Markets still falling, no dividend cut (yet?) for Shell, and ITV hit by more setbacks

“We really are in the thick of a global crisis and markets are showing little sign of optimism as the new trading week gets underway,” says Russ Mould, Investment Director at AJ Bell.

“The UK, Europe and Asian markets were nearly all in the red on Monday as investors still worry about how badly companies will be hit by the pandemic.

“The only exception was Japan’s Nikkei 225 index which jumped 2% on hopes that the Olympics would be postponed rather than cancelled.

“Brent Crude oil fell 5% to $25.61 per barrel and the pound fell 0.3% against the US dollar to $1.1604.

“The FCA’s request for companies to delay reporting financial results didn’t stop a barrage of stocks from issuing updates on trading and either withdrawing earnings guidance or trying to quantify events as they currently stand.

“Events are moving so fast that it is difficult for investors to truly understand what’s going on with businesses.

“Indeed it is hard for management to accurately say how badly they will be hit. All they can really do is state how they intend to preserve cash, clarify the current level of cash and debt in the business, give some guidance on how they intend to protect workers, and explain what the next steps might be in their crisis management plan".

Royal Dutch Shell

“Major oil producer Royal Dutch Shell has a very proud dividend record where it hasn’t cut its payout since the Second World War.

“Perhaps this explains why, unlike many other companies, it is not yet cutting its dividend let alone suspending it despite the escalating impact of the coronavirus outbreak and the containment measures launched in its wake.

“With a yield well into double digits the market is clearly pricing in action on the dividend sooner rather than later. Perhaps there might even be a bit of relief if such a decision were to be made.

“For now the company appears to be attempting to stave off this difficult call by curbing its share buyback programme while cutting costs and expenditure.

“There may be question marks over its capacity to make the business leaner than it is already given that significant cost savings were made in the wake of the 2014 to 2016 oil price crash.

“And while the company is apparently committed to its $10bn asset disposal programme, it remains to be seen if it could find any parties who would be genuinely committed to buying assets in the current environment.

“Shell has been through testing periods before, not least a big reserves scandal in the mid-noughties, but it’s hard to think of a CEO at the company who has been dealt a more testing hand than current incumbent Ben van Beurden.

“If its short-term challenges weren’t enough, there is the ongoing challenge associated with addressing mounting concern over its contribution to climate change.”

ITV

“Broadcaster ITV is being hit from multiple directions, dampening any hopes by investors that the business would be a coronavirus beneficiary as more people sit at home and potentially watch its channels.

“First it was hit by a drop in advertising from travel companies. Then it had to contend with the fact that the Euro 2020 football championship had been postponed, thus denying ITV a significant source of advertising revenue.

“Now its production operations are being affected due to government restrictions including social distancing and avoiding unnecessary travel. Advertising weakness is also stretching to multiple industries such as retail where brands probably don’t think it is worth promoting their products when people can’t get to the shops to buy them.

“Temporarily pulling the dividend is the right thing to do as it will give the company some financial breathing space to the tune of £300 million when also factoring in savings elsewhere in the business.

“It’s lucky in a way to have a rich library of existing content. The nation will probably be happy to watch re-runs of classic TV shows or sporting events. Its broadcasting business can therefore keep functioning which is more than can be said of many other companies.”

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