Coronavirus News, AstraZeneca Vaccine, Bowling Alleys and Boeing 747s Retired

The UK death count from the Covid-19 virus is now 45,233. At least that’s the latest figure available because daily reports of deaths have now been suspended because the statistic is now known to be unreliable. Anyone who was identified as a Covid-19 infected person but later died from any cause is identified as a Covid-19 death. The result is that someone who was at death’s door from cancer before infection is counted as a Covid-19 death. Even someone who is run over by a bus is likewise included. This is truly bizarre and the Government has ordered an investigation.

The good news is that a second vaccine candidate looks like it might be effective. This is the one produced by Oxford University and which AstraZeneca (AZN) is gearing up to manufacture and distribute in volume. The share price of the company perked up on Friday as a result based on press reports and rumours although the trial results are not due to be published in the Lancet until Monday. Whether they will really make any money from this product remains to be seen. I only hold a few shares in the company and will wait to see a clearer view before buying more.

The other good news is that bowling alleys and other similar entertainment venues such as casinos will be able to reopen on the 1st August. But there will be restrictions on bowling alleys with only alternate lanes open, players limited to groups of 6 and they will be offered gloves to wear. Also bowling shoes are out.

I always thought the provision of shoes was a bit odd now that everyone is wearing trainers or other rubber/plastic soled shoes as I thought the original purpose was to protect the wooden runway. It seems that bowling shoes also enable the players to slide along the surface but only professionals actually do that. Bowling shoes may now die out.

CFO of Hollywood Bowl Lawrence Keen was quoted by the BBC as saying: “At 50% capacity, the company will still be profitable, albeit just”. I own a few shares in both Hollywood Bowl (BOWL) and Ten Entertainment (TEG) but again I think it is best to wait and see whether the players return before buying more shares.

Other news was the announcement by BA that they are “retiring” their entire fleet of Boeing 747s. With 31 planes they are the largest operator of the planes in the world.

As airline passenger numbers are much reduced from the epidemic impact, BA clearly sees little chance of filling the planes in future, and you need to fill a 747 to make them economic operationally. Boeing 747s were first made operational in about 1970 and unbelievably are still being manufactured, albeit with a lot of updates such as improved engines. They are still in demand for cargo flights due to their large capacity. What’s the price of a good second-hand 747-400? About $12 million, although I suspect prices are falling rapidly.

Memories: I recall the original promotional videos for the plane which featured lots of space to walk around in “lounges” with a bar at one end. In reality they soon crammed in as many passengers as possible and were hence not particularly comfortable, particularly in economy class. Some planes were configured to use the “upper deck” which one reached via stairs and I do recall at least one trip in that location. But the large number of passengers always meant it took a long time to unload and load, with long queues at passport control resulting.  Certainly a plane to avoid for passengers in my opinion even if you were flying business or first class. There was a certain comfort in having four engines in case one or two failed, but aircraft engines improved in reliability over the years so the initial doubts about flying more fuel efficient twin-engined planes soon vanished.

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

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Coronavirus Impacts – Victoria, Auto Trader and Bowling Alleys

Stock market investors are clearly becoming nervous again following a rise in Covid-19 infections in the UKA – particularly in the Southern and Western states. This has affected the US stock markets and, as usual, it has affected UK markets in sympathy.

There were two announcements this morning that were interesting as regards the impact of the virus epidemic and the resulting “lockdown” of the population. Home working has become more normal or people have been “furloughed” or permanently laid off.

Victoria (VCP), a manufacturer of floor coverings, had to close their factories but they have all now reopened. Their customers are mostly retailers and many of them had to close but are now reopening or already have done. The company says group revenues for the last three weeks are now at 85% of pre-Covid-19 budgets.

Interestingly they say this in today’s trading update: “It is important to remember that 93% of Victoria’s revenues are derived from consumers redecorating their homes, not construction or commercial projects, and consumer demand for home decorating products appears to be strong across the world. This is not altogether surprising, given the extended period consumers have spent in their home over the last four months, which is likely to have encouraged the impulse to redecorate”. Clearly it’s time to do some DIY jobs.

