The Lloyds share price is too hard to ignore at current levels
The Lloyds share price (LON:LLOY) has suffered terribly since the onset of the coronavirus crisis, having more than halved since the beginning of 2020.
The writing of a letter by the Bank of England to UK banks effectively instructing them to cease all unnecessary payouts, including ordinary share dividends and buybacks, was the final straw for the market and shares fell beneath 30p.
However, with most of the ‘bad’ news now currently priced into shares, there is the argument that the sellers have been shaken out, leaving plenty of opportunity for a share price recovery.
To make a case for entering Lloyds shares at current levels investors should refer back to the fundamentals of the company in 2019. This will provide a reference to where Lloyds’ underlying business should return to as the UK economic recovery takes place over the next 12-24 months.
One should note that the much touted ‘V-shaped recovery’ to the coronavirus crisis in the early days of the spread is unlikely to happen due to the structural changes to the employment market.
Sharp increases in unemployment across the globe means the recovery will be slightly more protracted. Nonetheless, animal spirits will return and this will untimely drive Lloyds’ operations back up to prior levels.
Oil jumps as much as 35% lifting FTSE 100 after Saudi/Russia production cut reports
The price of oil soared on Thursday afternoon following reports Russia and Saudi Arabia were to agree on a production cut that could amount to 10 million barrels a day.
The news was first unveiled by President Trump who put out a tweet following a telephone conversation with ‘his friend’ the Crown Prince of Saudi Arabia.
Russia and Saudi Arabia have been locked in a price war following the decision by Russia to increase production which has rocked global oil markets.
Oil prices ripped higher with both Brent and WTI up over 25% and Brent Crude rose over $30. Following Trump’s tweet, reports emerged of Saudi Arabia requesting an emergency OPEC meeting. In an interview with Bloomberg, Ryan Sitton, Texas Railroad Commissioner , said before the US lockdown the global oil market was 18 million barrels a day oversupplied which he thought was now at around 22 million barrels a day. This would mean cutting 10 million barrels would still leave an oversupply in the oil market and could pressure oil prices as storage facilities continue to become full. Nonetheless, equities surged on the back on the news with oil heavy weights BP and Royal Dutch Shell adding to gain in the immediate reaction. Shell was up over 10% on Thursday afternoon adding a significant number of points to the FTSE 100. Shares had been trading towards their lows before the announcement following the largest rise in US unemployment figures in history. Initial jobless claims rose by 6.6 million, doubling last week’s 3 million. This is the sharpest increase in unemployment figures in US history. During the financial crisis it took 19 weeks for 10 million to register unemployed in the US and the same amount have been recorded in just two. The FTSE 100 had rallied to highs of 5,547 before the rally faded into the close.Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!
— Donald J. Trump (@realDonaldTrump) April 2, 2020
Equity Funds to buy to navigate the coronavirus crisis
Equities have sunk during the coronavirus-indiced selloff and now offer a range of opportunities that haven’t been seen since the financial crisis.
Those choosing to use the services of fund managers are being presented with a plethora of options to take advantage of the low prices in equities.
ETFs that follow the price of indices offer low-cost exposure to indices such as the FTSE 100 for investors who want to passively track any broad recovery in stocks.
iShares Core FTSE 100 UCITS ETF does just that with an ongoing cost of just 0.07% and a 5.8% distribution yield at the end of March 2020 when the FTSE 100 was around 5,500.
The passive versus active approach to money management rages on and actively managed funds in the UK are as still as popular ever, despite the growth of ETFs. This has, however, created benefits for investors in the form of lower costs for OEICs, Unit Trusts and Investment Trusts.
In the actively managed space, we would point to high income funds in Shroders Core UK Equity and the Aberdeen Standard Equity Income Trust that yield 6% and 10% respectively.
Expect these yields to change as we learn of more dividend cuts but both funds are dominated by high-quality FTSE 100 companies such as Shell, BP, GSK, AstraZenec and British American Tobacco, so we wouldn’t expect the adjustments to the fund yields are overly dramatic.
A theme we feel that will be as important beyond the coronavirus crisis as it was before is sustainability and making investments that provide a positive impact.
With this in mind we continue to be impressed by JLEN Environment Assets that reaffirmed its dividend as many FTSE 100 companies scrapped them all together. At 109p JLEN yields in excess 5.8%.
