header
search-icon
mobile-menu-icon search-icon

RESEARCH

Clients can browse and search the Peel Hunt research library and archive.

TRADING

A tool for our clients to submit and manage orders with Peel Hunt. 

REGISTER FOR OUR RESEARCH PORTAL

Thank you, your registration has been received.
We will be in contact with you shortly.

I'm interested in (tick all that apply)

SEARCH

PEOPLE
SERVICES
NEWS

Advisory and broking services to UK mid & small-cap companies

Comprehensive coverage of over 350 companies

Investment ideas and execution for institutional investors

Complete UK pricing coverage and worldwide access

Our joined-up approach allows us to consistently deliver value

A wealth of experience, strong collegiate ethos underpinning our joined-up approach

Our principles define the relationship between our people, our departments and our clients

We are committed to making a difference in the communities we live and work in

An environment committed to the development of our colleagues

An internship programme for undergraduates as part of their study

Insight Image

London, once the epicentre for the virus in the UK, has seen its infection rates plummet to an R value of 0.4, according to research by Public Health England and Cambridge University. The full drivers are not yet known but the lockdown will have clearly helped, and some studies are suggesting that herd immunity could be a factor. Getting the capital back up and running will be hugely valuable to the UK economy, and the Government today admitted that the lockdown could become regional. Varying the strategy across the UK based on regional needs would make sense and allow parts of the economy to recover. However, this could risk making the message ambiguous and also cause resentment between those released and those not.

Headlines

• German economy in recession as Q1 show GDP down 2.2%.

• New York City's lockdown has been extended until 28 May.

• US votes on $3tn virus relief package.

• Congestion charge reinstated, and raised, in London.

• Baltic states create borderless travel zone.

• Slovenia declares an end to the epidemic.



Leisure

William Hill

“Online sports wagers declined although less than anticipated as our customers continued to place bets on alternative products such as table tennis and emerging market football;

Online UK was materially impacted by the reduction in sporting activity with some substitution from sports betting into gaming;

Online International benefitted from continued strong growth in gaming, some substitution from sports betting and increasing traction from product developments launched late last year;

UK and US retail have been effectively closed for the period;

In the US, where we offer online sports betting in four states, we continued to take wagers on alternative activities. Product development has accelerated throughout the period and we will be launching online casino in the second half of the year.

During this time all of our shop colleagues have been furloughed and we are topping up payments to ensure they receive 100% of their pay.

Mitigating activities, financial position and bank covenants

Given the absence of live sports content and social distancing requirements across our major geographies, we took decisive action as the Covid-19 pandemic unfolded to reduce cash outflow and operating costs, retain liquidity and secure financial flexibility.

We have reduced monthly cash outflow to c.£15m through the following actions:

• Reducing staff costs by deferring recruitment, cancelling salary increases and all bonus payments and incentive schemes for 2020, furloughing employees and utilising government support schemes, including business rate relief;

• A reduction in marketing spend;

• Thoughtful supplier management including cost deferrals and reductions.



At the end of the reporting period the Group's unrestricted liquidity was in excess of £700m. As the Covid-19 pandemic began to unfold, RCF facilities totalling £425m were fully drawn down to maximise liquidity and a number of strategies were implemented to retain cash within the business:

• The suspension of dividend payments until further notice;

• The deferral of non-essential capital expenditure;

• Rigorous working capital management.

In order to provide maximum financial flexibility for the Group through this challenging period, we are pleased to have agreed a covenant waiver with our lending group of banks:

• A covenant waiver has been granted up to and including December 2020;

• Thereafter, the net debt covenant has been amended to 4.5x in June 2021 and 4.0x in December 2021, returning to 3.5x in June 2022.



We conclude the period in a strong financial position with significant headroom. The outstanding amount on the 2020 bond of £203m is scheduled for repayment in June and we have ensured that capital expenditure related to growth opportunities has been preserved, enabling us to press ahead with our plans to grow the US business and continue to develop our product. In collaboration with our partners, suppliers and colleagues, we have ensured the business is positioned to bounce back quickly and strongly when conditions return to normal.

