Coronavirus - Dilution

Only 22% of people testing positive for coronavirus reported having symptoms on the day of their test, according to the Office for National Statistics.

This highlights the significance of asymptomatic transmission. However, it also demonstrates how underestimated the infection rates are in the UK given that those who do not produce antibodies will also not be counted. We believe this should be viewed as encouraging evidence that the overall severity of the virus is much lower than the crude mortality rates we see.


• Melbourne goes into six weeks of lockdown

• Three pubs in the UK close after customers test positive

• No symptoms in 80% of positive tests

Company news


 Altitude Group – “From mid-March and throughout April and May, our supplier partners reported sharp year-on-year declines of up to 80% in regular promotional product orders, in line with wider industry reporting. With US States beginning to emerge from shutdown, activity has increased through our marketplace with demand for traditional products showing modest increases. Industry reporting supports order activity for June at around 50% of 2019 levels.”

 Plus500 – “Further to the Company’s recent trading updates, issued on 28 April 2020 and 8 June 2020, market volatility remained heightened throughout the second quarter. This drove a consistently high level of customer trading activity, which, together with the onboarding of a significant number of New Customers at an attractive cost, ensured a record number of Active Customers trading on the Plus500 platform during H1 2020. 198,176 New Customers were onboarded during H1 2020 (H1 2019: 47,540), including 115,225 New Customers in Q2 2020 (Q2 2019: 26,234).

As a result, total revenue for H1 2020 was circa $564.2m (H1 2019: $148.0m), including circa $247.6m in Q2 2020 (Q2 2019: $94.1m), demonstrating the strength, scalability and differentiation of the Group’s business model. The Company achieved a record level of half-yearly Customer Income, of approximately $556.9m (H1 2019: $175.0m), including circa $323.4m in Q2 2020 (Q2 2019: $93.0m). Furthermore, the period-end position of Customer Trading Performance5 reverted to insignificant historical levels, with revenues from Customer Trading Performance representing approximately 1% of the total revenues in the period.”


 Avingtrans – “Avingtrans is an international, diversified engineering group, with a strong balance sheet. Our presence in multiple market sectors and the resilience and strength of covenant of many of our customers, including various national governments or their agents, means that most parts of the Group are able to continue to operate at close to normal levels, despite the on-going global Covid-19 pandemic.

As reported in its trading update on 9 April 2020, the Group’s order book and prospect pipeline remains strong overall, albeit that we have seen some reduced prospects in specific sectors, notably in oil and gas, where we have a limited exposure. Therefore, the Group is prudently taking measures in response to the unprecedented conditions affecting its markets, clients and businesses, to reduce its costs and protect its longer-term position. These measures include conserving cash and improving liquidity in order to mitigate the effects of near-term disruption.”

 Electrocomponents – “Q1 revenue declined 11% on a like-for-like basis with trading trends improving across the quarter as mobility restrictions eased in our key markets. The Group exited the quarter with a like-for-like revenue decline of 7% in June. • EMEA saw the most significant improvement across the quarter with continued share gains, while Americas has seen more limited recovery to date.

• Asia Pacific saw continued growth in Greater China and Australia offset by the impact of lockdowns in other markets.

• Digital revenue declined 12% on a like-for-like basis. Website revenue performed closely in line with the Group trend, however, e-procurement revenue underperformed due to temporary reduced demand from some key corporate customers.

• RS PRO revenue declined 3% on a like-for-like basis, with a return to growth in June.”

 Polypipe Group – “The Group has seen an improving trend since our update on 7 May, with June 2020 revenue some 30% below 2019 levels compared to 66% below in April 2020. Our Commercial and Infrastructure Systems segment has remained relatively resilient throughout this period, with many contractors managing to return to operations (albeit at reduced productivity levels) and the Group servicing specific, crisis-related emergency project work for NHS hospitals and care/recovery applications, particularly in our Nuaire ventilation business. Recovery in the Residential Systems segment has been somewhat more subdued, reflecting the shutdown of the new house build market for much of April and May, followed by a more measured return to work. Overall, Group revenue for the six months to June 2020 was approximately 24% lower than the six months to June 2019.

