Listed Equity Bulletin 9 April 2020

From the Senior Partner

We distributed a Covid-19 Bulletin 2 weeks ago to highlight some of the implications for, and reactions of, listed companies following the measures introduced by the Government in March. Circumstances continue to change rapidly in terms of both what is expected of listed companies and what the majority are choosing to do. We have therefore produced a further bulletin to provide a summary of the major trends. Since our last communication, the following developments should be highlighted:

  • Relative stabilisation of markets – still volatile but not in freefall (page 1.)
  • Risk and fear diminishing – maybe prematurely (page 2.)
  • Equity markets remain open – equity raising and even IPOs (page 6.)
  • Trading updates moving to the next level of insight (page 6.)
  • The dividend debate – trends emerging (page 7.)
  • Growing focus and pressure on response to senior executive remuneration (page 7.)
  • Fund managers looking for ‘holistic’ capital allocation and communication (page 9.)
  • Messages from Continental Europe – developments in France and Germany (page 9.)

My colleagues expand of these trends below and I hope this is of interest. Please feel free to pass the bulletin on to others or to call us if you would like to discuss any issues.

[Tim Huddart is a Senior Partner and founder of h2glenfern and was previously Head of EMEA Research for Merrill Lynch].


Index 1 Week Change 1 Month Change 6 Month Change
S&P 500 10% 2% -5%
FTSE All Share 6% -3% -18%
European Top 500 4% -2% -14%
Nikkei 225 6% -3% -10%
Shanghai Composite 2% -6% -4%

With so little concrete information available it remains a fool’s errand to predict the scale of the global economic impact and the corresponding timing and shape of any recovery. Markets are likely to remain volatile as economic and corporate information is released and processed which will provide the Market with better information to effectively value and price global assets.

As shallow as it may seem, the key metric that appears to be driving markets and market sentiment in the short term is the pace and trajectory of Covid-19 infection and mortality rates in the key economies of the world. Included below is a link to an interesting article which demonstrates that rates appear to be slowing, which is improving sentiment, reducing volatility and helping to provide a short-term base for the markets.

  • Market risk and investor sentiment

Following on from the comments above, all the investor sentiment indices we track have improved over the past two weeks.

The VIX index, a 30-day volatility index for US stocks, acts as a very good proxy for global investor sentiment and fear levels. The index currently sits at 42 down from 64 at the end of March and well below the peak of 82 that we saw on the 16th March but higher that the 20 points average value over the last 12 months. A high reading is a barometer of investor caution and implies high levels of market volatility.

1 Year Chart – CBOE VIX Index

1 Year Chart – CBOE VIX Index

Another useful benchmark we follow is the CNN Fear and Greed Index. Measured on a scale of 1 (extreme fear) to 100 (extreme greed). The index currently stands at 43 (fear) higher than the 22-point reading (extreme fear) at the end of March and substantially higher than the lowest ever historic reading of 2 which was seen in the middle of March.

Fear and Greed Index

And finally, the CSFB Fear Barometer which signals investor sentiment over a 3-month time horizon. The current reading is 21.5, 10 points below the 12-month high of 32 seen on the 24th January, but 7 points higher than the 14-point low reading seen on the 12th March.

1 Year Chart – CSFB Fear Index

1 Year Chart - CSFB Fear Index

  • Shares traded per day

Index 1 Week Daily Vol. 1 Month Daily Vol. 6 Month Daily Vol.
S&P 500 0.97 bn 1.16 bn 0.67 bn
FTSE All Share 2.1 bn 2.6 bn 1.44 bn
European Top 500 0.97 bn 1.16 bn 0.67 bn

Daily traded volume for the indices above has been steadily declining versus the extreme levels witnessed in mid-March. The steady decline in volumes is an early sign of a return to a more orderly market as both retail and institutional investors complete the repositioning of their portfolios, manage fund inflows and outflows and reposition themselves to try to mitigate their portfolio risks.

  • Global Mutual fund Flows

Calastone, provides a very useful global monthly report that measures sentiment and capital inflows and outflows from open-ended investment funds. The latest report for the month of March showed record fund outflows, record flow volatility week to week and record divergence between flows from one asset type to another.

March showed record fixed income outflows on concerns over credit quality in sovereign and corporate debt markets.