Scenario analysis – As Government restrictions begin to relax and sporting events gradually recommence, we will continue to monitor developments closely. Our plan to “power up' the business is designed to be flexible and responsive, with customer and colleague welfare our highest priority.

We are planning for a staged opening of the UK retail estate in the second half of 2020 and we are carefully monitoring developments across the US in the nine states where we have retail activities.

In our previous update on the 16 March 2020 we outlined a scenario where limited sporting activity until the Autumn, and one month of shop closures, would lead to a reduction in EBITDA of £100m to £110m. As a consequence of the Covid-19 mitigation activities, we are performing ahead of the initial scenario which now incorporates three months of shop closures.

Furthermore, each additional month of shop closures will now lead to a reduced EBITDA impact of £12m to £15m, assuming the continuation of Government support for furloughed workers, approximately half of the initial estimate of £25m to £30m.

In light of the limited visibility regarding the nature and duration of Covid-19 related restrictions, we are withdrawing all future guidance.

As attention turns to the resumption of sports activities, we note some encouraging recent updates:

• Football, which accounts for approximately half of Online UK sportsbook, is expected to recommence in May as the German Bundesliga returns to play behind closed doors;

• Horseracing, which contributes nearly a third of Online UK sportsbook, has resumed in France and is expected to return behind closed doors in the UK in June;

• While this is clearly an evolving situation, there are positive signs that some sports organisations are considering the resumption of live sports behind closed doors as early as this summer.”



Support Services

Ocean Wilsons – “While our 1Q20 results suffered little impact from the Covid-19 outbreak, the demand outlook heading into 2Q20 has been deteriorating sharply, with our April container terminal and towage volumes

already down 7.2% and 5.6% respectively. This reflects the lockdown strategy in many countries and will take some months to stabilise. The World Trade Organization predicts that global trade flows may contract between 13% and 32% in 2020, reflecting continuing uncertainties in forecasting the effects of the worldwide pandemic. Also, the recent oil price shock will delay the recovery in offshore oil and gas support services. In light of such circumstances, we are continuously assessing the potential impacts on our businesses and remain confident in their resilience as demonstrated in other volatile periods such as the 2008 financial crisis.

In view of the rapid spread of the virus, we are taking significant precautions to ensure the health, safety and well-being of our employees, clients and other stakeholders. To date we have been successful in keeping all our business activities operational. This has been made possible by the flexibility, commitment and courage of our more than 4,300 active employees.

We have also taken immediate austerity measures to safeguard the financial strength and resilience of our business. In order to preserve a robust cash flow through this global crisis we are actively pursuing several operational and financial initiatives to further increase our liquidity, including reduction in our capital spend and operating expenses. The company currently has material headroom in its bank covenants.”

Technology

Computacenter – “We stated in our trading statement on 23rd April 2020 that current trading was more robust than we had anticipated at the start of the crisis. Since that date business has accelerated further and we have managed to secure some substantial Technology Sourcing contracts due to our ability to scale our operations to meet the demand. These incremental volumes mean that we now believe that the first half of 2020 will be considerably ahead of the same period of last year.



While things are a little clearer, continuing uncertainty in the market is such that the Board believes that it is still unable to provide meaningful guidance at this time concerning the second half of the year due to the Covid-19 crisis.”

Sopheon – “The Covid-19 pandemic means that every organization is facing new and immediate challenges and opportunities that require urgent, strategic and effective responses. In terms of our own operations, we took early action to ensure the health and safety of staff, introducing an immediate work from home policy supported by well-defined virtual working practices, and we also assured continuity of business operations and cloud services through our co-location and Azure based infrastructure. This has all gone smoothly. For many of our customers, our Accolade solution offers visibility and speed to decisions in such times of crisis. Further to this point, during April we developed and launched an Accolade software configuration, the Disruption Response Toolkit, to enable our customers to rapidly develop their Covid-19 responses through quick assessment, analysis and reprioritization of strategic initiatives, and to implement changes to their supply chain or revisit their product portfolio strategy. In addition, a Microsoft® Teams Connector was announced which allows Accolade users to initiate a Teams call, chat or group discussion, all from within the Accolade platform. These offerings are being made available to existing customers at limited charge. They are designed to add value to their Accolade investment in a time of crisis, and to raise the profile of our solution to extended use cases to drive user growth.

