Shell slashes capex, AB Foods to take hit from Primark closure
By Josh White
Date: Monday 23 Mar 2020
(Sharecast News) - London open
The FTSE 100 is expected to open 186 points lower on Monday, having closed up 0.76% at 5,190.78 on Friday.
Stocks to watch
Shell said it was cutting capital expenditure, underlying operating costs and postponing the next phase of its share buyback to conserve cash in the face of the Covid-19 pandemic. The oil giant said it would cut underlying operating costs by $3bn - $4bn a year over the next 12 months compared to 2019 levels and reduce cash capital expenditure to $20bn or below for 2020 from a planned level of around $25bn. "Together, these initiatives are expected to contribute $8bn - $9bn of free cash flow on a pre-tax basis. Shell is still committed to its divestment programme of more than $10bn of assets in 2019-20 but timing depends on market conditions."
Primark's decision to close its stores will cost ?650m a month in lost sales, parent company Associated British Foods said. ABF's closure of Primark's 189 UK stores at the weekend means all the clothing chain's 376 shops in 12 countries are shut in response to the coronavirus crisis. In a trading update ABF said the decision would cost ?650m each month in net ales. The FTSE 100 company said it was reviewing all spending to offset the lost sales as much as possible. Discretionary spending has been cut sharply and the group is in talks with landlords about rent cuts.
Pearson announced on Monday that, as it managed the impact of the Covid-19 coronavirus pandemic on its business, and with the likelihood of "prolonged" uncertainty, it had decided it was "prudent" to pause its share buyback. At the same time, the FTSE 100 education publisher noted three major trends amid the outbreak, including uncertainty in its businesses that relied on learners and staff being at physical sites. It had, however, seen a "significant uplift! In the use of its digital products and services, as well as "rapidly growing interest" in its Global Online Learning businesses.
Newspaper round-up
Pressure is mounting on Rishi Sunak to extend his coronavirus bailout to the UK's five million self-employed people, with gig workers threatening legal action against the chancellor's current "discriminatory" policy and a survey suggesting half would keep working if they had symptoms. On Friday, Sunak said self-employed workers could access ?94.25 a week in universal credit, but he gave a far more generous deal to employees of 80% of salaries, capped at ?2,500 per month. - Guardian
Airlines and airports have warned that time is running out for the government to enact promised measures to help the aviation industry, with EasyJet and Ryanair set to stop flying after Monday and less than 5% of normal passenger numbers expected at major airports. Further talks are expected between ministers and the industry on Monday as the government wrestles with how to keep critical infrastructure functioning. - Guardian
A final design of a ventilator that can be rushed into mass production is expected to be agreed on by the Government and its health advisers as soon as today. Officials were set to start meetings yesterday about selecting a single blueprint for the life-saving machines, which are needed to treat patients suffering from respiratory problems caused by coronavirus. - Telegraph
The economy is expected to collapse this year as the coronavirus outbreak brings Britain to a standstill, leading economic forecasters have warned. KPMG, in its latest quarterly economic outlook, has slashed growth forecasts for the year, predicting that the pandemic could cause the UK economy to shrink by up to 5.4pc in 2020 unless public health measures were able to stem the rise in infections. - Telegraph
Britain's top listed companies have been banned from publishing their annual results for at least the next fortnight in an unprecedented move by the City regulator to deal with the chaos caused by the coronavirus. The instruction, contained in a letter sent by the Financial Conduct Authority (FCA) to regulated companies over the weekend, immediately prompted speculation that it was the prelude to a full markets shutdown. - The Times
Short-selling positions more than tripled last week as hedge funds scoured the London market for vulnerable companies to bet against. Such activity has surged to its highest levels since records began just over seven years ago, according to analysis by The Times of official data, prompting calls for an outright ban on shorting. - The Times
US close
Stocks on Wall Street fell sharply at the end of the week as Congressmen failed to agree on a fiscal stimulus package against the coronavirus pandemic.
By the end of trading, the Dow Jones Industrial Average reversed early gains to fall 4.55% to 19,173.98, alongside a 4.34% drop for the S&P 500 to 2,304.92, while the Nasdaq Composite fell 3.79% to 6,879.52.
Significantly, the US dollar spot index also reversed an early retreat, rising to 102,93, while Texas Intermediate crude oil futures.
Front month crude oil futures on the other hand were down by 11% at $22.43 a barrel on NYMEX.
In a research note sent to clients, strategists at BofA Securities said the 2,350 point level on the S&P 500 should hold, although the risk of corporate and financial defaults remained.
"Aftershocks likely but assets with growth (tech), quality (best of breed stocks), yield (credits with fortress balance sheets) favored."
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