Press Release of the Day – 20th April

Jefferies Research: The Tide is Out, Who is Wearing What?

As the Covid-19 outbreak continues to disrupt global markets, Jefferies’ Equity Research Team stress-tests liquidity levels across companies in a number of likely scenarios. Taking a ‘one size doesn’t fit all’ approach, Jefferies looked at which companies are most likely to breach their covenants, recapitalise on favourable terms or ride out the storm with strong cash reserves  in a range of different scenarios specific to each sector. Having crunched the data, the analysts identify 43 BUY-rated stocks that can weather the storm of coronavirus and 15 stocks where caution is advised.

Further to the attached note, sector deep-dives are also available linked below.

Do let me know if a call with the analysts on the full project or any specific sector would be helpful.

Sector highlights include:

  • Autos: Our modelling shows balance sheets to be more liquid than in 2007 but, at zero production and stable fixed costs, cash positions cover only 4-10 weeks of payables/receivables unwinding (8-18 weeks including credit lines). (Autos’ Roadrunner Moment – Daimler Double Upgrade)
  • Banks: Our analysis shows that banks under our coverage have €3.7tn of undrawn credit commitments, roughly equivalent to around 23% of associated GDP. We also note that should 100% of lines be drawn, this would increase banks’ Common Equity Tier 1 ratio by 10.5%, generating a meaningful income for the industry.
  • We also show that should 100% of lines be drawn, the CET1 ratio impact would be 105bps. (An Illustration of Bank Balance Sheets as the Solution, not the Problem)
  • Building Materials: Despite large earnings cuts, balance sheets remain robust with projected net debt less than two times EBITDA by the end of 2020. (European Building Materials – Resetting Forecasts, but Staying Selective)
  • Business Services: Our recession framework leads us to shuffle preferences within the sector towards those companies well-placed to counter balance sheet and liquidity headwinds – we upgrade the caterers on defensive business credentials (Compass / Sodexo), recruiters on balance sheet strength and valuation (Hays / Page) and compounders on cycle resilience (Bunzl). (Licence to ill)
  • Healthcare – Pharmaceuticals: We do not foresee cash flow or balance sheet risks for any EU Pharma. Assuming a few months’ disruption in most major markets, we provide a framework to assess EPS impacts. (Counting Corona Risk to EU Pharma)
  • Housebuilders: We believe liquidity in the sector remains robust and a hiatus in land buying should help this. Another positive is that  we believe many housebuilders debt facilities which have a maturity of 2 years or more can be extended if required. (UK Housebuilders: Dividends Vulnerable Short Term, Longer Term Liquidity Robust)
  • Oil & Gas: We focus on the dividends for listed oil-supermajors. We expect that dividends in the sector are safe for now, but dependent on whether Brent prices remain at $30 through 2021 which would impact balance sheets and bring the dividend into question. (Protecting the Dividend)
  • Telecommunications: We define a ‘Comfort Index’, which ranks our telecom operators according to their ability to cover debts maturing by end-2022 with free cashflow remaining to potentially distribute to shareholders. We highlight Vodafone, BT and Telia looking ‘most comfortable’ with TKA most reliant on continued access to funding. (Looking Beyond Collective Punishment; DTE to Hold)

– Ends –

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