Surprisingly overall net equity outflows were astonishingly small for a month of such market turmoil. Over the course of the month fund flows swung dramatically week to week. Buying at the beginning of the month, indiscriminate selling in the middle of the month and selective buying returning at the end of the month.

Within equity funds passive funds continued to show their nearly 2-year trend dominance recording record inflows whilst active funds saw near record outflows.

Encouragingly from a regional perspective, UK equity funds were big winners enjoying their second-largest inflows in four years. Funds focused on UK equities was the first major fund category to see buying interest return, attracting £508m of new capital. The strength of retail investor sentiment was reflected in retail platforms reporting a surge in investment accounts (270% increase at the Share Centre and 3x at Vanguard UK).

Following on from our observation two weeks ago, in terms of significant sector moves in the FTSE All Share Index, we can see from the table below that broadly speaking and perhaps unsurprisingly the strongest performing sectors last week were the most oversold sectors over the past 1 and 3 months.

FTSE All Share sector moves

FTSE All Share sector moves


[James Blackburn is a partner at h2glenfern and was previously Head of European Equity Sales and Trading for Merrill Lynch.]

Equity Issuance

Markets are seen to be open for equity issuance with a number of placing being achieved. Big investors, including long only funds, are estimated to have between 5 and 10% of their assets in cash. Moreover, several of the larger active managers are encouraging listed companies to talk with them about their possible funding requirements. Fund raisings completed include ASOS (£247m), SSP (£215m), Hays (£200m), Auto Trader (£186m) and WHSmith (£166m).

Trading Updates

Trading statements have moved into a new phase over the last couple of weeks as management teams have had the opportunity to consider in greater depth the implications of the Covid-19 lockdown and develop further their responses to it. Three particular themes seem to be emerging at this stage:

  • More insight

Clearly timescales remain very uncertain in relation to improvements in operating conditions, but more detail is being provided in relation to:

  • Proposed initiatives and their anticipated consequences (Auto Trader, Home Serve)
  • Scenario analysis – how much could things worsen before covenants are triggered or losses are incurred (Ryanair stated it could last until the end of 2020 on current resources)
  • Funding capacity – how much cash headroom and what is the cash burn rate (Workspace)
  • Strategic initiatives – some companies are already starting to announce strategic changes (Lufthansa is to shut its Germanwings operation and shed aircraft capacity in anticipation that recovery in demand will not occur for up to 2 years)
  • More holistic approach

Trading statements are becoming more ‘holistic’ in that they embrace multiple aspects in a more ‘joined-up’ manner rather than looking at factors individually. More companies are explaining the relationship between their actions relating to employees, senior management, dividends, capital raising and Government initiatives (Tesco).

  • More social responsibility

Current circumstances are presenting the opportunity to place emphasis on what is possibly the poor relation of ESG – ‘S’ (Social). Companies are starting to discuss and present the ‘fair and reasonable’ thing for them to do. This includes both financial actions:

  • Dividends – should a company be paying a dividend if it is seeking assistance from the Government through the job retention scheme?
  • Debt facilities – should a company be drawing down ALL available lines of credit if it does not have immediate need for them?

As well as other stakeholders:

  • Suppliers – what is being done to assist suppliers? (Flowtech)
  • Customers – how are customer needs being addressed? (Serco)
  • Community – what is being done to support the community? (Pendragon)

This is particularly important for those businesses for whom the current circumstances are beneficial (or seen to be beneficial) to trading performance.


As mentioned above, dividend decisions are an integral part of the capital allocation review and patterns are starting to emerge, with an increasing proportion of dividends not being maintained or increased, being suspended/deferred as opposed to being cancelled or cut. The table below stems from an analysis of announcements from 204 companies of varying sizes over the period from 26th March to 8th April.

Index Cancelled Suspended Cut Maintained or Increased Total
FTSE 100 21 2 6 29
FTSE 250 45 6 1 23 75
FTSE Small 16 17 1 34
AIM 19 32 1 14 66
Total 101 57 3 43 204

Senior Team remuneration – Addressing the impact of Covid-19

Companies’ top priority is protecting the health and welfare of their employees and their families, customers, suppliers and partners and Boards have been taking decisive action to do this.