We are encouraged by the Group’s performance in May and June compared to April and also by reports of better than expected activity in the housing market after its reopening on 13 May 2020, as well as Government-announced increased levels of investment in infrastructure projects. However, at this stage we remain cautious as to whether this performance will be sustained into the autumn and winter.

We are currently manufacturing at all main sites at varying levels of capacity utilisation, and currently have 25% of our workforce furloughed, compared to 61% at the height of the crisis.

Restructuring – Medium-term economic and industry forecasts show a significant impact from the COVID-19 outbreak on both the wider UK economy and specifically the UK construction industry. Latest forecasts from the Construction Products Association show that residential new build demand in 2021 is likely to be 20% lower than 2019 levels, Housing RMI 15% lower than 2019 levels, and commercial demand 18% lower than 2019 levels, even with recovery in the second half of 2021.

In light of this medium-term outlook, we are taking regrettable but necessary steps to adjust our manning levels and cost base to reflect this level of demand. Unfortunately, it means that we are entering a consultation period with our employees to review these steps, which if actioned in full, will lead to the loss of approximately 250 jobs or 8% of the workforce. It is important to note that there is no planned permanent closure of any facility, which leaves the Group well placed to react to any sustained but unexpected increase in customer demand.”


 Carnival – “We continue to assess the impact of the Covid-19 pandemic on global commerce, public health and our cruise operations. In addition to our current pause in service, there have been many other unintended consequences, including shipyard, dry dock and ship delivery delays, and related changes to our deployment plans for our fleet,” said Christine Duffy,

president of Carnival Cruise Line. “While we had hoped to make up construction time on Mardi Gras over the summer, it’s clear we will need extra time to complete this magnificent ship. We share our guests’ disappointment and appreciate their patience as we work through this unprecedented time in our business and the lives of so many people. We remain committed to working with government, public health and industry officials to support the response to the pandemic and to return to operations when the time is right.”

 Photo-Me – “Covid-19 started to impact trading in Asia (especially China) in mid-January and by March all the Group’s end markets were severely disrupted and the majority of expected revenue in March and April did not materialise as a result. Despite the Board’s mitigating actions set out above, the Group’s performance for the 12 months ended 30 April 2020 was significantly affected.

Total Group revenue declined by 5.6% to £215.4m and EBITDA (excluding associates) fell by 41.4% to £40.8m, resulting in an EBITDA margin of 18.9% of revenue. On a constant currency basis, revenue was down 6.2%.

The Board estimates that the virus had a £22.7m negative impact on total Group revenue, mainly through lost revenue across Continental Europe, and the UK & Republic of Ireland in March and April, and through lost revenue from operations in China from mid-January to April. Consequently, underlying profit before tax was £17.7m lower than expected pre-Covid-19.

Exceptional items, provisions and impairment – The Covid-19 crisis has required an in-depth review of the Group’s operations and increased rigor to address the current trading environment. This has led to a £23.7m impact from exceptional items, provisions and impairment for the results for the 12 months ended 30 April 2020. The largest element is the £19.3m impairment of goodwill and the write down of the carrying value of non-profitable machines (mainly photobooths and children’s rides) due to the disruption caused by the Covid-19 situation, and the likely slow recovery in consumer spending habits should social distancing measures remain in place for the foreseeable future. Photo-Me expects approximately 3,000 unprofitable machines will be removed or relocated in the next 12 months in UK, China, South Korea and Continental Europe. This also includes a provision of £3.5m for bad debt, machines costs provision and stocks impairment (see table below), and a redundancy cost provision (£0.9m). However, part of these provisions (£2.4m) is not attributed to Covid-19.

In addition, there are provisions for receivables from customer attrition or bankruptcy. These provisions can be considered as directly or indirectly a consequence of the pandemic.”

 Whitbread – “Over 270 UK hotels and 24 restaurants now reopened with the majority of the rest of the estate due to reopen throughout July

All 19 operational hotels now open in Germany, including 13 new hotels that were refurbished and rebranded as Premier Inn during lockdown.

The operation of 39 hotels opened for key workers throughout the crisis has enabled us to thoroughly test new social distancing protocols and hygiene standards ahead of the wider opening of the estate.

