DS Smith shares dip 9% as it cancels its dividend

Jamie Gordon
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DS Smith shares dip 9% as it cancels its dividend
FTSE 100 packaging company DS Smith (LON:SMDS) saw its share price dip during Thursday. despite booking robust full-year results. Group revenue dipped by 2% year-on-year to £6.04 billion. In spite of that fact, the company were able to book a 5% jump in operating profit to £660 million, while profit before tax also rose 5% to £368 million. Similarly, its return on sales increased 70bps to 10.9%, while its return on average capital employed dipped by 300bps to 10.6%. The situation for DS Smith investors was equally mixed. Its basic EPS jumped 8% to 21.2p per share. However, notably, the group decided in early April that it would cancel the interim dividend payment due to be paid at the start of May. The outlook for dividend payments looked equally bleak, with the company’s statement reading: “The Board has since considered the overall dividend payment for this financial year and, taking into consideration the interests of all stakeholders, concluded that the outlook remains too uncertain to commit to a resumption of dividend payments in the short term. Recognising the importance of dividends to all shareholders, the Board will actively consider the resumption of dividend payment, when we have greater clarity over outlook.” This decision came despite what the company described as ‘robust’ trading and strong liquidity. DS Smith boasted strong performance in Europe and only limited COVID-19 impact in March and April, though its US domestic performance was hampered by “continued weak export paper pricing”. The company said that it had successfully integrated Europac into its business and disposed of its plastics division. It added that despite economic uncertainty, its outlook remained strong.

DS Smith response

After applauding the company’s 30,000 employees and lauding the resilience of its trading, group CHief Executive Miles Roberts stated:

“Our business model is resilient, built on our consistent FMCG and e-commerce customer base. In the short term, however, the impact of Covid-19 on the economies in which we operate is likely to impact volumes to industrial customers and add to operating costs. In particular, infrastructure constraints have driven elevated OCC prices, although we currently expect the impact to be limited to H1. With the current economic uncertainty, we continue to focus on our employees, our customers, our communities and on the efficiency and cash generation of our business and accordingly the Board considers it premature to resume dividend payments at this stage.”

“In the medium-term, the growth drivers of e-commerce and sustainability are as strong as ever. The Covid-19 crisis is also expected to accelerate a number of the structural drivers for corrugated packaging and our scale and innovation led customer offering positions us well and gives us confidence for the future.”

Investor insights

Despite a controlled set of results, the cancellation of its dividend saw DS Smith shares dip 9.26% or 29.50p, to 289.20p per share 12:55 BST 02/07/20. This is down by approximately 21% year-on-year, and well below its median target price of 342.50p per share. The group’s p/e ratio stands at 9.57. Cancellation of the dividend and any freakish occurrences aside, the company naturally has a positive outlook. With a seemingly exponential trajectory for the growth of e-commerce, packaging and deliveries companies have a bright future.

UK High Court rules against Nicolás Maduro in row over Venezuelan gold

Bronte Carvalho
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UK High Court rules against Nicolás Maduro in row over Venezuelan gold
The UK’s High Court has ruled against the Venezuelan government in a legal battle over access to $1 billion worth of gold currently held by the Bank of England. Incumbent president Nicolás Maduro launched legal action against the Bank when it refused to hand over the gold, following opposition leader Juan Guaidó’s warning that it would be used for “corrupt purposes”. The Bank has been postponing the transfer of 31 tonnes of gold since 2018. In a painful blow to Maduro’s struggling administration, the court “unequivocally recognised opposition leader Juan Guaidó as president”, in a reference to claims of illegitimacy during the country’s controversial 2018 presidential election. The Venezuelan government has been internationally condemned, with accusations of banning opposition parties from participating in the vote and placing prospective leaders under house arrest. The USA and the European Union are among the critics of the 2018 election results, refusing to recognise Maduro as the legitimate winner in the polls. Last year, Maduro publicly defended his administration’s legitimacy after the opposition-backed National Assembly called for the military to “restore democracy” in the oil-rich South American state. In a widely-shared tweet, the president declared: “To those who hope to break our will, make no mistake. Venezuela will be respected!”. Crippling sanctions posed by the US have left Maduro with little room to manoeuvre as the poverty-stricken state battles the coronavirus pandemic. Selling its gold reserves might have generated a much needed cash boost for its struggling health service, currently battling over 6,000 virus cases. Earlier this month, The New Humanitarian warned that Venezuela’s reported cases may only make up a percentage of the total number across the country, citing historic data appropriation and an ongoing humanitarian crisis.

