Whitbread announces rights issue to navigate COVID-19
Whitbread (LON:WTB) have announced a £1 billion rights issue to help see them through the coronavirus lockdown and ensure liquidity when restrictions are lifted.
The announcement came alongside preliminary results for the 52 weeks to 28th February which saw a modest 1.1% increase in revenue to £2,072m.
However, since the end of the period, Whitbread have been forced to close all of its hotels and outlets due to the spread of COVID-19, and now require a capital injection to see them through the crisis.
Whitbread shares fell over 12% following the rights issue announcement.
“Whitbread is at the sharp end of the coronavirus crisis and it is no surprise that it has come cap in hand to shareholders for the cash to tide it over to better times. To persuade investors to stump up £1bn of new equity, it has had to offer the shares at a big discount to an already Covid-hit price,” said Tom Stevenson, investment director at Fidelity Personal Investing.
Whitbread’s brands include Premier Inn, Brewer’s Fayre and Beefeater, and their model had seen improved trading in H2 2020FY, before the company was forced to close outlets and furlough 27,000 staff.
“Whitbread’s model of providing budget Premier Inn hotel rooms next to one of its own pubs to provide dinner and breakfast has proved a winner with families and value-seeking business travellers alike,” Tom Stevenson said.
“Occupancy and revenues per available room, the key measure for a hotel chain, have risen strongly over the past ten years. But in lockdown, its fixed costs have to be paid while its revenues have dried up completely. Despite the government’s furlough support, it is an unsustainable situation.”
Stevenson went on to explain the discount Whitbread had to offer investors in order to drum up support for the rights issue, given the uncertainty in the hospitality sector with a backdrop if COVID-19.
“Shareholders are being offered one new share at 1,500p for every two they already own. Before today’s announcement, these were trading at 2,843p. So even accounting for the dilution implied by the issue of new shares, that is a sizeable discount that reflects the continuing uncertainty of life during and after Covid,” Stevenson said.
The Whitbread rights issue is fully underwritten by JP Morgan and Morgan Stanley.
Dow Jones keen to rebound after Moderna vaccine doubts
The Dow Jones enjoyed a bright start to the session, rallying 400 points to 24,600 points. This was led by some ‘solid’ earnings, lingering vaccine optimism and hopes of further Fed stimulus in coming weeks, and came despite what many pundits described as the ‘Moderna (NASDAQ:MRNA) shuffle’ – the fluctuating price of the stock since it published vaccine test results on Monday.
It was also a pleasant surprise to see the index ignore the latest round of bombast from President Donald Trump, who (rightly or not) lamented the ‘incompetence’ of Beijing for causing the virus to spread, before boasting that the US leading the way in Coronavirus cases should be seen as ‘a badge of honour’.
The buoyant start for the US gave a boost to European equities, which had initially suffered a sluggish opening. The DAX rose 0.7% to 11,170, while the CAC followed with a 0.2% increase, pushing it past 4,450 points.
Speaking on the UK, Spreadex Financial Analyst Connor Campbell stated,
The FTSE was up 0.6%, pushing the UK index back towards 6050. This as the pound fell 0.2% against the dollar and 0.6% against the euro. The fact Bank of England chair Andrew Baily refused to rule out negative interest rates – like Fed head Jerome Powell appeared to do last week – likely aided the FTSE and hurt the pound. Meanwhile against the euro specifically a better than forecast consumer confidence reading from the across the Eurozone gave the single currency a boost – it was also up half a percent against the greenback.
Marks and Spencer profit drops as strategy shifts towards food
Marks and Spencer (LON:MKS) has unveiled a £1bn action plan to help fight the impact of coronavirus as a strategy shift towards food start to bear fruit.
Despite group revenue falling 1.9% to £10,377m in the year to 31st March 2020, operating profit rose 11.9%, helped by a 1.9% rise in like-for-like food sales. Clothing sales fell 6.2% on a like-for-like basis in the same period.
Although operating profit rose, the impact of COVID-19 on write downs and adjustments meant profit after tax fell 39.5% to £45.3m.
The increase in sales volumes represents the results of recent investment in the Marks and Spencer food business as it sought to build on areas of the business it was experiencing strength.
The acquisition of a stake in Ocado Retail was probably the highlight of this strategy shift and is already providing M&S with a return. M&S acquired a 50% stake in Ocado Retail in 2019 for £750m to help boost their food offering as clothing sales continued to disappoint.
Marks and Spencer recognised a £2.6m profit from it’s investment in Ocado Retail in the 7 months to 1st March.
Shareholders will be pleased with the early news from the Ocado acquisition as sales at Ocado Retail jumped 40.4% in the 9 week period to 6th May, due to lockdown restrictions causing rocketing demand for home deliveries.