The enhanced hygiene and social distancing measures can be rigorously enforced through our unique ownership model, which alongside new more flexible booking conditions means customers can book in confidence. Successful completion of £1bn rights issue, enhancing both our financial flexibility and our ability to successfully execute our strategy in the UK and Germany.


 Reach – “Q2 Group revenue to 28 June was down 27.5% compared with the corresponding period last year. Print revenue declined by 29.5% and digital revenue was down by 14.8%. Circulation remains significantly below pre-Covid-19 levels with local advertising continuing to be challenging. Year to date Group revenue to 28 June was down 17.5%, benefitting from the good start to the year before Covid-19 began impacting the business in mid-March.

In June, we have continued to see modest but encouraging improvements in circulation and national digital revenue as the Government’s lockdown restrictions have eased. Group revenue declined by 23.9% in June compared with 30.5% in April. In June Digital saw a decline of 4.9%, compared to the 22.5% fall seen in April when the impact of Covid-19 was at its worst. Print revenue in June was down 26.7% year on year compared with the 31.8% decline seen in April.

Structural change in the media sector has accelerated during the pandemic and this has resulted in increased adoption of our digital products. However, due to reduced advertising demand, we have not seen commensurate increases in digital revenue.

To meet these challenges and to accelerate our customer value strategy, we have completed plans to transform the business and are ready to begin the process of implementation. Regrettably, these plans involve a reduction in our workforce and we will ensure all impacted colleagues are treated with fairness and respect throughout the forthcoming consultation process.”

Real Estate

 Derwent London – “June Quarter - To date we have received 75% of the quarter’s office rents and 70% of the portfolio’s overall rent. After adjusting for rents deferred or waived (see table below), we have now received 93% of the office rents and 90% of rents due. Rent-free periods have been granted on 4% of total rents, mainly in the retail and hospitality sectors. As part of the ongoing support for our occupiers, we have waived 25% of service charges for both the March and June quarters. The cost to the Group is estimated at c£4m

March Quarter update - Since we last reported on 8 April 2020, the rents agreed to be paid later within the March quarter have been received in full. Consequently, we have now received 81% of March rents (98% of rents due), with another 11% subject to agreed payment plans. The Group has now received 86% of the March office rents (99% of office rents due), with another 11% subject to payment plans.”

Helical – “Since the March quarter day, we have continued to engage with our tenants and, as part of the June rent collection process, wrote to all tenants offering to discuss with them any rent payment issues relating to Covid-19.

As at 3 July 2020, we have collected 76.2% of the June quarter rents, with a further 14.6% agreed to be paid in instalments in the period leading up to the September quarter day. We have granted rent-free periods on 4.7% of the June rent, mainly in respect of F&B tenants. We therefore anticipate that by the end of the June quarter we will have collected between 90.8% and 95.3% of all contracted rent.

In addition, we have collected 76.8% of the quarterly service charge from tenants with the balance expected to be collected in the period to the September quarter day.”

 RDI REIT# – “Across the Group’s portfolio, approximately 70.1% of gross rents or income due and demanded was collected for either the June quarter or the month of June where rents are billed monthly. This compares to 54.0% for the March quarter at approximately the same time post the relevant due date.

Negotiations with occupiers and clients are ongoing and it is expected that the current collection rates will improve or, in certain cases, result in agreements to remove break options or extend leases.

• Rent collected across the UK portfolio (excluding UK Hotels and London Serviced Offices) totalled 68.0% of rents demanded, adjusted for tenants paying monthly

• Rents collected across the European portfolio, which are typically paid monthly in advance, were 91.4% of rents due

• Rents associated with the RBH managed hotels are paid quarterly in arrears. As previously announced, no rental payments are anticipated for the second half of the financial year ending 31 August 2020

• Rents for the five-asset Travelodge portfolio have been received in full based on the revised rents following the recent CVA

• 96.8% of licence and fixed service fees billed were collected across the London Serviced Office portfolio for the month of June. The discount on desk rates being offered to clients has been reduced to 25% from 50%. Income collected in June reflects approximately 67.1% of anticipated net revenues, largely as a result of the temporary licence fee discount and nominal meeting room and ancillary income during this period.”