Prezzo begins sale process as the latest chain struck by coronavirus crunch

Bronte Carvalho
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Prezzo begins sale process as the latest chain struck by coronavirus crunch
Italian high street staple Prezzo has become the latest restaurant chain to seek out a buyer, as the dining industry looks set to emerge from the coronavirus crisis with a slew of bankruptcies and widespread job losses. Prezzo has reportedly asked corporate advisors FRP Advisory to orchestrate an auction of the chain as its 180 restaurants across the UK prepare to open doors to customers once again on July 4th. The company currently employs over 3,000 staff, the majority of whom have been enrolled onto the UK government’s furlough scheme since March. The chain is part-owned by American investment firm TPG Capital, a $103 billion buyout tycoon that also owns clothing brand J. Crew. A source close to Prezzo has stated that its shareholders intend to streamline the company’s current ownership model. Prezzo joins the long list of brands that have struggled to stay afloat during the UK government’s strict lockdown. The complete paralysis of the retail and services sector has already seen the collapse of a number of iconic household names, including Victoria’s Secret, TM Lewin and Byron Burger. Over the past 48 hours alone, a total of 12,000 UK employees have been made redundant. John Lewis and Airbus are among the companies to announce restructuring plans as they prepare for the post-coronavirus scene, with social distancing measures expected to stay in place until the end of the year.

Primark owner AB Foods shares rally despite quarterly profits dipping 75%

Jamie Gordon
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Primark owner AB Foods shares rally despite quarterly profits dipping 75%
Clothing retailer Primark saw a large knock to its first half profits due to Coronavirus and its lack of online presence. Despite this and upon publishing its results on Thursday, parent company Associated British Foods (LON:ABF) enjoyed a healthy share price rally. The company noted that its revenues had contracted 75% year-on-year for the three month period ended 20 June, and that Coronavirus lockdowns have cost the company an estimated £800 million. The revenues for the quarter were down to £582 million, and the retailer said it expected its full-year profits to fall by two thirds. Having reopened all but 8 of its 375 stores, Primark said that sales had been “reassuring and encouraging”, with strong demand for children’s, leisure, summer clothing and nightwear. However, the company did also say that were still suffering due to reduced footfall and changes in public behaviour, with demand for formal menswear and travel-related accessories “unsurprisingly weak”, with like-for-like sales across its ranges down 12% since it began reopening its outlets. With the Coronavirus disruption in mind, Primark stated that “absent a significant number of further store closures”, and excluding exceptional charges, it expects to book full-year profits in the range of £300 million to £350 million, down from £913 million for the full-year ended September 2019. The company did state, though, that for the week ended 20 June in England and Wales, sales were up year-on-year as non-essential retailers were allowed to open their doors. This, and a 9% revenue spike in ABF’s grocery operations, softened the blow of an otherwise glum trading update. On the basis that things were bad but not as bad as they might have been – and with potentially strong activity going forwards – (ABF) Primark shares were up 5.47% or 107.50p, to 2,072.00p per share 11:31 BST 02/07/20. Today’s price represents around a 15% year-on-year dip, but is below the consensus target of 2,140.00p. While analysts are in mixed minds about the stock, the majority have stated either ‘Buy’ or ‘Strong Buy’ stances. The group’s p/e ratio is 14.29, their dividend yield stands at 2.24%.  

