Covid-19 updates: The must-read company news on 24 March 2020

by Graeme Evans from interactive investor |

With extreme volatility and the UK in lockdown, we round up the news that’s moving stocks sharply. 

From retail and housebuilding to online gambling, bosses were today spelling out the likely consequences of PM Boris Johnson's dramatic order for Britons to stay at home.

The likes of Dunelm (LSE:DNLM), Games Workshop (LSE:GAW) or Vertu Motors (LSE:VTU) now have no choice but to pull down the shutters on stores, with little visibility about when they might reopen. That means it's now pointless to even provide investors with a stab at financial guidance, with the focus of all companies in the retail sector now on how to best protect their cash resources.

However, the reaction of the London market to this “moment of national emergency” suggests that a period of near total lock-down had already been factored in. There was a 4% rally for the UK-focused FTSE 250 index, while a rebound for oil prices and other European indices also helped the FTSE 100 index to recover back above the 5,000 threshold to as high as 5,200 by lunchtime.

There was no bloodbath among retail stocks, with JD Sports Fashion (LSE:JD.) up 14% and Marks & Spencer (LSE:MKS) holding firm and Greggs (LSE:GRG) 7% stronger after pre-empting the PM's move by announcing the temporary closure of all its stores last night.

Having already experienced a flight to safety at a pace rarely seen before, the key for investors now is how long this disruption will last. The impact of the measures being taken both here and overseas, in order to combat the spread of coronavirus, means it is certain that economic prospects and corporate profits will have to get worse before they get better.

But analysts at Morgan Stanley reckon we might be close to the tipping point where the size and breadth of policy response, in both monetary and fiscal terms, will be sufficient to reduce the market dislocations and volatility.

They said:

“From a market perspective, we think we are probably close to peak uncertainty right now.”

The US investment bank added: “Against a backdrop of low valuations for risky assets and with many investors having now delevered/degrossed substantially, a peaking out of market uncertainty/volatility should support the market and suggests an attractive risk-reward for longer-term investors.”

For the timebeing, however, more pain will be felt by investors, particularly those reliant on the income stream provided by dividends. Housebuilder Taylor Wimpey (LSE:TW.), for example, said today it was cancelling the full-year dividend of 3.80p worth £125 million, due to be paid on 15 May, as well as the planned £360 million special divi of 10.99p due in July.

The move comes with the company warning it faces weeks or months of uncertainty, including periods of inactivity “which will limit our ability to complete on homes and therefore generate cash”.

All its show homes, sales centres, and construction sites are now closed, which is in contrast to Redrow (LSE:RDW) where sites remain open, with strict precautions in place such as enhanced levels of cleaning, additional hygiene facilities and social distancing.

Trading at Redrow had been resilient in the 12 weeks to March 20, but the company is braced for the impact of labour and material shortages and for new openings to slip as local authorities delay planning committee meetings. With its 10.5p interim dividend now cancelled, Redrow shares were 3% higher today in contrast to the 4% fall at Taylor Wimpey.

In the retail sector, Dunelm shares were initially sharply lower as the company said it would cancel the interim dividend due to be paid in April, as part of a package of measures to protect cash flows in the wake of the retail shutdown.

The company said:

“In light of the extraordinary circumstances, the board believes it is important to retain the cash in the business until further certainty is gained.”

Source: TradingView Past performance is not a guide to future performance

Dunelm took the decision to close its stores yesterday, but had hoped to continue operating sites as “contact-less” collection points for online orders and as a location for supporting local people. That plan has since been scrapped, leaving it with just its fast-growing online business.

Dunelm's sales had been resilient over the past two weeks, with figures today showing a like-for-like decline of 8.8% for the period compared with around 30% elsewhere on the high street. To strengthen its balance sheet, the company has fully drawn down its £165 million revolving credit facility to take total funding to £176 million.

As well as cancelling the interim dividend, it is working with landlords on rent timings and is utilising government support on wages and business rates. Shares, which hit a record above 1,400p just over a month ago, were later up 3% at 678p.

Other consumer-focused stocks providing updates on the closure of sites today included windows and doors specialist Safestyle (LSE:SFE), car showroom business Vertu Motors, kitchens supplier Howden Joinery (LSE:HWDN), furniture retailer ScS (LSE:SCS), and fantasy war game business Games Workshop.

Among those allowed to keep on trading, McColl's Retail Group (LSE:MCLS) shares jumped 13% to 24.8p as the company continues to serve neighbourhood communities with essential food and toiletries. Over half of its customers live within just 400 metres of its stores.

The challenge now for McColl's will be keeping its stores open and trading safely and ensuring that wholesalers can continue to supply the products customers need.

Gambling group 888 Holdings (LSE:888) looks to be another beneficiary of the lock-down, with increased demand for online casino and poker gaming helping to offset the impact of cancelled sporting events. With people spending more time at home and with potentially increased stress from economic uncertainty, it said its vigilance on safe gambling and preventing gambling-related harm was “even more important than ever”.

Shares jumped 37% to 115p after the group reported an 18% rise in average daily revenues in the year up to March 18, a performance in line with its expectations.

Source: TradingView Past performance is not a guide to future performance

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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