 Halfords – “Halfords is classified as an essential retailer by the UK Government and, as such, has continued to trade despite the Covid-19 pandemic. For the majority of the first quarter of the current financial year (“the period”), we have operated from a reduced Retail estate on a ‘dark-store’ basis, serving customers at the store entrance to ensure both colleague and customer safety. We have gradually increased the number of ‘dark stores’ open during April and May and converted some of these to ‘Lite’ stores from 27 May. ‘Lite’ stores are fully open but limit the number of customers allowed inside at any one time to ensure appropriate physical distancing measures. As of 3 July, 359 stores are trading under the ‘Lite’ format, 8 under the ‘dark-store’ format, and 77 remain closed. Autocentres has operated from a reduced number of garages across Q1, with open garages increasing during May and June and was fully reopened by 3 July. Significant safety measures have been in place throughout the period in both Retail and Autocentres.

Group sales for the 13 weeks to 3 July were -2.8% below last year and -6.5% on a LFL basis, significantly better than anticipated in late-March and an improvement on the -23% LFL decline for the four weeks to 1 May that we reported on 6 May 2020. Sales in our online channel were very strong, up 200% year-on-year in Q1, highlighting the value of the investment in our new web platform, which dealt well with the unprecedented shift to online ordering during the Covid-19 lockdown, when physical store operations were severely curtailed.

Our Cycling business has performed very strongly throughout the period, up +57.1% on a LFL basis, significantly boosted by the avoidance of public transport, favourable weather conditions and increased adoption of cycling as a health and leisure activity. The easing of the lockdown has led to the gradual reopening of schools and workplaces, and while public transport is avoided and road congestion increases, cycling is becoming an essential way of commuting for many people. For consumers with older bikes, which we estimate could amount to 7m in the UK, servicing and repairs have proved an inexpensive and popular way to reengage in cycling, with cycling service-related revenue up 41.9% on a LFL basis in the 4 weeks to 3 July. Alongside mainstream cycling, our performance cycling business, Tredz, has also traded very strongly, up 87.3% year-on-year on a LFL basis, benefitting from the successful transfer of inventory and customers from our Cycle Republic business, which closed in April.

Motoring revenue was down -45.4% LFL, reflecting a material drop in car journeys across the UK impacting this higher-margin category. We have seen improving trends in Motoring in recent weeks as the lockdown has eased, boosted by the performance of stores open for customer browsing in the ‘Lite’ format. Essential categories performed well after the gradual increase of cars on the road, with batteries and battery care products in high demand.

Autocentres revenue was +14.8% higher than last year and -19.2% lower on a LFL basis, but this improved significantly in recent weeks as lockdown has eased, motoring journeys have increased and the garage estate has reopened. Despite the Government’s 6-month extension of MOT expiry dates, we have seen increasing demand in recent weeks for MOTs and related servicing and repair, demonstrating the essential nature of these services. Halfords Mobile Expert has seen a record number of jobs per day, with more customers opting to have their cars serviced from the safety of their homes. All 75 of our vans have been well utilised throughout Q1, delivering record average jobs per day at peak times.

Reflecting the challenging environment, and as previously announced, we have implemented a range of measures to reduce costs and preserve cash, including suspending the dividend, reducing goods-not-for-resale spend and making use of the Government’s business rates relief and wage support schemes. As of 3 July, we had £200m of total liquidity available in our existing RCF and overdraft facilities and £10m of cash. Alongside an amendment to existing covenants, we have also secured a further £25m of additional funding through the Government’s CLBILS scheme, which we consider as contingency funding.

Our positive trading performance in Q1 and the additional measures we have taken give us confidence in our ability to trade through the pandemic and end the year in a sound financial position.

Outlook – Despite a better than anticipated trading performance in Q1, the uncertainty that currently exists because of Covid-19 means that we have withdrawn guidance for FY21. Although trading has been ahead of the scenario we shared on 25 March 2020, we remain cautious on the months ahead. We have developed three trading scenarios to model a range of potential outcomes, including the estimated impact on profit and net debt.