Auto Trader Group (AUTO) announced their final results for the year ending March 2020, which contained an update on current trading. They provide a web portal for car dealers, who all had to close. Auto Trader provided free advertising in April and May plus a 25% discount in June. As a result they lost money in those months. The company has also chopped the dividend, cancelled further share buy-banks, did an equity placing and used the Government’s Job Retention Scheme. A vigorous response in essence, rather like that of property portal Rightmove.

Car dealers are reopening but for most you cannot just walk in to the dealer. You have to make an appointment. This encourages web shopping for a new car which is to the advantage of Auto Trader. The company announcement (and what was said in their web cast which was otherwise somewhat boring as it consisted mainly of reading a script), was generally positive but it leaves a question as to how soon car sales will recover. They don’t seem to be losing many dealers and dealer stock figures are what matter rather than sales. But dealers’ revenue and profits might come under pressure as many car purchases can be postponed. Cars do wear out of course, but with mileage reduced as there were, or are, few places open to go to and more home working is taking place, this could reduce car sales.

This is therefore a company where one needs to look to the future and how they can capitalise on the trend to shop for cars on the internet, like one might shop for groceries or clothes of late. One competitor mentioned in the conference call was Cazoo who sell (or lease) cars directly on the internet. No test drives or inspection first. You just get 7 days to trial it before acceptance. This is clearly a different business model that might affect traditional dealers although they also provide service of course and concentrate on new cars which is a more complex sales process. There may also be an issue of trust when using an on-line service. But the process of buying and selling cars certainly needs simplifying from my last experience of doing so.

At least bars and restaurants can reopen, albeit with severe restrictions on social distancing. That will certainly reduce their sales volumes and increase their costs, resulting in a big hit to profits. Still a sector to avoid I think.

Bowling alleys were expecting to be able to open from the 4th July based on what Ten Entertainment (TEG) and Hollywood Bowl (BOWL) said. But the recent Government announcement has put a stop to that along with the reopening of gyms and swimming pools. They now hope to reopen in August.

Is this ban rational? I can see why indoor gyms might need to remain closed. A lot of heavy breathing and sweating in close proximity. But bowlers don’t exert themselves much from my experience and if alternate lanes were used social separation would be good so long as they used their own shoes.

Note that I hold shares in some of the above companies. But thankfully not in Wirecard which I previously commented upon and which is now filing for bankruptcy proceedings.

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

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Rio Tinto Production and BHP, plus Hollywood Bowl Placing

Mining company Rio Tinto (RIO) issued a statement on its first quarter production this morning. This was a very positive report and the share price has risen over 5% at the time of writing. The share price of BHP Group (BHP), another big miner in the FTSE-100, rose in tandem.

I am not generally a fan of mining companies as their profits are very dependent on the prices of the commodities they produce, but with a p/e of under 10 and a very high dividend yield I did consider those two companies worth a small punt recently. They are both heavily dependent on industrial consumption in China but that seems to be recovering, particularly for iron ore. That may of course simply be because it is difficult to halt blast furnaces temporarily. Their production guidance for 2020 remains basically unchanged apart from in copper where demand and prices have fallen and production and development of a new mine in Mongolia has been disrupted by the coronavirus epidemic.

Hollywood Bowl (BOWL) announced a share placing this morning at 145p – a slight premium to last nights price. The share price has risen by 10% today. This company is in the “hospitality” sector as it runs bowling alleys primarily, all of which have been closed.

The company has taken aggressive steps to cut expenditure such as halting all new developments, delaying all discretionary expenditure, furloughing staff using Government schemes and deferring a proportion of salaries for management. It is also negotiating with its landlords to defer rent payments for 9 to 12 months. In addition it has agreed relaxed covenants with its lenders, and it previously announced that the interim dividend will be cancelled.

All of this means that monthly cash burn will reduce to £1.6 million while its sites remain closed so it suggests it won’t run out of cash until the end of October. But I am still glad I sold most of the shares I held in this company in February. Financial results for this year are clearly going to be very poor and it may take a long time before customers return in volume.

As with all companies in this sector, buying the shares at present is pretty much a bet on when the restrictions might be listed and business return to normal. I have no better view on that than most readers of this article I suspect. But the share price probably rose today on the view that the company may avoid going bust if life returns to normal within a few months’ time.

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

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