Coronavirus: Over 12,000 jobs lost in two days

Safiya Bashir
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Coronavirus: Over 12,000 jobs lost in two days
The Coronavirus pandemic has seen a surge of UK employers announce cuts over the past 48 hours, leading to 12,000 jobs lost. Over the past two days retailers and aviation companies including John Lewis and Airbus have announced plans to restructure and let go of thousands of staff members amid the crisis. Wednesday this week saw 6,000 jobs cut from the retail sector alone as Harrods, Arcadia group and SSP Group revealed plans to close stores and lose staff. “Due to the impact of Covid-19 on our business including the closure for over three months of all our stores and head offices, we have today informed staff of the need to restructure our head offices,” said Philip Green’s Arcadia group. “This restructuring is essential to ensure that we operate as efficiently as possible during these very challenging times.” Meanwhile, SSP Group, Harrods, and TM Lewin announced 5,000, 700, and 600 job losses respectively. Across at the aviation sector job losses also continue to hit hard this week. Airbus said on Wednesday it plans to cut 1,700 UK jobs. “Airbus is facing the gravest crisis this industry has ever experienced,” said chief executive, Guillaume Faury, earlier this week. “The measures we have taken so far have enabled us to absorb the initial shock of this global pandemic. Now, we must ensure that we can sustain our enterprise and emerge from the crisis as a healthy, global aerospace leader, adjusting to the overwhelming challenges of our customers.” “To confront that reality, we must now adopt more far-reaching measures,” he added. EasyJet also said it plans to cut 727 pilot jobs and 1,200 cabin crew jobs as the travel sector is hit hard amid the crisis. As the surge in job losses increases, the Labour party is calling for the furlough scheme to continue in order to protect those who are at risk of losing their jobs. Labour’s shadow transport secretary, Jim McMahon, said: “Labour has consistently called for an extension to the furlough in the most impacted industries, and a sectoral deal that supports the whole aviation industry including securing jobs and protecting the supply chain, while continuing to press for higher environmental standards.”

John Lewis to close stores and cut jobs

Safiya Bashir
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John Lewis to close stores and cut jobs
John Lewis is the latest retailer to announce plans to close several stores and cut UK jobs. In a memo sent to staff, the department store shared plans to cut costs in response to the Coronavirus pandemic and how consumers are changing the way they shop. The news from John Lewis comes as Harrods and Topshop owner Arcadia are planning to cut a combined total of 1,800 jobs between them as a result of the “ongoing impacts of this pandemic”. “The necessary social-distancing requirements to protect employees and customers is having a huge impact on our ability to trade, while the devastation in international travel has meant we have lost key customers coming to our store and frontline operations,” said Harrods chief executive, Michael Ward. For John Lewis, there has been no decision as of yet on which stores will not reopen and updates will be shared in mid-July. “The difficult reality is that we have too much store space for the way people want to shop now. As difficult as it is, we now know that it is highly unlikely that we will reopen all our John Lewis stores. Regrettably, it is likely that there will implications for some [staff members’] jobs,” said John Lewis chairman, Sharon White. “There is clearly a lot of uncertainty but as things stand, it is hard to see the circumstances where we will be able to pay a bonus next year. I know this will be a blow for partners who have made sacrifices these past months,” White added. The department store has struggled amid the pandemic and in March, announced plans to cut its annual staff bonus to the lowest level in almost 70 years. In March the retailer’s profits fell 23% to £123m.      

Sainsbury’s sales surge but higher costs subdues profit outlook

UK Investor Magazine
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Sainsbury’s sales surge but higher costs subdues profit outlook
Sainsbury’s (LON:SBRY) have enjoyed surging sales during the coronavirus lockdown as total sales excluding fuel rose 8.5% in the 16 weeks to 27th June. However, the supermarket also said higher operational costs and the cost of keeping staff and customers safe offset the jump in sales to the extent they saw underlying profit flat in the full as they kept expectations unchanged. The jump in sales was driven coronavirus related consumer behaviour which saw home delivery sales up 78% and collection sales up 53%. Sainsbury’s shares ground out a 1% gain on Wednesday morning after the trading statement was released. “The last four months have been extraordinary in so many ways and our colleagues have done an amazing job adapting our business. They have worked tirelessly to keep everyone safe, to help feed the nation and to support our communities and the most vulnerable in society,” said Simon Roberts, Chief Executive Officer. “Our business has changed fundamentally from four months ago. We have more than doubled our weekly sales of online groceries in recent weeks, SmartShop now accounts for more than half of sales in some supermarkets and Argos sales were strong while operating as an online-only business for almost twelve weeks. Warm weather boosted food sales and sales in seasonal categories in Argos, but sales of clothing and fuel and trading in city centre Convenience stores were all significantly down year on year as a result of lockdown. Mr Roberts also highlighted the continued work Sainsbury’s was doing on price, one of the key competition points in the grocery market before coronavirus. “We have worked really hard to listen and to respond to customers throughout the crisis. We have lowered prices on many key products as we continue to focus on lower regular prices. Our price position versus our competitors has improved in the quarter, Sainsbury’s key customer feedback scores are at record levels and we have gained market share,” Robert said. “The coming weeks and months will continue to be challenging for our customers and our colleagues and we do not expect the current strong sales growth to continue. A number of the decisions we have made have materially increased costs but meant that we have done the right thing for our customers and set us up well for the future.” The Sainsbury’s share price is one of the FTSE 100’s better performers of 2020, falling a little over 8%, whilst the broader index is down 18%.