Outlook – Clearly the market environment is tough, and though we are busy with several deals and we are signing business, sales cycles are extending. Projecting the impact that Covid-19 will have on customer conversion makes forecasting the future challenging, and we are therefore being prudent by withdrawing our market guidance for FY 2020 and beyond. However, several vertical markets where Sopheon operates – food, beverage and consumables; chemicals; defence – are showing resilience to the crisis at present. In addition, so far this year retention levels for ARR have remained good, and as noted we are seeing orders restart from our existing customers, as their own operations settle down. Visibility for the full year 2020 now stands at $23.2m, which is above last year at this time, underpinned by ARR at $15.9m. Net cash at the end of April was $21.8m. A moderate rise in cash is normal at this time of year, given our billing seasonality, but this clearly demonstrates the robustness of the company's balance sheet. We are nevertheless taking some measures to limit expenditure, including putting a temporary hold on the majority of our hiring plans for the second quarter. All these factors give us the confidence to proceed with our strategy under a range of disruption scenarios, which we have stress tested in detail. In this respect we have also concluded that we have sufficient strength and optimism to proceed with our declared dividend of 3.25p per share, and this is proposed to shareholders in the notice issued today, in line with the timetable set out in the final results.”

Transport

National Express – “Revenue for April is around 50% compared to the same month in 2019 which is in line with the guidance provided to investors during the recent Placing. Pleasingly, driven by reductions to our monthly operating costs of around £100m along with continued support from governments and customers, we generated positive EBITDA, slightly ahead of our expectations. This was further boosted by strong cash collections to drive positive cash flow for the month ahead of our expectations.

We have further improved our liquidity since our last update, and now have around £1.5 billion of cash and undrawn committed facilities.

Recent developments – In addition, there have been further positive developments as we move out of lockdown in our key markets:

• North American School Bus: we have won our first contract (subject to school board approval) that came to market after the previous operator had the service removed following Covid-19 disruption. This contract is for 5 years and follows recent stand-out wins in: Boise, Idaho; Fairbanks, Alaska; and, Oakland, California: i) Across North America we have already begun start-up discussions with a large number of school districts, for a return to service at the start of their standard school year;

ii) In Quebec, Canada, when schools re-opened this week we note that 80% of students signed-up for school buses immediately.

• ALSA: we are seeing lockdown measures being removed in both Spain and Morocco and expect services and demand to increase in both countries in the coming weeks: Spanish long haul: our early experience of the lockdown relaxation measures is demonstrating that we are able to cover our variable-costs with only 15 passengers on-board.

• We have started selling UK coach tickets for a 1 July re-start – respecting government guidance and advice – of a core coach network that focuses on large and medium-sized conurbations.”

Signature Aviation – “For the three months to 31 March 2020 we continued to deliver improving outperformance versus the US B&GA market. US B&GA flight movements as reported by the FAA were down 8.9% and like-for-like revenue decline in our Signature business (FBO and TECHNICAir) was 7.5% (on a leap year adjusted basis). Our outperformance against the US market, as measured by the FAA flight movements, is therefore an encouraging 140 basis points.

As previously noted, flying activity across our US network through to the third week of March was in line with our expectations and we saw limited impact on our fuel volumes from Covid-19. From late March through April, however, we have seen a material decline in flight activity across our US network. In April flight activity on average has been down by around 77%, as customers observe temporary stay at home orders. However, so far in the first thirteen days of May we have seen improvements in flying activity, and we are currently down around 66% in flying activity compared to the same period in May last year.

Revenue for the continuing Group (Signature FBO, EPIC and TECHNICAir) was down 72% in April, resulting in a decline of 28% in the first four months of the year. On a like-for-like basis (constant currency, adjusting for lower fuel prices and acquisitions and disposals) revenue was down 69% in April and down 24% in the first four months of the year. Whilst flight activity has seen a material decline impacting our fuel and certain non-fuel revenues relating to flight movements directly, a large proportion of our non-fuel revenues, predominately related to real estate, are much less affected by Covid-19.

