Next reveals stress test results, and Burberry reopens shops in China

“Any movement less than 2% is now considered to be a calm day for markets and that’s exactly what we are seeing on Thursday. The FTSE 100 nudged up 0.9% to 5,125, led by banks, utilities and consumer goods companies,” says Russ Mould, Investment Director at AJ Bell.

“A weaker pound versus the dollar would have also acted as a tailwind for the large number of overseas earners on the FTSE.

“Interestingly, some of the most battered stocks in recent weeks are seeing a rebound. Yesterday Cineworld jumped 144% in a single day. Now we’ve got cruise operator Carnival up nearly 9% and Cineworld is up another 28%, suggesting that some investors see real value among certain beaten-up stocks. Chemicals group Elementis shot up 146% to 45p.

“Promotional products expert 4imprint dived 27% on a cautious trading update. This is one of the most popular stocks in UK small cap funds, meaning a lot of fund managers will be furious their once-star performer has extended this month’s sharp share price losses. The stock has now more than halved in price since 3 March."

Next

“Stress tests are normally the domain of banks to prove they could survive a sharp economic downturn. Now this practice is likely to become commonplace across many other sectors as companies seek to prove to investors that they have adequate strength to survive the coronavirus pandemic.

“Next’s stress test accompanies its full year results and shows that it can sustain more than a £1bn loss of annual full price sales without exceeding its current borrowing facilities. That’s very impressive and a credit to the financial strength of the business which was already facing a retail sector crisis before the current pandemic took hold.

“It will be interesting to see if widespread home working results in stronger online orders. This is certainly not a given as there will be a lot of people worried about their jobs and whom may not be confident enough to spend money on clothes. There is also the consideration that people won’t be going out so they don’t need to buy new shirts or dresses to look smart. Any old clothes may suffice if you’re stuck indoors.

“Like many other companies, Next says it has levers it can pull to try and preserve cash to support the business, including suspending share buybacks and delaying dividends depending on the severity of trading in the coming months.

“Investors must understand that such actions would help to keep the business ticking over and hopefully keep staff in their jobs. Giving up shareholder rewards like the dividend is the least investors can do in order to ensure Next, or any business in the same situation, gets through the crisis.”

Burberry

“During the financial crisis luxury goods fared better and recovered quicker than other consumer-facing industries as its clientele were arguably less affected by the economic shock.

“The coronavirus is not proving as discriminating as today’s trading update from Burberry reveals. A guided sales hit of the magnitude of 80% as containment measures have been ramped up in recent days is pretty astonishing while not being surprising at the same time.

“After all, the majority of its stores are shuttered as countries look to contain the outbreak. Even those which are not closed are seeing reduced footfall and online sales are unlikely to pick up the slack to any great degree.

“Why would you shop for an expensive new trench coat or cashmere scarf if you’re going to spend most of your time at home?

“Burberry was one of the first companies to see its share price come under pressure amid the initial spread of the disease in China due to its substantial exposure to that market.

“It is an interesting about-turn that its shops in mainland China are now reopening, and assuming the virus remains supressed in that country it could actually be a bright spot for the company in the short-term.

“As you would expect Burberry has moved to reassure investors on its financial position as it looks to weather a period of profound dislocation for the business.

“For now there is no mention of suspending the dividend but that may change when the business announces its full year results in May (if not before).”

These articles are for information purposes only and are not a personal recommendation or advice.