeting and investment from a young age. One example Bosman mentions, is how the video-game Roblox has given her children a virtual simulation of what are essentially real-life saving and investment cycles. Working, saving, spending money to build and then up-scaling and adding new abilities and items. While innocent enough, familiarity with such processes may prove invaluable when putting oneself in the mindset to save for a house or a holiday, or even spending on investments. Similarly, other tools have and will continue to be developed, such as GoHenry: a service that allows you to give your children a pre-paid card to learn both budgeting and, importantly, money management with virtual cash (which hopefully helps them avoid difficult lessons with their first debit and credit cards).

In addition, Bosman talks about some fun ways to teach children about financial mechanisms, such as applying nominal taxes and interest rates to their pocket money expenditure. She gives examples such as a “mummy-tax” on buying chocolate bars and faux-interest rates when they want to borrow money, though we could even go further and talk about bonuses to reinforce healthy or helpful activities and matching any contributions they make to their piggy bank (etc).

Managing money taboos

Of course, finance is a delicate subject for everyone, and it should rightly be viewed as an even more sensitive subject when taught to children. It is unhealthy to teach them that money is either the most important thing in life, or that merit and scorn is measured by financial rewards and punishments.

With that being said, implementing some creative money management games into a child’s life can be both fun and offer valuable skills and mindsets for later life. Speaking from experience – though still young myself – being taught the value of money, how to spend and save intelligently, has been invaluable to my ability to live a so-far contented life. This began with my dad paying me to help him with DIY, my mum starting a savings account for me and rewarding me for tucking some money away, and my stepdad paying me for doing odd-jobs around his shop – all of which taught me that money ought to be earned and respected, but not revered.

Speaking on the need to challenge the children’s money management taboo, Bosman remarks:

“Whatever our financial position, we often bury our heads in the sand when it comes to money, and don’t always have a clear financial plan, but when we start to put down on paper what’s going in and out, we immediately start to feel more in control, thus becoming more engaged. It can be uncomfortable to have that conversation with your family, but we regularly speak with our clients about all manner of sensitive subjects including putting wills in place, inheritance and protecting loved ones. Naturally, this is also bringing conversations to the fore around succession planning, legacy, philanthropy and even one’s own mortality. When times are good, it’s easy to not have these thoughts at the forefront of your mind, but in challenging times like these, it highlights how essential it is to talk. And just as with my children, there are plenty of apps and websites that can help you take the first steps.” She adds that for those looking for actual lessons for their children, young money management tips are easily accessed via video guides on YouTube and Tik-Tok, and through resources such as Usborne Money for Beginners.  

FTSE 100 shares: Two shares for dividend income consideration

UK Investor Magazine
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FTSE 100 shares: Two shares for dividend income consideration
FTSE 100 constituents have been ravaged by the coronavirus pandemic with large swathes of London’s leading index having to cut, or completely scrap, their dividends. As a result of the economic fallout caused by coronavirus, dividend favourites such as oil majors BP and Shell have had to reduce their holy grail dividends and the UK’s banks were ordered to cease payouts by the Bank of England. With investors suddenly finding many shares yielding a lot less than they once did, we look at two companies with dividend payment that should prove to be more resilient than their FTSE 100 peers.

Pennon Group

Utilities companies, in particular water companies, are viewed by some as the ultimate defence sector. The demand for their services is highly inelastic so cash flows can be relied upon, reducing the risk of shock dividend cuts. This is supported by steady revenue growth that tends to rise in line with inflation. Pennon, one of the recent addition’s to the FTSE 100, illustrated this in their full year results with revenue from continuing operations in 2020 increasing to £636.7m from £632.6m. In addition to steady revenue from ongoing operations, Pennon is set to receive £3.7 billion in cash from the sale of their waste management and recycling business, Viridor, to KKR. Pennon have said some of the cash will go to paying down debt and bolstering the pension scheme, with plenty left over for further investment in growth, and potentially retuning proceeds to shareholders. This means the ordinary dividend is not only safe, but there is the possibility of a special dividend, if the Pennon board do not find suitable investment opportunities. The Pennon ordinary dividend increased 6.6% to 43.77p, equivalent to a 4% yield with shares trading at 4%.

AstraZeneca

AstraZeneca has long promoted their progressive dividend policy and have stayed the course throughout the coronavirus pandemic. In their recent trading update, the board announced an interim dividend of 90 cent, meaning the pharmaceutical company currently has a yield of 2.6%. A 2.6% yield will not set the world on fire for most investors in FTSE 100 shares, but confidence in the ability to maintain this payment should take precedence in the current environment. AstraZeneca’s Core EPS grew by 24% to $2.01 in the second half highlighting strong coverage of the dividend by earnings. Not only does AstraZeneca provide an attractive income prospect, their pipeline of drugs presents a significant opportunity for capital appreciation. With treatments such as Lung Cancer drug Tagrisso producing a 43% increases in revenue, the growth story is as compelling as the income proposition. AstraZeneca, one the FTSE 100 top performers in 2020, is scheduled to go ex-dividend 13th August 2020 with the dividend paid 14th September.