Liquidity and balance sheet position – Actions we have taken to flex our labour costs, negotiating rent relief with the airports we operate at and other management actions, including significant curtailment of capital expenditure, have delivered robust cash generation during the month of April of $6 million. At the end of April our RCF facility was drawn by $49 million, leaving $351 million of undrawn facilities plus cash held of $74 million. This represents total headroom of $425 million.

Our $400 million unsecured Revolving Credit Facility (RCF) matures in March 2025; it has a net debt to underlying EBITDA covenant set at 4.25x (on a pre-IFRS16 covenant basis) which is tested bi-annually at 30 June and 31 December. The interest cover covenant on our RCF is based on underlying EBITDA and is a minimum of 3.0x (on a pre-IFRS16 covenant basis) and is also tested twice per year at 30 June and 31 December. These financial covenants are only related to our RCF facility and they are not related to our unsecured US Bonds. The Group's debt facilities have a current weighted average maturity of 6.5 years, with no maturities before March 2025.

Operational efficiency and process improvement

We have implemented a series of actions to best align our cost base with the reduction in flight activity across our FBO network. Our largest cost, fuel, naturally flexes with the volumes in the market and we held less than a week's inventory across the network going into the Covid-19 impact period. Furthermore, as has always been the case, we set our retail fuel prices weekly and are therefore largely protected from the current volatility in fuel costs which we are able to pass through.

The work undertaken last year in planning for our Labour & Equipment Efficiency Project (LEEP) has proven invaluable in executing flexible working patterns for each of our FBOs in response to Covid-19. Management has taken the necessary steps to best match our labour costs to flying and tenant activity, and in the US, which represents around 90% of our business, the hours reductions and furloughs have reduced our direct labour by over 50% compared to pre-Covid-19 levels. We have also made further cost reductions in our global indirect overheads.

In recognition of the circumstances affecting many of our employees and the communities in which we operate, for the second quarter our Board and Senior Leadership Team have taken 20% fee and salary reductions, and the savings therefrom have been used to establish an Employee Hardship Fund, with a dollar for dollar match by the company. This follows the previously announced suspension of all bonus and variable pay plans for 2020 throughout the Group.

As previously reported, we have initiated a material reduction in capital expenditure in the year and expect to achieve a saving of 50% to our previously guided capital spend whilst still delivering on certain growth capital projects.

We remain focused on our medium-term growth initiatives, despite the current near-term focus on best navigating the Covid-19 situation. Construction of the new terminal facilities continues at our sole source Atlanta FBO which we expect to open later this year. As you would expect we are planning for recovery in the B&GA market and the furloughing of staff will allow us to call-back employees, as flight activity starts to pick up.”

TFL – “For the three months to 31 March 2020 we continued to deliver improving outperformance versus the US B&GA market. US B&GA flight movements as reported by the FAA were down 8.9% and like-for-like revenue decline in our Signature business (FBO and TECHNICAir) was 7.5% (on a leap year adjusted basis). Our outperformance against the US market, as measured by the FAA flight movements, is therefore an encouraging 140 basis points.



As previously noted, flying activity across our US network through to the third week of March was in line with our expectations and we saw limited impact on our fuel volumes from Covid-19. From late March through April, however, we have seen a material decline in flight activity across our US network. In April flight activity on average has been down by around 77%, as customers observe temporary stay at home orders. However, so far in the first thirteen days of May we have seen improvements in flying activity, and we are currently down around 66% in flying activity compared to the same period in May last year.

Revenue for the continuing Group (Signature FBO, EPIC and TECHNICAir) was down 72% in April, resulting in a decline of 28% in the first four months of the year. On a like-for-like basis (constant currency, adjusting for lower fuel prices and acquisitions and disposals) revenue was down 69% in April and down 24% in the first four months of the year. Whilst flight activity has seen a material decline impacting our fuel and certain non-fuel revenues relating to flight movements directly, a large proportion of our non-fuel revenues, predominately related to real estate, are much less affected by Covid-19.