We saw a relatively strong performance in Q1, part of which may have been boosted by a pull-forward in cycling sales given the customer response to lockdown and favourable weather conditions during the period. We believe cycling demand will remain strong throughout the year and we will work hard to supply these unprecedented levels of demand. We expect a shift towards commuter bikes, as people return to workplaces and cycling infrastructure improves, and we expect bike servicing and repairs to become more in-demand as consumers take advantage of the Government’s voucher repair scheme. We also expect motoring demand to improve during the year, as car journeys pick-up, workplaces and schools reopen and our retail stores can open with fewer safety restrictions in place. The transmission risk of Covid-19 is significantly higher in confined indoor spaces, meaning that car journeys will be seen as a safer alternative to public transport and, as winter approaches, a more pragmatic and comfortable alternative to cycling and walking.

As lockdown restrictions ease, we expect an improving trend throughout the year, with H2 profitability expected to be improved on H1. An economic contraction and low levels of consumer confidence will inevitably dampen demand for discretionary products, but we are well positioned to deliver essential and less discretionary products and services in both our Retail and Autocentres businesses, demonstrating again the resilience and strength of the Group.

It seems likely that our mix will remain biased towards cycling and away from motoring in the short term. Although this tailwind is welcome, cycling is a lower margin, more capital-intensive segment than motoring and, as such, the incremental benefit to Group profit will be lower. We announced in November 2019 that whilst Cycling remains an important growth driver of the Group, we will focus our efforts on improving the profitability and returns of this segment. We have made good progress since then and are encouraged by the opportunity that lies ahead.

In each of these scenarios we have forecast a significant reduction in variable and discretionary costs, such that the profit differential between the scenarios is driven principally by the sales outturn. In addition to the cost reductions assumed, we are working on a more strategic reduction of our cost base to lay a strong foundation for FY22. In all these scenarios we have significant liquidity available throughout the financial year.”

 JD Sports Fashion# – “We suffered our first full country closure on 11 March 2020 when we closed all of our stores in Italy. Over the subsequent two weeks we then closed all of our stores in a further 13 countries including the United States where all our stores were closed by 20 March 2020 and the UK, where all our stores were closed by 23 March 2020. Across these 14 countries, this represented a closure of approximately 98% of the Group’s total physical store estate.

Our trading websites continued to accept and fulfil orders in most of these territories in the closure period, which was important, as not only did it enable us to continue to turn stock and generate cash, but it also ensured that we retained engagement and relevance with consumers. Not surprisingly, we saw a very strong performance online in the store closure period and, while these levels of growth may reduce with time, it is perhaps inevitable that there will be some level of permanent transfer from physical retail to online as a consequence of Covid-19. To accommodate this possibility, we have now invested further in our principal warehouse at Kingsway, Rochdale, giving us the flexibility in our operational infrastructure to deal with the additional volumes online effectively and efficiently.

Whilst the majority of stores have now re-opened, it is very clear that footfall in stores will remain uncertain for the foreseeable future. Social distancing measures have a disproportionate effect in smaller space, particularly for fascias like JD, which attract high levels of footfall over concentrated periods of time such as weekends and school holidays. This concentration of footfall has historically been most evident in major malls and city centres and it is these locations that are likely to see the biggest impact relative to historical levels if social distancing measures continue to operate in some form, particularly through the peak period later in the year. However, in terms of our core UK market, a significant nationwide presence in both High Streets and Out of Town Retail Parks does provide consumers with an alternative location if they wish to avoid enclosed spaces. Recognising that rents effectively buy footfall, we will continue to push for greater correlation between levels of footfall and rents payable across our physical retail estate.

Only a relatively short period of time has elapsed since the re-opening of stores in our core market. This, combined with the continued uncertainty around the recovery of footfall and the application of social distancing measures across many of our territories, means that it is too early to extrapolate this performance and give meaningful guidance for profits in the current year. However, we were encouraged by the continued positive trading in the early weeks of the year prior to the emergence of Covid-19 and we firmly believe that we are well placed to regain our previous momentum.

We are confident that JD’s premium multi-brand proposition retains its consumer appeal. We continually challenge ourselves to advance this proposition and transform all aspects of the customer journey through innovation in consumer awareness, engagement and retail theatre; an evolving and often exclusive premium brand selection, which is underpinned by authenticity; and investment in new technologies in stores, online and within our operational infrastructure. By maintaining these standards and principles, we are confident that we will have the right foundations for future positive developments.