Intercontinental Hotels shares rally despite $223m loss and dividend cancellation

Jamie Gordon
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Intercontinental Hotels shares rally despite $223m loss and dividend cancellation
FTSE 100 listed hotelier, Intercontinental Hotels Group (LON:IHG), saw its shares rally healthily during Tuesday trading, despite the company’s difficult half-year being reflected in its results. The company booked reportable revenues of $488 million and total revenues of $1.25 million, narrowing by 52% and 45% respectively during the first half year-on-year. This led the Intercontinental Hotels to swing from a $442 million operating profit during the first half of 2019, to a $233 million loss for H1 2020. Similarly, the company’s fee margin narrowed by 28.0% points, to 26.1%, though its net debt also decreased by 12%, down to $2.52 billion. The Group’s challenging half-year was also – if not more acutely – felt by its shareholders. Its basic EPS collapsed 169%, down from a profit of 167.2 cents per share, to a 115.4 cent loss per unit. Similarly, the company cancelled its dividend, which stood at 39.9 cents per share at the end of the half-year in 2019.

Intercontinental Hotels response

Commenting on the company’s performance, CEO Keith Barr stated that the company had made significant savings during the difficult half-year of trading, and had seen some promising early signs of recovery as it began reopening its sites. He stated:

“The impact of Covid-19 on our business has been substantial. Global RevPAR declined by 52% in the first half and was down 75% in the second quarter, when occupancy at comparable hotels fell to 25%. Despite this challenging environment, we delivered an operating profit of $74m. Small but steady improvements in occupancy and RevPAR through the second quarter continued into July, with an expected RevPAR decline of 58%, and occupancy rising to around 45%.”

“The support we have offered owners, such as fee relief and increased payment flexibility, was well received. Together with other measures we’ve taken to preserve cash, we have maintained substantial liquidity of around $2bn. Our ongoing actions to reduce costs include plans to make around half of the $150m of savings we will achieve this year sustainable into 2021, alongside continued investment in our growth initiatives. However, with limited visibility of the pace and scale of market recovery, we are not proposing an interim dividend.”

“As has been the case in previous downturns, domestic mainstream travel is proving to be the most resilient. Our weighting in this segment, led by our industry-leading Holiday Inn Brand Family, positions us well as demand returns in our key markets. In the US, our mainstream estate of almost 3,500 hotels is seeing lower levels of RevPAR decline than the industry, and is operating at occupancy levels of over 50%.”

Investor insights

Despite the seemingly downbeat the news, Intercontinental shares rallied 4.17% or 167.00p to 4,168.00p per share 11/08/20 12:30 BST. This is ahead of where the company’s consensus target price stood on Monday – which was just over 3,914.00p per share – though this may of course be adjusted given today’s rally and the company’s overall share price recovery in recent weeks. The company’s p/e ratio currently stands at 17.25.

Prudential shares bask in optimistic Asia profits

Bronte Carvalho
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0
Prudential shares bask in optimistic Asia profits
Shares at Prudential plc (LON:PRU) have bounced 2.76% after the company released a “resilient” set of half year 2020 results, celebrating a 14% adjusted operating profit across its services in Asia. The British multinational life insurance and financial services firm – based in London and boasting more than 20 million customers – announced that it intends to build on its encouraging Asian profits by focusing on “high growth Asia and Africa markets with a view to sustained double-digit growth in embedded value per share”. Nevertheless, Prudential was not entirely able to escape the impact of the coronavirus pandemic, with underlying operating profit in the first half down 2% year-on-year to $2.5 billion. Net cash across its business units was also down a whopping 60%, falling from $1.09 billion to $432 million. The company assured, however, that its regulatory capital surplus remains strong at $12.4 billion, and that it will be announcing a new dividend policy aimed at focusing on “value creation through growth”. Amidst its H1 results, Prudential also announced that it intends to “fully separate” from its US life insurance provider Jackson, beginning in early 2021. Mike Wells, Prudential’s chief executive, commented on the firm’s announcement: “We have delivered a resilient performance in the first half, despite a challenging new business sales environment, which is likely to persist for the rest of the year, and further falls in interest rates. “The Board of Prudential plc has decided to pursue the full separation and divestment of Jackson to enable the Group to focus exclusively on its high-growth Asia and Africa businesses. He added that the company is well-placed to withstand the long-term economic impact of the coronavirus pandemic: “We believe we are well positioned both to weather the disruption caused by the Covid-19 pandemic as we continue to support our customers and communities in the recovery to come, and emerge stronger and with a more focused strategy”. Neil Shah, Director of Research at Edison Group, weighed in on Prudential’s optimistic report: “Although Prudential has had to struggle with several unexpected set of events in Asia, from the start to the pandemic to Hong Kong riots and US/China or a hit to fees from falling markets, Pru has found a bright spot in the Far East with a 14% increase in profit”. It is good news for investors, nonetheless, as Shah maintains “proceeds from the [Jackson] move will force the company to take a new dividend policy and will kick off with a first interim dividend for 2020 of 5.37 cents a share”. Prudential’s share price rallied 2.76% to 1,226.00p at BST 12:41 11/08/20 in response to the company’s announcements.
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