Liquidity and balance sheet position – Actions we have taken to flex our labour costs, negotiating rent relief with the airports we operate at and other management actions, including significant curtailment of capital expenditure, have delivered robust cash generation during the month of April of $6 million. At the end of April our RCF facility was drawn by $49 million, leaving $351 million of undrawn facilities plus cash held of $74 million. This represents total headroom of $425 million.

Our $400 million unsecured Revolving Credit Facility (RCF) matures in March 2025; it has a net debt to underlying EBITDA covenant set at 4.25x (on a pre-IFRS16 covenant basis) which is tested bi-annually at 30 June and 31 December. The interest cover covenant on our RCF is based on underlying EBITDA and is a minimum of 3.0x (on a pre-IFRS16 covenant basis) and is also tested twice per year at 30 June and 31 December. These financial covenants are only related to our RCF facility and they are not related to our unsecured US Bonds. The Group's debt facilities have a current weighted average maturity of 6.5 years, with no maturities before March 2025.

Operational efficiency and process improvement – We have implemented a series of actions to best align our cost base with the reduction in flight activity across our FBO network. Our largest cost, fuel, naturally flexes with the volumes in the market and we held less than a week's inventory across the network going into the Covid-19 impact period. Furthermore, as has always been the case, we set our retail fuel prices weekly and are therefore largely protected from the current volatility in fuel costs which we are able to pass through.

The work undertaken last year in planning for our Labour & Equipment Efficiency Project (LEEP) has proven invaluable in executing flexible working patterns for each of our FBOs in response to Covid-19. Management has taken the necessary steps to best match our labour costs to flying and tenant activity, and in the US, which represents around 90% of our business, the hours reductions and furloughs have reduced our direct labour by over 50% compared to pre-Covid-19 levels. We have also made further cost reductions in our global indirect overheads.

In recognition of the circumstances affecting many of our employees and the communities in which we operate, for the second quarter our Board and Senior Leadership Team have taken 20% fee and salary reductions, and the savings therefrom have been used to establish an Employee Hardship Fund, with a dollar for dollar match by the company. This follows the previously announced suspension of all bonus and variable pay plans for 2020 throughout the Group.

As previously reported, we have initiated a material reduction in capital expenditure in the year and expect to achieve a saving of 50% to our previously guided capital spend whilst still delivering on certain growth capital projects.

We remain focused on our medium-term growth initiatives, despite the current near-term focus on best navigating the Covid-19 situation. Construction of the new terminal facilities continues at our sole source Atlanta FBO which we expect to open later this year. As you would expect we are planning for recovery in the B&GA market and the furloughing of staff will allow us to call-back employees, as flight activity starts to pick up.”

Lifting restrictions

• Today a ‘Baltic bubble’ will open, allowing people in Estonia, Latvia and Lithuania to travel freely between the three countries. It includes travel by rail, air, and sea.



Other

• The International Olympic Committee has set aside $800m to help with the "severe" financial impact caused by the postponement of Tokyo 2020. Organisers will get $650m after this summer's Games were put back to 2021. The other $150m is set to be split into loans for international sports federations and national Olympic committees.

• In the US the National Pork Producers Council says farmers that are unable to send their livestock to processing factories will be left with no choice but to destroy their animals. About 10 million pigs could be killed by mid-September. Meat factories in the US have closed or reduced capacity and pork-processing capacity is down by nearly 40%.

• Germany, Europe’s biggest economy, shrank by 2.2% in Q1. The country is now officially in recession after posting a negative output in Q4 last year.

• US Democrats are expected to push a $3tn (£2.4tn) coronavirus stimulus package through the House of Representatives today. The 1,800-page legislation, dubbed the Heroes Act, would provide a second round of stimulus cheques for millions of Americans and fund various sectors such as local governments, healthcare systems and the postal service. The bill also includes a section which requires passengers to wear face masks on aeroplanes and public transport, and a so-called ‘Heroes Fund’, which would give extra pay to key workers.

• New York City's lockdown has been extended until 28 May. The governor of New York, Andrew Cuomo, announced the extension, while easing the shutdown in other parts of the state.

#corporate client of Peel Hunt