The JLEN Investment Trust invests in a portfolio of renewable energy assets including hydro, biomass, solar and wind. Demonstrating the forward-thinking nature of management, JLEN announced the acquisition of a biomass plant as the UK moved towards the peak of coronavirus, a decison investors should take confidence in.
YourGene to assist with COVID-19 testing
Formally Premaitha Health, in 2018 the name changed to YourGene (LON:YGEN) and the focus shifted to on being an international molecular diagnostic group, which is successfully commercialising genetic products and services.
These molecular tests are less time and labour intensive than traditional culture methods and can provide rapid diagnosis. Interestingly, the company is apply its services to COVID-19 testing.
Its interims to September reported its first EBITDA profit which was £0.3m after a 97% increase in revenue to £7.8m. The reorientation of the business on four strategic growth priorities has produced 56% organic growth with a gross profit margin of 60% for a 141% increased Gross Profit to £4.7m.
What’s exciting us is the agreement for contract manufacturing services for ‘part’ of a COVID-19 Test. The agreement is with a subsidiary of Novacyt (LON:NCYT) which recently recorded a £131m Mkt Cap as the shares doubled on announcements it’s diagnostic tests kits went into production.
Initially, Ygen are contracted to produce critical components but the agreement could soon be expanded.
In November 2019, Ygen opened its state-of-the-art facility at Citylabs, in the centre Manchester’s £95m genomics campus. This GMP (Good Manufacturing Practice) facility has un-used capacity, which would have been slowly filled by Ygen’s own growing requirements, but it is well prepared to scale-up as it anticipates ramping-up production.
The Citylabs facility is a key part of the ongoing integration of the £8.9m Elucigene acquisition which was completed in April 2019. The consolidation into a single management structure and manufacturing facility is already generating efficiencies. The four strategic priorities are product penetration, geographic and product expansion and acquisitive growth with earning enhancing deals.
One of the factors in the accelerated organic growth at the Interims was the increased product penetration for the flagship non-invasive prenatal tests (NIPT) for Down’s syndrome and other genetic disorders, and an expansion of its oncology and research services activity. The sales footprint has been expanded as it now sells products into over 60 countries worldwide, compared to 30 countries.
The US is a target for expansion and corporate activity can be anticipated. The COVID -19 tests will accelerate utilization of the new capacity and the company’s profitability.
Financials
In April 2019, an over-subscribed fund raising at 10.25p a share raised nearly £12m. After the acquisition and investment in the new facility the net cash is around £3.6m.Trading Strategy
At a near £100m market cap a moderate upgrade seems anticipated, the risk from here however seems to be missing the Covid -19 assisted upside. BuyAverage Cash ISA savers will earn just £12 in interest with UK’s 10 biggest banks
Cash ISAs continue to provide savers with disappointing savings rates as interest rates remain at record lows.
With an average amount of £5,114 saved in Cash ISAs it means the average interest from the UK’s top banks would provide interest of just £12.77, research from RateSetter found.
Data compiled by Rate Setter
*0.05% from 1 May 2020. 0.5% used in calculations.
**0.1% from 1 July 2020. 0.24% used in calculations.
Rhydian Lewis, CEO at RateSetter, said:
“Cash ISAs provide certainty on the returns they deliver – but with interest rates closing in on zero, this essentially guarantees your money will fall in value once inflation is factored in.
“However, people should not give up on the prospect of growing their money in the coming year. There are still inflation-beating ISA investment options out there which offer shelter from the turbulence of the stock market, such as the Innovative Finance ISA.”
The Innovative Finance ISA provides exposure to a range of underlying assets such as property or small business loans and typically provides much higher returns than Cash ISAs. The higher yields do of course come with a higher level of risk and aren’t suitable for all savers.
Stocks & Shares ISAs may also prove a popular alternative to Cash ISAs in 2020 as shares trades at some of the lowest levels for years, providing savers and investors with a number of bargains.
| Instant access Cash ISA rate | 1 year ISA rate | 2 year Isa rate | |
| Barclays | 0.40% | 1.00% | N/A |
| Lloyds Bank | 0.05% | N/A | 0.65% |
| Santander | 0.20% | N/A | 0.75% |
| HSBC | 0.50%* | N/A | N/A |
| Halifax | 0.05%** | N/A | 0.55% |
| TSB Bank | 0.24% | N/A | 1.05% |
| Natwest | 0.20% | 0.30% | 0.35% |
| Nationwide | 0.30% | 0.50% | 0.60% |
| RBS | 0.35% | 0.30% | 0.35% |
| Yorkshire Bank & Virgin Money | 0.50% | 1.36% | N/A |
| AVERAGE | 0.24% | 0.69% | 0.61% |
Lloyds share price sinks after it cuts dividend on advice from Bank of England
The Lloyds share price (LON:LLOY) sank on Wednesday after the UK banks announced it would be cutting its dividends with immediate effect.
