A Quick Update on the Business Performance of BAE Systems Plc, Petrofac Ltd and Royal Mail Plc

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A Quick Update on the Business Performance of BAE Systems Plc, Petrofac Ltd and Royal Mail Plc

 A Quick Update on the Business Performance of BAE Systems Plc, Petrofac Ltd and Royal Mail Plc

Summary

  • Royal Mail Plc has formulated a three-step plan to overcome the impact of the pandemic
  • To protect the financial health of the company in the long-run, Petrofac has decided to reduce cost
  • 90% of the employees of BAE Systems have resumed their services either from home or are working on-sites.

The pandemic led to an abrupt halt to all the economic activity. Now with the businesses resuming their operations with the gradual easing of the lockdown, the economic condition seems to be reviving.

Let us have a look at how Covid-19 has affected three diverse businesses, with the trading updates of BAE Systems Plc, Petrofac Ltd and Royal Mail Plc.

Royal Mail PLC (LON: RMG)

Incorporated 504 years ago in 1516, Royal Mail Plc was initially a public corporation, providing postal and courier services to the UK and other parts of the world. The company began trading on September 11, 2013, setting the Initial Public Offering (IPO) price at 330p. Presently, it is a constituent of FTSE 250 on the London Stock Exchange (LSE).

In 2015, the Government sold 70% of its shares, retaining only 30% stake in Royal Mail. By the end of 2015, The Government sold all the remaining shares, making it a fully privatised company.

The company is segmented into two parts- UK Parcels, International & Letters (UKPIL) and General Logistics Systems (GLS). The UKPIL works on two network- Royal Mail Core Network and Parcelforce Worldwide. UKPIL facilitates parcels and letters to and from different countries all over the world, Parcelforce provides delivering of express parcel services, and GLS provides logistic solutions apart from the parcel and express business.

Business Update

On June 25, 2020, the Royal Mail PLC released its financial results for the year ending on March 29, 2020. According to the result announced by the company, the total group revenue for the year had increased by £259 million (2.45%) as compared to the previous year. Still, the operating profit (before specific items) declined by £124 million due to a decline in the profits of UKPIL.

Although the parcel volume of UPIL increased by 2% and that of GLS increased by 5% (including acquisitions), but it was not up to the expectations of the company.

The Interim Executive Chair of Royal Mail Group, Keith Williams, said that their business has been struggling due to Covid-19 pandemic. In order to overcome the impact of Covid-19, the company has formulated a three-step plan- the first step includes reducing the capital expenditure by GBP 300 million and slashing of 2,000 employees in the managerial role so as to practice cost-cutting, the second step involves increasing the rate of operational changes and the third step is meant to ensure the needs and preferences of the customers in the modern era.

Stock Performance

Royal Mail PLC (LON: RMG) as on June 26, 2020, at 9:10 AM GMT, was trading at GBX 163.55, up by 3.84 per cent from its previous close of GBX 157.50. The company's 52 weeks high/low range was recorded as GBX 250.50/124.30. The traded volume so far was 2,019,824. It was having a market capitalization (Mcap) of GBP 1,575.00 million. The company delivered a negative price return of 32.08% on YTD (Year to Date) basis.

Petrofac Ltd (LON: PFC)

Serving the world since last 39 years, Petrofac Ltd. came into existence in 1981 as a producer of modular plant, with only 25 staff members. Over time, it has grown to be a family of 11,500 employees.

The company provides services to the energy sector by designing, managing and maintaining their infrastructure. It also excels in providing engineering services involving front-end engineering and designing (FEED). The three divisions of their services include- Engineering & Construction (E&C), Engineering & Production Services (EPS) and Integrated Energy Services (IES).

Petrofac is listed on FTSE 250 of London Stock Exchange. It serves to a large number of countries such as Iraq, Algeria, Kuwait, UK, India, Malaysia, Saudi Arabia and many more.

Business Update

The financial performance and new orders for the first half-year of 2020 have been affected by the fall in oil prices and Covid-19.

In order to protect the financial health of the company in the long-run, decisions have been taken by the company to reduce cost, maintain sustainable competitive advantage and preserve cash reserve.

The company is having a tendering schedule of US$ 48 billion to be granted by the end of 2021, while its near-term revenue visibility has also increased with a good order book. Petrofac has been able to position itself as a capital-light business over the last three years, thereby strengthening its financial position.

Engineering & Construction (E&C)- Suspension of projects in Iraq and India due to lockdown has caused serious disruptions to their E&C projects. The expected revenue from the segment for the first half of the year is US$ 1.6 million, and net margin is likely to be in a range of 2% to 2.5%.

Engineering & Production Services (EPS)- The expected revenue of the segment for the first half of the year is anticipated to be US$ 450 million, and net margin is likely to be in a range of 3.5% to 4%.

Integrated Energy Services (IES)- The net production for the first half of the year is estimated to be approximately 2.2 million barrels of oil equivalent (mmboe).

Stock Performance

Petrofac Ltd (LON: PFC) as on June 26, 2020, at 11:34 AM GMT, was trading at GBX 188.60, up by 0.53 per cent from its previous close of GBX 187.60. The company's 52 weeks high/low range was recorded as GBX 455.90/150.05. The daily traded volume so far was 258,425. It was having a market capitalization (Mcap) of GBP 648.93 million. The company delivered a negative price return of 51.01% on YTD (Year to Date) basis.

BAE System PLC (LON: BA.)

BAE System Plc is a British aerospace, defence and security company, operating through five divisions comprising - the Electronic Systems sector, the Cyber & Intelligence sector, the Platforms & Services sector, Air sector and Maritime sector.

Business Update

On June 25, 2020, BAE Systems PLC declared its trading update. According to the report, Air & Maritime Sector and US commercial avionics business had an adverse effect of the Covid-19 pandemic in the second quarter of the year.

Actions have been taken by the company to safeguard the operations from the pandemic, resulting in the improvement in the levels of productivity. 90% of the employees have resumed their services either from home or working on-sites.

Cost recoveries and sales have been affected by the Covid-19 causing disruption in the operations of UK Air and Maritime sectors. The Power & Propulsion business saw a reduction in the demand for mass-transit

While the demand is expected to remain high and sales stable, the profit is estimated to be around 15% lower than the year before.

Stock Performance

BAE System PLC (LON: BA.) as on June 26, 2020, at 12:10 PM GMT, was trading at GBX 495.40, up by 1.98 per cent from its previous close of GBX 485.80. The company's 52 weeks high/low range was recorded as GBX 669.00/438.90. The daily traded volume so far was 2,043,967. It was having a market capitalization (Mcap) of GBP 15,620.14 million. The company delivered a negative price return of 15.37% on YTD (Year to Date) basis.

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