The market took the results well and shares rose over 2% on Wednesday morning. However, Marks and Spencer shares are down 63% over the last year, seeing them lose their position in the FTSE 100.
The acquisition of a stake in Ocado Retail was probably the highlight of this strategy shift and is already providing M&S with a return. M&S acquired a 50% stake in Ocado Retail in 2019 for £750m to help boost their food offering as clothing sales continued to disappoint.
Marks and Spencer recognised a £2.6m profit from it’s investment in Ocado Retail in the 7 months to 1st March.
Shareholders will be pleased with the early news from the Ocado acquisition as sales at Ocado Retail jumped 40.4% in the 9 week period to 6th May, due to lockdown restrictions causing rocketing demand for home deliveries.
The market took the results well and shares rose over 2% on Wednesday morning. However, Marks and Spencer shares are down 63% over the last year, seeing them lose their position in the FTSE 100.
£1bn Action plan
Marks and Spencer outlined £1bn worth of measures to help bolster the cash position which included £500m in cost reductions. The group, which closed 54 legacy stores in 2019/20, had previously announced it was scrapping its final dividend to improve the balance sheet. “Last year’s results reflect a year of substantial progress and change including the transformative investment in Ocado Retail, outperformance in Food and some green shoots in Clothing in the second half,” said Steve Rowe, Marks & Spencer CEO. “However, they now seem like ancient history as the trauma of the Covid crisis has galvanised our colleagues to secure the future of the business. The way our people have rallied to support our customers and communities has been awe-inspiring.” “From the outset we recognised that we were facing a crisis whose effects and aftershocks will endure for the coming year and beyond: Whilst some customer habits will return to normal others have changed forever, the trend towards digital has been accelerated, and changes to the shape of the high street brought forward. Most importantly working habits have been transformed and we have discovered we can work in a faster, leaner, more effective way. I am determined to act now to capture this and deliver a renewed, more agile business in a world that will never be the same again.”Severn Trent increases dividend
Severn Trent (LON:SVT) has increased their dividend as the water company enjoyed higher revenues in the year to 31st March, although profit fell due to exceptional costs.
Severn Trent shares rose tentatively on Wednesday morning as the group increased its dividend 7.2% to 100.08p. This would equate to a 4.1% yield with shares trading at 2,415p.
Exceptional costs meant profit after tax reported fell 49.6% to £159 million.
However, the underlying business was strong and revenue was 4.3% higher at £1,844m due to RPI-linke price increases and increased revenue from business services.
“Operationally, this has been another year where we have delivered for all of our stakeholders. However, the last few weeks have been extraordinary; not only for our business, but for the country,” said Liv Garfield, Chief Executive of Severn Trent.
Liv Garfield continued to thank the Severn Trent team; “I want to say thank you to all of my awesome colleagues; it has been a challenging time, and across each and every part of the business, they have shown amazing commitment to ensuring our customers have continued access to one of life’s essentials. We know that this is a difficult time for our customers, and I am incredibly proud of the ways in which the business has responded. We also understand that for many people this will be a difficult time financially, and we have stepped up our support for those on our Priority Services Register and customers that need extra help with their bills.”
“Our business remains strong and we have made further progress against the things that really matter to our customers with leakage, supply interruptions and water quality complaints all improving. We have invested £3 billion in our long- term future over the past five years and are now very focused on emerging from this crisis in the best possible shape to deliver against the exciting plans we have set out for the next five years.”
Liv Garfield continued to thank the Severn Trent team; “I want to say thank you to all of my awesome colleagues; it has been a challenging time, and across each and every part of the business, they have shown amazing commitment to ensuring our customers have continued access to one of life’s essentials. We know that this is a difficult time for our customers, and I am incredibly proud of the ways in which the business has responded. We also understand that for many people this will be a difficult time financially, and we have stepped up our support for those on our Priority Services Register and customers that need extra help with their bills.”
“Our business remains strong and we have made further progress against the things that really matter to our customers with leakage, supply interruptions and water quality complaints all improving. We have invested £3 billion in our long- term future over the past five years and are now very focused on emerging from this crisis in the best possible shape to deliver against the exciting plans we have set out for the next five years.” Adamas at a discount
Asia-focused investment company Adamas Finance Asia (LON: ADAM) trades at a significant discount to its NAV. A rise in the share price after the 2019 figures has not made much of a dent in that discount.
Adamas was originally focused on investment in Chinese businesses, but the remit has been widened to other parts of Asia and Australia following the appointment of Harmony Capital as investment manager.