Airbus to cut 1,700 UK jobs

Safiya Bashir
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1
Airbus to cut 1,700 UK jobs
Airbus has announced plans to cut 1,700 UK jobs amid a major restructuring of the company. The aerospace giant said on Tuesday that it will cut a total of 15,000 jobs across the whole company in response to what the group has called an “unprecedented crisis”. Following a slump in production and 40% plunge in commercial aircraft business activity, the group has said it will cut 1,700 jobs in the UK, 5,000 jobs in France, 6,000 jobs in Germany and 900 in Spain. “Airbus is facing the gravest crisis this industry has ever experienced,” said chief executive, Guillaume Faury. “The measures we have taken so far have enabled us to absorb the initial shock of this global pandemic.” “Now, we must ensure that we can sustain our enterprise and emerge from the crisis as a healthy, global aerospace leader, adjusting to the overwhelming challenges of our customers.” “To confront that reality, we must now adopt more far-reaching measures,” he added. More details of the roles and from which factories they are based will come at the end of the week. The news comes amid many job losses announced, particularly across the travel sector. This week EasyJet said it plans to cut 727 pilot jobs and 1,200 cabin crew jobs. Wednesday saw SSP Group announce plans to cut half of its UK workforce. In response to the job cuts across the travel sector, Labour’s shadow transport secretary, Jim McMahon, has called on the UK government for more support to those affected. “Labour has consistently called for an extension to the furlough in the most impacted industries, and a sectoral deal that supports the whole aviation industry including securing jobs and protecting the supply chain, while continuing to press for higher environmental standards,” he said. Many of the jobs cut will be from Broughton, in Wales. First Minister Mark Drakeford tweeted: “Devastating news for all of the staff at Airbus, their families and the local community. The Welsh Government will use all of the levers at our disposal to support the workers through this difficult time.”    

UK Investor Magazine Virtual Investor Presentation 30th June

UK Investor Magazine
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UK Investor Magazine Virtual Investor Presentation 30th June
Key stock tips; a range of tips on UK equities from our expert panelists Investing during and post COVID-19; what will be the key trends for investors as the global economy begins to recover from the recession Driving the UK economic recovery; how businesses will adapt to the ‘new normal’ and what is required from the government to help support a return to growth Smart Metering with CyanConnode; John Cronin, executive Chairman of AIM-listed CyanConnode, will present their business model and recent updates on their Smart Metering projects Building private company portfolios; Martin Sherwood of KIN Capital will join us to discuss investment in private companies during COVID-19 and the tax benefits from the Enterprise Investment Scheme Tips for the longer distance investor; Roger Hardman, former analyst at James Capel in the 1980’s and founder of Hardman Research. He is currently on the board of a number of Charities and Investment Funds and is enjoying a gentle retirement

Speakers and Presentation Downloads

Roger Hardman – Investor and Founder of Hardman & Co Andrew Hore – Editor, AIM Journal To view PDF presentation, please click here John Cronin – Executive Chairman, CyanConnode To view PDF presentation, please click here Martin Sherwood – Development Director, Kin Capital To view PDF presentation, please click here Jon Levinson – Corporate Broker, SI Capital