Lloyds will not pay any dividends from 2019 and will cancel future payments in 2020 to conserve cash during the coronavirus crisis.
Lloyds share price
The news sent the Lloyds share price down as much as 6% in an immediate market reaction. Such news will be a body blow to Lloyd’s investors who have enjoyed a progressive dividend policy that has made Lloyds one of the most popular shares for income among retail investors. The Lloyds dividend cut came after UK banks received letters from the Bank of England’s Prudential Regulation Authority outlining advice to cut dividends as well as stopping cash bonuses for senior staff. Lloyds released the news to investors with a statement on their dividend: “In order to help us to serve the needs of businesses and households through the extraordinary challenges presented by Covid-19, the board has decided that until the end of 2020 we will undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares. “In addition, in response to a request from the PRA and to preserve additional capital for use in serving our clients, the board has agreed to cancel payment of the final 2019 dividend in relation to ordinary shares. Accordingly, resolution 17 in relation to the declaration of that dividend will be withdrawn from the AGM, scheduled to take place on 21 May 2020. Our board will decide on any dividend policy and amounts at year-end 2020.” While the cut in dividends will be a blow to investors in the short-term, once the coronavirus induced economic slowdown subsides it is likely the bank will resume paying dividends. Lloyds and other UK banks are in a strong financial positions following the adoption of stringent capital ratio so whilst the economic slowdown may hinder profitability it won’t have the devastating impact the financial crisis did.UK Banks cut dividends after advice from the Bank of England’s PRA
UK Banks including Lloyds, RBS, Barclays, HSBC and Standard Chartered have cut their cut dividends after advice from the Prudential Regulation Authority (PRA).
The PRA advised banks to scrap all outstanding dividends from 2019 and suspend all further pay outs in 2020 to maintain high levels of cash through the coronavirus health crisis.
In a letter to Barclays CEO Jes Staley the Bank of England’s PRA said the “The PRA welcomes the consideration given by you and your firm to suspending dividends and buybacks on ordinary shares until the end of 2020.”
The letter also detailed instructions on how Barclays should release the news to the market which saw UK banks make an almost coordinated series of releases.
Barclays were due to pay investors £1 billion in dividends on Friday, which will now be cancelled.
In addition to cutting dividends, banks were advised not pay cash dividends to senior staff. Lloyds said in a statement: “In order to help us to serve the needs of businesses and households through the extraordinary challenges presented by Covid-19, the board has decided that until the end of 2020 we will undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares. “In addition, in response to a request from the PRA and to preserve additional capital for use in serving our clients, the board has agreed to cancel payment of the final 2019 dividend in relation to ordinary shares. Accordingly, resolution 17 in relation to the declaration of that dividend will be withdrawn from the AGM, scheduled to take place on 21 May 2020. Our board will decide on any dividend policy and amounts at year-end 2020.” Shares in the UK banks were all down over 6% in early trade on Wednesday with HSBC the most heavily hit, down over 8%. HSBC managed to avoid many of the worst effects of the financial crisis and today’s cut in dividend will be a big shock to investors. Banks are set to report updates to the market at the end of April.This letter from regulator to Barclays boss, saying cancel all dividends and bonuses, would have been utterly unthinkable before 2008 banking crisis. Banks now treated precisely as they should always have been, namely as agents of state policy when the going gets tough https://t.co/5OeUDeQwTZ
— Robert Peston (@Peston) March 31, 2020
Synairgen shares surge on commencement of Coronavirus treatment trial
Shares in Synairgen (LON:SNG) jumped on Tuesday after the UK-based biotech company announced it had commenced trails for a COVID-19 treatment.
The AIM listed company had begun trials for SNG001 which is an inhaled formulation of interferon-beta-1a, a protein impacted by COVID-19.
Interferon beta is a naturally occurring protein which drives the body’s natural antiviral responses.
The trial will initially involve 100 patients in a double blind test using a placebo.
Following the announcement, shares in Synairgen rose by 11% to 69p, valuing the company at £83 million.