NAV
In 2019, NAV declined from 88p a share to 72p a share. There were some shares issued in the period to Infinity Capital Group as part of the purchase of a stake in another business and combined with the 2019 loss is the reason behind the fall in NAV per share. There was also a share buy back at a discount to NAV, though. Chinese dolomite quarry company Future Metal Holdings accounts for more than two-fifths of NAV. Production has recommenced at the mine and it should build up over the rest of this year. Cash should be generated and some of this could be distributed to Adamas.Cash
There was $4.1m in the bank at the end of 2019. There are investment opportunities but there is limited cash to invest. Many of the recent investments are in the form of a convertible, which provides an income for the company and helps to cover costs. There was a net loss of $2.8m last year, although that includes a $1.9m management incentive that was not paid at the year end. Also, 50% of that payment will be in shares. The incentive fee is based on NAV rather than NAV per share. Adamas has raised cash through a corporate bond issue. There was $1.9m raised last year and a further $1.7m raised in recent weeks, which adds to the cash pile. Up to $10m can be raised via this bond. The bond matures in October 2022 and there is an annual interest charge of 12.5%. Since the end of 2019, 1.26 million shares have been sold at 16.1p a share thereby raising £203,500. Longer-term, as income covers the cost base there is potential for a dividend.Portfolio
Future Metal is valued at $44.7m while the convertible bond investment in Hong Kong catering group Fook Lam Moon is valued at $27.5m. These make up the majority of the portfolio in terms of value. Newer investments include DocDoc, a Singapore-based AI technology focused clinical information provider. This investment is worth $2.2m but there is significant potential upside. Management says that there are plenty of investment opportunities. Many smaller companies in Asia find it difficult to obtain investment. Due diligence is important, and any additional investment will be carefully chosen. Many of the opportunities are technology companies, but there are also potential investments in other sectors.Discount
At 27.5p, the shares are trading at a 61% discount to NAV. That seems excessive, although there are reasons. At this stage a significant discount is warranted due to the lack of liquidity of the investments and the Adamas shares as well. There is a 55% majority shareholder and Infinity Capital Group owns 15.4%. Trading in the shares is at low levels. This is partly due to the fact that the shares are tightly held, but also due to a lack of investor interest. There will dilution from the issue of incentive fee shares, plus any loss, if there is one this year. There are positives, though. Future Metal already has a substantial valuation, but once the mine is fully up and running and generating cash it could provide an uplift in the valuation and thereby the Adamas NAV. It will also provide income to limit or prevent a group loss. DocDoc also provides upside, although it may not show through this year. There could always be disappointments to offset any positive moves in valuations, though. Adamas has an experienced management team and the potential for new investments is attractive. A three-fifths discount to NAV appears too high. A lower discount would probably be fairer at this stage in the group’s development. However, there is the worry that poor liquidity could mean that any buying interest might trigger a sharp rise in the share price before any purchase can be made.FTSE 100 turns red on poor economic data
The FTSE 100 rallied early on Tuesday, building on a strong session on Monday, only to give the gains back and slip into the red by the afternoon.
Early top risers in the FTSE 100 were airlines IAG and easyJet who were up 9% and 5% respectively in early morning trade, but fell back as the session progressed.
Th optimism was around a possible scheme called ‘air bridges’ that would allow travellers to fly to certain destinations that hadn’t had large outbreaks of coronavirus.
“It is the case we should consider further improvements – for example, things like air bridges enabling people from other countries who have themselves achieved lower levels of coronavirus infection to come to the country,” said Grant Schnapps as he outlined plans in the commons.
However, the initial optimism led by the airlines soon fizzled out as a raft of economic data once again confirmed the dire situation in European economies.
New car sales fell 76% in Europe in April as the coronavirus lockdown curtailed new purchases. The auto sector is a major constituent of the European economy and the German Dax and French CAC 40 was soon followed by the FTSE 100 into the red.
The European construction sector was also hit with activity falling 15% from a year ago.
“The market is trying to weigh up optimism around a vaccine with the fact that earnings expectations already bake in a pretty strong rebound in the second half of this year,” said Mike Bell, global markets strategist at JP Morgan.
The market also digested the latest instalment of UK jobs data which pointed to a significant jump in unemployment claims, despite a broad furlough scheme in the UK.
“It has taken a while to filter through, but now the UK is starting to see the same kind of horrific jobs data as the US. After ducking the expected ballooning of unemployment claims in March, April reflected the fact that the pain was merely delayed by a month,” said Connor Campbell, analyst at Spreadex.
“The claimant count change for last month rose by 856,500 – to put that in perspective, March’s increase was 5.4k, while analysts were forecasting an increase of 675,000.”
The FTSE 100 was trading at 6,020, down 0.4%, just after 12pm in London.
Imperial Brands slashes dividends to conserve cash
Tobacco and vaping firm, Imperial brands (LON:IMB), has slashed its dividend to help conserve cash as operating profit slumped 20% in the first half 2020.
Imperial Brands shares fell over 6% on Tuesday morning as the company rescued the dividend from 62.56p to 41.70p.