Executive teams have been working to establish the financial and business impacts and outlook. Actions to support companies’ financial position have included cutting costs, postponing capex, communicating with lenders, cancelling dividends, and raising equity capital.Cost cutting has included difficult decisions such as reducing salaries and wages, furloughing employees, voluntary and, unfortunately, some compulsory redundancies. Many companies have withdrawn forward guidance.

Board and senior team remuneration is a high priority issue in these circumstances due to its cost and the message which decisions on senior team pay sends to employees, customers, suppliers, partners and other stakeholders on how a company is being run and its approach to governance. The spotlight has focussed on this issue. A number of companies have noted that it is appropriate to take steps on senior team pay where they are seeking assistance from the taxpayer.

  • Steps to take

Beyond urgent short-term actions, remuneration committees may find it useful to consider holding an additional ‘remcom’ meeting to consider the near, medium and longer-term implications and steps. A breakdown of the points to consider includes:

Salary Current levels, future changes
Bonus (a) Period recently ended / not yet paid (YE Dec to YE March)

(b) Period to end shortly (YE April to YE June)

In period (YE June, Sept, Dec) Forward period
Long term incentives Vesting due during H1 2020 In flight tranches Future awards

Where a company is in its financial year/remuneration cycle will impact what needs to be considered when in the ordinary course. Companies with March year ends have the most matters to consider in the ordinary course. Companies with December year ends are likely to have made decisions and paid 2019-year bonuses. Those with June and September year ends have time before the ordinary course decision making cycle commences to see how things develop.

  • Decisions announced by UK quoted companies on RNS

In the first instance, it is useful to know the steps other companies are taking. Since mid-March, many companies have updated the Market in respect of Covid-19. From 20th March to 3rd April, we noted 50 UK quoted companies which mentioned specific actions on board pay due to Covid-19. Attached is a table with details of the steps which quoted companies announced during this period.

Total mentions Cancel increases Reduction/sacrifice Swap for options
Unspecified 10% 20% 25-33% 50%+
Executive salaries 42 4 8 1 13 9 6 1
Non-executive fees 35 2 7 1 13 9 3

Typical period of reduction is 3 months or until restrictions lifted

Total mentions Bonus earned for completed period Current year bonus
Cancel Delay payment* Higher portion in shares Cancel Postpone
Executive bonus 17 1 7 1 7 1

Where bonus payment delayed, period said to be indefinite or not specified

Total mentions Vest as normal in near term Forward LTIP Options for salary reduction
Cancel Postpone
Long term incentives 6 1 1 3 1

[Michael Ansell is a partner at h2glenfern and runs the Remuneration Advisory team].

From the Fund Manager’s desk

With a second phase of announcements being made, some containing more useful scenario analysis, greater clarity is emerging for investors. Thoughts are thus turning towards optimal capital structures and the levers that can and should be pulled to achieve them.

While it has become the norm for companies to at least suspend the dividend, those whose trading has only been marginally affected will need to prove more conclusively that this action is really required. In addition, although most investors have a desire to support management for all the right reasons, there are a handful who will sniff an opportunity. Raising capital at depressed share prices by a dilutive placement must also shoulder the burden of proof. If that capital is a last resort then all shareholders should be happy, but if it is simply to build up a larger capital buffer ‘just in case’, then those who are being diluted will feel particularly disenfranchised.

There are still some companies who have yet to make any comments on the current situation. Typically, these are businesses that have had limited impact, or maybe even a positive impact. The information vacuum created by management’s assumption that investors (and staff) understand that all is OK will be unsettling. Even if it seems like overkill, more communication rather than less is something that will instil confidence for all stakeholders. This is a crisis where there is a huge opportunity to build trust and confidence by simply being regularly open and honest.

[John Pickard is a partner at h2glenfern and was previously CIO of Martin Currie and European Head of Equities at UBS Asset Management].

What is happening in Continental Europe?

In France, most recent figures suggest the COVID-19 pandemic growth rate is decelerating. But this encouraging trend could reverse quickly if the population reduces its compliance with strict confinement, which is highly likely to be extended beyond April 15’ with exit scenarios very unclear at this stage.