Synairgen treatment
Evidence has shown a deficiency in Interferon beta production by the lung could be responsible for the severe lung problems COVID-19 patients are suffering. Synairgen highlighted in a release that this was what made COVID-19 so dangerous for older people, those with diabetes and existing lung or heart problems. The Synairgen treatment will help promote the bodie’s own immune system by promoting natural production of this protein. Synairgen’s trial will commence in on trail site initially run by the University Hospital Southampton NHS Foundation Trust. There will be a further six sites commencing trial doses shortly. Richard Marsden, CEO of Synairgen, commented: “We are delighted to get this trial underway with the dosing of the first patient. The team has worked tirelessly and intensively with the relevant authorities and collaborators to get to this stage, and we now look forward to recruiting more patients and completing the trial as soon as possible. A successful outcome from this trial in COVID-19 patients would be a very important step towards a major breakthrough in the fight against this coronavirus pandemic.” Synairgen have recently raised £14 million through a heavily oversubscribed placing of 40,000,000 shares to fund further expansion of their trials and research. Synairgen is one of a number of UK-listed companies and hundreds globally that offer promise in the fight against COVID-19. Novacyt has spear headed the UK effort to improve testing and has begun trails with Public Health England. However, Synairgen offers a different proposition in a treatment for COVID-19, which if successful would be monumental for patient recovery rates. Needless to say this would be a multi-billion pound development for Synairgen and could see shares at many multiples of current levels.WPP shares rise after COVID-19 reassurance
Shares in WPP (LON:WPP) rose on Tuesday after the advertising company released an update on operations during the coronavirus outbreak.
In an update that was generally taken well by the market the company highlighted a strong start of to 2020 and their ability to continue operations through remote working.
Shares in WPP were up over 7% on Tuesday morning.
Although the advertising agency said it had experienced cancellations and sales declines in some areas, it had seen growing demand for strategic communications while government and NGO bookings remained robust.
In an effort to conserve cash, WPP adopted measures similar to many companies in ceasing their share buyback programme and have scrapped the 37.3p Q4 2019 dividend.
This is expected to save £1.1 billion in cash. The company also announced cost cutting measures to the tune of £700-800 million.
Mark Read, Chief Executive Officer, WPP commented:
“The actions we have taken in the last 18 months to streamline and simplify WPP, together with raising £3.2 billion in asset disposals, have put WPP in a strong financial position. It is clear that the companies in the strongest financial position will be best placed to protect their people, serve their clients and benefit their shareholders during a period of great uncertainty, which is why we are taking the steps we are outlining today.”
“Across WPP we now have close to 95% of our people working effectively and productively away from their offices. I am very proud of the response from our people, who are looking out for each other and going the extra mile for clients while demonstrating the creativity, collaboration and resilience that will be key to the enduring success of WPP. At the same time, we are supporting many governments and international health organisations on communications programmes to limit the impact of COVID-19 on our communities. The important role we are playing in helping our clients navigate a difficult time gives us great confidence in the long-term future of the company.”
WPP are set to release their first quarter trading 29th April 2020.Royal Dutch Shell updates 2020 outlook
Oil giant Royal Dutch Shell (LON:RDSB) have updated their 2020 outlook following the spread of the coronavirus.
In a brief update that covered Shell’s business units including integrated gas, upstream and oil products, the main take away was a possible $400-800 million in impairment charges.
“As a result of COVID-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products.”
“The impact of the dynamically evolving business environment on first quarter results is being primarily reflected in March with a relatively minor impact in the first two months,” Shell said in a statement.
The adverse update was a result of a drop in oil prices causing Shell to make amendments to their average oil price forecasts for early 2020. A price war between Russia and Saudi Arabia threatens to increase oil supply just at the time demand is set to be severely reduced by coronavirus, driving prices lower.
The oil products businesses was also expected to see weaker margins in the refining business. In terms of production, Shell said they expected output to be between 2,650 and 2,720 thousand barrels of oil equivalent per day
The update comes shortly after Shell announced they would be cutting costs and stopping their share buyback programme in an effort to conserve cash.
In a prior statement, Ben van Beurden, Chief Executive Officer of Royal Dutch Shell said he was confident Shell could successfully navigate the slump in prices and demand.
“As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business,” he said.
“The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”
Shares in Royal Dutch Shell (LON:RDSB) rose 6% in early trade on Tuesday following the annoucement.