Boris encourages home building by deregulating brownfield development

Jamie Gordon
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Boris encourages home building by deregulating brownfield development
On Tuesday prime minister Boris Johnson gave a speech in Dudley, in which he promised to “build better and build greener”, but also “build faster”, and adjust planning regulations to “build a more beautiful Britain”. If you guessed Mr Johnson has a passion for ‘building’, you’d be correct. The overall gist of today’s announcements was that the PM is going to make it easier for developers to build more residential properties, by slashing regulations on existing or once-occupied spaces. In terms of building new homes in formerly non-residential premises, the PM said it will now be easier than ever to develop Brownfield sites into “fantastic new homes”. Further, and likely the seminal feature of the announcement, the prime minister said that commercial properties will be able to be repurposed into residential spaces without planning permission and local authority approval. Builders will not need planning permission in order to demolish commercial or residential properties, so long as they are going to be rebuilt into residential premises, and it will be easier to convert existing vacant premises into residential spaces. Boris also announced that, subject to neighbour consultation, it will be possible for home-owners and developers to build additional space above existing properties through a fast-track planning scheme. On the regulatory changes, PM Boris Johnson said in his speech: “Time is money, and the newt-counting delays in our system are a massive drag on the productivity and the prosperity of this country”. A characteristically glib remark though it may be, the point that home building needs to remain consistent and in keeping with demand is true. This inability to fulfil this task has been a “chronic failure of the British state”, with not enough homes being built “decade after decade”, he said.

Hooray for less red tape, or nay for lower-quality living?

One issue that has been raised with this approach is that fewer regulations naturally encourage lower standards. Tom Fyans, policy and campaigns director at CPRE, the countryside charity, said that encouraging brownfield development decreases the pressure on greenfield sites. However, he also said that: “Deregulating planning and cutting up red tape simply won’t deliver better quality places. It’s already far too easy to build poor quality homes. Our research has shown that three quarters of large housing developments are mediocre or poor in terms of their design and should not have been granted planning permission. “The best way to deliver the places that we need, at the pace we need them, is to make it easier for local councils to get local plans in place, and then to hold developers to those plans.” Further, Deputy Editor of Inside Housing, Peter Apps, added: One safeguard Boris Johnson was willing to put in place was that pubs, libraries and village shops will be exempted from the brownfield and conversion schemes announced on Tuesday, as the government view these as “essential to the lifeblood of communities”.

More homes or just more properties?

Another issue we might take with today’s announcement is that house building and home ownership are not always consistent. While building something like 250,000 new homes a year is an admirable goal, the reality is that many of these will inevitably end up as additions to a portfolio and on the private rental market. We can argue whether this is a bad thing or not, but to claim that new ‘homes’ are being built at a rapid rate may be misleading. As Economist Paul Collier stated, home ownership increased exponentially to around 70% in 1980, and since then it has exponentially decreased. To increase home ownership, we need not only to build property but to make it easier for first time buyers to get on the ladder. In Boris Johnson’s defence, this concern was represented by a new feature called “First Homes” scheme, which is a new pilot programme of 1,500 new homes which will be sold exclusively to first-time buyers for a 30% discount. Further, the government pledged to commit £12 billion to an 180,000 affordable homes programme over the next eight years, though this is a notable backtrack on the previous five-year plan for £12.2 billion-worth of expenditure. As stated by Shadow Business Secretary Ed Miliband: “So now we discover this ‘FDR’ speech cuts money for affordable housing -£12bn over 5 years in Budget 2020, now £12bn over 8 years. What an absolute fraud.”

What do we think?

It’s rather a mixed bag to be honest. The new rules will come into effect by September, once changes to planning laws have been ratified. The building of new homes should always be encouraged, though a greater commitment to encouraging first-time buyers would have been more in keeping with Boris Johnson’s trademark national potential and opportunity rhetoric. As far as the online response is concerned, so far comments on more ‘left-wing’ outlets have lamented the announcements, while comments on more ‘right-wing’ outlets have expressed concerns about over-building and the damage this could cause to communities and ecosystems, with others asking the prime minister to limit immigration rather than housing supply, to deal with the demand for new homes.    
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