Imperial Brands has long been considered a strong income play and the dividend cut will be a blow to investors.
The dividend cut comes amid a drop in profit which the company attributed to a fall in sales in their Next Generation Products (NGP) such a vapes and impairment charges amounting to £95m.
However, overall revenue was down just 0.9% as their traditional tobacco products gained market share.
“While we delivered against our revised expectations, we are disappointed with these results, and we remain fully focused on all opportunities to strengthen performance,” Dominic Brisby and Joerg Biebernick, Joint Interim Chief Executives of Imperial Brands in a statement.
They continued to to explained the current state of demand for their product mix:
“Our enhanced focus on tobacco has driven stronger in-market execution and an improved share performance, with gains in most of our priority markets. We have reduced our NGP spend following the poor returns on investment last year and this, together with recent weaknesses in the vapour category, has resulted in lower NGP revenue.”
“Overall, COVID-19 has so far had only a small impact on trading but we expect this to be more pronounced in the second half due to continued pressures on our duty free and travel retail business, changes in consumption patterns including downtrading and a reversal of some first half inventory build.”
“Agreeing the sale of our premium cigar business for €1.2 billion in the current climate was a major achievement and will further simplify the business and reduce debt. Deleveraging remains a key priority, such that the Board has decided to rebase the dividend by one-third to accelerate debt repayment, while retaining a progressive dividend policy, growing annually from the rebased level. This will strengthen the balance sheet and support a more flexible approach to capital allocation in the future.”
However, overall revenue was down just 0.9% as their traditional tobacco products gained market share.
“While we delivered against our revised expectations, we are disappointed with these results, and we remain fully focused on all opportunities to strengthen performance,” Dominic Brisby and Joerg Biebernick, Joint Interim Chief Executives of Imperial Brands in a statement.
They continued to to explained the current state of demand for their product mix:
“Our enhanced focus on tobacco has driven stronger in-market execution and an improved share performance, with gains in most of our priority markets. We have reduced our NGP spend following the poor returns on investment last year and this, together with recent weaknesses in the vapour category, has resulted in lower NGP revenue.”
“Overall, COVID-19 has so far had only a small impact on trading but we expect this to be more pronounced in the second half due to continued pressures on our duty free and travel retail business, changes in consumption patterns including downtrading and a reversal of some first half inventory build.”
“Agreeing the sale of our premium cigar business for €1.2 billion in the current climate was a major achievement and will further simplify the business and reduce debt. Deleveraging remains a key priority, such that the Board has decided to rebase the dividend by one-third to accelerate debt repayment, while retaining a progressive dividend policy, growing annually from the rebased level. This will strengthen the balance sheet and support a more flexible approach to capital allocation in the future.” FTSE 100 soars on vaccine hopes
The FTSE 100 surged on Monday as a strong start to the trading session was boosted by a positive update from a US company working on a COVID-19 vaccine.
The morning had started with optimism around the reopening of economies which was accentuated when US-based Moderna said they have received positive early signs from a coronavirus vaccine trial.
“These interim Phase 1 data, while early, demonstrate that vaccination with mRNA-1273 elicits an immune response of the magnitude caused by natural infection starting with a dose as low as 25 µg,” said Tal Zaks, Chief Medical Officer at Moderna.
“When combined with the success in preventing viral replication in the lungs of a pre-clinical challenge model at a dose that elicited similar levels of neutralizing antibodies, these data substantiate our belief that mRNA-1273 has the potential to prevent COVID-19 disease and advance our ability to select a dose for pivotal trials.”
“With today’s positive interim Phase 1 data and the positive data in the mouse challenge model, the Moderna team continues to focus on moving as fast as safely possible to start our pivotal Phase 3 study in July and, if successful, file a BLA,” said Stéphane Bancel, Chief Executive Officer at Moderna.
“We are investing to scale up manufacturing so we can maximize the number of doses we can produce to help protect as many people as we can from SARS-CoV-2.”
Despite the positive update from Moderna, the vaccine still has a number hurdles to full approval and a global roll out will take many months, even if it is approved.
Nonetheless, equity markets soared on the news.
Connor Campbell, analyst and Spreadex noted:
“Vaccine news is sort of the holy grail of market-boosters at the moment, even if headlines often obscure the timelines regarding the production of such preparations,” said Connor Campbell
“The Dow Jones galloped out of the date, greedily taking back 670 points. That was enough to lift the index past 24350, around 1400 points off of the lows incurred last Thursday.”
“In turn this transformed a very strong European session into something more spectacular. A 200 point surge for the FTSE saw it touch its fingers to 6000, while a giddy 4.6% increase for the DAX sent the German bourse back above 10900.”
The FTSE 100 was trading above 6,000 as we moved towards the close in London.