Since mid-March, the majority of listed companies in France have warned that their existing financial targets for 2020 will not be met. In most cases, dividends paid in 2020 will be either cut or dropped. Similarly, companies have announced salary or fee cuts for top executives and board members. Rightly, liquidity has been a common topic of recent financial communication with some large companies having raised additional financial resources in the market turmoil (Saint-Gobain, Air Liquide, Engie, PSA Group, Unibail Rodamco). However, for the time being, no company has shared proper scenarios or stress test analysis allowing investors to assess balance sheet resilience to what will be a most severe downturn.

The Q1 trading update season is about to start with investors likely to focus on sales run rate decline in March and cash burn. Some macro data points have already emerged (a €60bn estimated drop in French GDP in March – 2.4% of annual GDP – and a 72% drop in new car registrations). In the luxury goods sector, industry leaders have guided to a c.15% reduction in quarterly sales.

Restrictions in Germany were introduced on 22nd March and will remain in force until the 19th of April. Germany’s Federal Minister of Economic Affairs envisages a gradual lifting of restrictions after Easter but has also warned about easing them too early. No clear exit scenario existed as of April 7.

With over 105,000 people infected and a mortality rate of around 1.8%, as of April 8, Germany’s curve appears to be flattening following numerous days of falling new infections. The lower mortality rate compared to a number in other countries is attributed to a much higher rate in testing (according to various sources, between 300,000-500,000 test a week are possible).

A EUR 1.1 trillion coronavirus crisis rescue package has been put into place which kicked in from April 1 including support for businesses (loans or the possibility to acquire stakes in companies), the healthcare system and guarantees for bank loans to companies. Also, EUR 100 billion have been allocated in support for state-owned development bank KfW which will in the future be able to guarantee over EUR 800 billion in lending. As an addition to the rescue package, Germany will, as of April 6, guarantee 100% of SME bank loans up to EUR 500,000.

German industry is expected to contract significantly in the next three months. The Ifo index of production expectations fell from +2.0 to -20.8 points in March. This decline is the strongest since the survey began in 1991. During the financial crisis in 2008, the index fell 13.3 points in November. According to experts, recession cannot be avoided for 2020. In Q1 2020, GDP contracted by 1.9% and a dip of 9.8% year-on-year is expected for Q2. The automotive sector is expected to be hardest hit. Germany’s car manufacturers have closed their production plants in Germany and the rest of Europe (partly also in other parts of the world). Plans to restart production vary – BWM plans to open plants after April 30, VW after April 19 and Daimler has furloughed workers until April 17.

The German financial sector regulator (BaFIN) has asked companies to refrain from share buybacks and to weigh dividends, profits and bonuses and has echoed the ECB’s recommendation that banks not pay dividends or execute share buy backs until (at least) October. Numerous companies have already complied with these recommendations (e.g. Lufthansa not paying dividends) but a number plan on proceeding with the pay-out of their 2019 dividends (BMW, Daimler, VW, Continental), despite making use of state aid schemes (“Kurzarbeit” or short-time working scheme) where the Federal Employment Agency is paying for up to 67% of furloughed workers’ wages. Heavy criticism has resulted.

[Remy Demoulin is a partner of h2glenfern based in Paris and Julia Kavvadias is a partner of h2glenfern based in Dusseldorf]

The importance of communication

One of the key consequences of the process of self-isolation is the need for communication. For some this will not be a revelation but for many of us working from home for a prolonged period for the first time, will be a novel experience. We have referenced above the communications companies are making with their shareholders. But important not to forget internal communications, with employees and other external stakeholders, particularly, customers. Two strong examples stand out and warrant mention this week – a short video distributed by the US airline JetBlue (, where the message from the CEO was informative and the style ‘genuine’ and an email from the CEO of Tesco (one day before the publication of results) which was addressed to customers but served all stakeholders.

We have digital team able to produce webcasts from remote locations, please call if you have an interest.

Contact Details:

Tim Huddart ( 07775 822711

Clive Anderson ( 07775 822737

John Pickard ( 07552 461451

James Blackburn ( 07887 844864

Michael Ansell ( 07540 836873

Tom Chetwood ( 07921 455820

Michael Wills ( 07885 406087

Deirdre Bellingan ( 07824 171098

Natalie Crisp ( 07415 203194

Julia Kavvadias ( +49 1726874918

Remy Dumoulin ( +33 621061018