Market Crash and Abcam Impact from Coronavirus

This morning my stock market portfolio was a sea of red – down 5.6% at the time of writing at 9.30 am.  Not only have most shares fallen, but spreads have widened so it’s not even easy to pick up those shares that are now undervalued at a fair price. I think the answer here is to wait until the immediate panic is over before making any more decisions to buy or sell.

The major impacts on shares have been the threat of the coronavirus Covid-19, where the reality of the possible economic impact is finally sinking in, and the other has been the oil share price decline. It might be only short term but the impact of Covid-19 on China and northern Italy is clearly going to be substantial.

I don’t actually hold any oil company shares and it was just propitious that I said on February 14th when discussing electric vehicles that one should “sell BP and Shell perhaps”. The price of oil is down over 25% since Friday and the share prices of BP and Shell are down 16% and 18% respectively today at the time of writing. These declines have a major impact on the FTSE-100. Does that make them a bargain? Perhaps to dividend seeking investors but these are companies whose share prices are driven by oil/gas prices so they are not the kinds of companies I like to own.

One company I do own is Abcam (ABC) who published their interim results this morning. Revenue up 11% but adjusted profits down 20% with the share price down 7% after a sharper initial drop this morning. They report a £3 million revenue reduction from the Covid-19 virus from its early spread in China. But the broader China activity is now returning although still below pre-outbreak levels. The supply chain has been largely unaffected to date.

Cash generated from operations increased but free cash flow is down slightly mainly because of high levels of expenditure still being applied to “new ERP systems and processes” which is capitalised and which I have commented negatively on in the past. Well at least that expenditure is down from last year.

Notwithstanding the short-term impact of the virus, they give a positive outlook statement – “pleased with progress, strong fundamentals, confident in our future prospects, attractive long-term dynamics” are some of the phrases used. I think we might see a lot of similar statements from companies over the next few months. But adjusted earnings per share forecasts for this year are surely going to be downgraded somewhat at Abcam.

I am also not optimistic that the UK, USA or other western economies are going to avoid a widespread outbreak of the disease which will disrupt our lives and economy even if it is a relatively short-term impact.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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