Looking longer term, there is inevitably considerable uncertainty as to what the effect of Covid-19 will be on consumer behaviour and footfall with future store investments highly dependent on rental realism and lease flexibility. Ultimately, however, we remain confident that we have a market leading multi-channel proposition which has the necessary flexibility and agility to prosper within a retail environment that may see profound and permanent structural change.”

Support Services

 Renewi# – “Trading in the first quarter of FY21 was ahead of the Board’s initial Covid-19-adjusted expectations, with the total impact on earnings during the period being €12m compared with the €20m previously forecast, supporting a strong cash performance with no net outflow during the lockdown.

Commercial Waste Netherlands volumes improved steadily through the quarter. Core volumes for the quarter were 6% down on prior year. Bulky waste and construction volumes continued to be resilient, offsetting reduced roller bin collections, which improved from 30% down on prior year in April to 15% down in June. Commercial Waste Belgium volumes also improved through the quarter from 35% down compared to the prior year in April to 21% down in May and 15% down in June. Further volume recovery during the second quarter and the remainder of the financial year remains dependent upon the successful easing of lockdown restrictions, including in specific sectors such as hospitality, and the speed and extent of economic recovery.

Recycled paper prices rose briefly in April and May but have since reduced, metal prices dropped sharply in May. We were pleased to announce a signed agreement with Shell and Nordsol to convert out-of-date food waste into bio-LNG, an important first step in creating a new market for low carbon fuel in the Netherlands.

The new Mineralz & Water Division performed slightly better than expected. Intake at ATM has slowed slightly, especially for the waterside and pyro. Soil processing volumes have increased to 35% of capacity, with further increases likely in the second half as new capacity is commissioned for filler, sand and gravel processing and storage. Volumes at Mineralz fell sharply in April but recovered well in May and June.

Specialities has performed in line with our expectations. Coolrec has reopened Belgian and French facilities that had to close due to lack of inbound waste in April. For Maltha, demand for glass cullet is expected to remain at reduced levels, particularly in France and Portugal. As previously indicated, Municipal saw reduced income while Household Waste Recycling Centres were closed in April and May; these reopened during June.”


 Micro Focus – “Micro Focus delivers mission-critical enterprise software, across multiple geographies and serving every vertical sector. The majority of our revenues are contractual and recurring in nature and the resilience this affords can be seen in the company’s ability to generate cash and manage costs as required. The Company’s balance sheet is strong, and the recent successful refinancing of the Company’s debt, despite current market conditions, underlines the attractiveness of Micro Focus’ financial model. The board and management team are committed to delivering the initiatives announced earlier this year. We are confident this work will improve and simplify operations, strengthen product portfolios, sharpen our ability to address the needs of our customers and deliver attractive and sustainable shareholder returns over the long term.

Despite the resilience of Micro Focus’ customer proposition and financial model, the ultimate impact on the global economy of the Covid-19 pandemic remains unclear, as does the timing and extent to which that impact flows through into customer spending plans on enterprise software. Our current assumption is macro-economic conditions are unlikely to improve in the second half of the financial year. As a minimum, we continue to believe it appropriate to be prepared for further disruption to our new sales activity and timing pressure on renewals.”


• At least three pubs in England have closed after customers tested positive for coronavirus. The pubs – in West Yorkshire, Hampshire and Somerset – announced they had shut their doors again after reopening at the weekend.

• Belgium is asking tourists returning from areas with strict lockdown measures still in place to quarantine for 14 days. It comes after the government decided on Monday it would not further open its borders to an EU ‘safe list’ of 15 non-EU countries.

• A study by the medical journal the Lancet of more than 60,000 people in Spain estimates that around 5% of the Spanish population has developed antibodies, significantly below the threshold required for herd immunity. The prevalence of Covid-19 antibodies was below 3% in coastal regions, but higher in areas of Spain with widespread outbreaks, the report said.

• According to data released today by the ONS, 78% of people report no symptoms by the time they test positive for coronavirus.

• New regulations requiring pubs, bars and restaurants to ensure there is at least a metre between separate groups of customers have come into force in Sweden.

• New Zealand has begun restricting the amount of citizens it will allow home. Flights into the country will be limited.

#corporate client of Peel Hunt