Decisive Actions Taken by 2 LSE Stocks to Combat Against Covid-19: Whitbread PLC & Aviva PLC

The economy of Britain has shown signs of recovery as preliminary purchasing managers’ index of May rose to 28.9 from 13.8 in April (as per IHS Markit). The momentum could boost up further with recent announcement regarding the increase in government loan for large businesses and the possibility of zero interest rates. Meanwhile today, the Confederation of British Industry reported the sharpest fall in factory output in over four decades.

Considering the current market sentiments, we are going to discuss two LSE listed stocks from diverse industry – a Travel & Leisure stock, Whitbread PLC (LON:WTB) and a Life Insurance stock, Aviva PLC (LON: AV.). Today, WTB decided to raise GBP 1.01 billion post reporting a decline in annual profits. Similarly, Aviva released its trading update. Following the business updates, the price of WTB tumbled around 12 per cent and the price of AV. was up by 1.28 per cent, respectively (at 2.28 PM GMT, before the market close). Let’s walk through their respective operational and financial position to gauge upon their outlook in the light of prevailing market conditions.

Whitbread PLC (LON:WTB) – Protecting the Business with Decisive Action for Long-Term Growth

Whitbread PLC is a FTSE 100 listed hotel operator in the UK and Overseas. The Group was established in 1742, and presently, it operates more than 1200 hotels & restaurants (Premier Inn) across the United Kingdom. It caters more than five million customers every month and employs around 35,000 people.

The picture below depicts the list of brands:

(Source: Company Website)

Recent Action to Emerge Strongly Post Temporay Disruption

• 21^st May 2020: The Group has made announcement of raising nearly GBP 1,009 million through the right issue. The purpose of the issue is to weather the COVID-19 disruption and emerge strongly thereafter, for long-term structural growth.
• 30^th April 2020: After the scheduled annual general meeting in July 2020, the Chief executive officer, Alison Brittain will step down from its position (as a Non-Executive Director) in Marks and Spencer PLC.
• 17^th April 2020: The Company confirmed its eligibility under the UK Government's Covid Corporate Financing Facility. It will further enhance WTB’s current liquidity position (as at 16^th April 2020) of around GBP 400 million in cash reserves and GBP 900 million in the existing revolving credit facility.

(Source: Presentation, Company Website)

Financial Highlights – Delivered Resilient Financial Performance, in line with Expectations

• On 21^st May 2020, the Group provided the full-year results (for 52 weeks to 27^th February 2020), with a robust performance in the UK Premier Inn business in a challenging market, and accelerated growth in the German business.
• Statutory revenue increased by 1.1 per cent to £2,072 million in FY20 supported by improvement in relative and absolute performance through the second half and contribution from new capacity, despite continued weak market conditions.
• For the financial year 2020, the adjusted profit before tax reduced by 8.2 per cent to £358 million, driven by the high rate of industry-wide inflation, weaker UK travel market conditions, and the start-up nature of the German operations.
• Led by separation costs incurred in the previous year from the disposal of the Costa business, the statutory profit before tax surged 28.4 per cent to £280 million in FY20, and statutory profit for FY20 rose by 23.2 per cent to £218 million.
• The Company delivered a robust balance sheet with cash of £503 million and undrawn Revolving Credit Facility (RCF) of £950 million. Currently £600 million limits available under the UK Government’s Covid Corporate Financing Facility CCFF scheme.
• Whitbread transferred the vehicle delivery capacity to supermarkets to help their supply chains and donated more than 158 tonnes of food to charities, producing more than 335 thousand meals for those in need.

Share Price Performance

(Source: EODHD/Others, Thomson Reuters) - Daily Chart as of May 21st, 2020, before the market close

WTB’s shares were trading at GBX 2,480 on 21^st May 2020 (before the market close at 2:15 PM GMT+1). Stock's 52 weeks High is GBX 5,194.00 and Low is GBX 1,805.50. Total outstanding market capitalization stood at around GBP 3.83 billion.

Outlook

Due to challenging environment, the management is presently not able to assess the full-year impact on the business’s revenues. The UK restaurants and hotels will stay closed, or expected to operate at low levels of tenancy, until 2020 September. While the short-term outlook is uncertain, the Group believe the business is well-positioned to overcome these challenges. WTB entered the new financial year with significant liquidity and leverage headroom. It has taken several steps to protect cash flows and further augment liquidity.

Aviva PLC (LON: AV.) – Delivered a Strong First-Quarter while Maintaining a Prudent Approach on Capital

Aviva PLC is a FTSE 100 listed insurance company, which has global operations. In addition, it is engaged in savings and retirement business. It employs around 31,000 people and serves nearly 33.4 million customers. The Group had approximately GBP 510 billion of assets under management (as of the financial year 2019). The Company splits its business into five major segments, namely Life Insurance, Europe Life, Asia Life and Investment, Saving & Retirement and General Insurance.

(Source: Presentation, Company Website)

Analysis of Non-Financial KPIs in 2019

• The Group has maintained a decent NPS (Net Promoter Score) over the past 4 years, which stood at 7 in FY19.
• Employee engagement was down by 3 per cent and stood at 73 per cent in FY19 against 76 per cent in FY18.
• The Company has shown substantial reduction in carbon emission by 66 per cent since 2010 and beaten the target of 50 per cent by 2020.

Recent Developments - Reflecting Proactive Measures to Contain COVID-19 Disruption

• 19^th May 2020: As Sire Adrian Montague will step down from its position (as Chairman) on 31^st May 2020, the Board of Aviva has appointed George Culmer as Non-Executive Chairman (effective from 27^th May 2020).
• 12^th May 2020: Aviva PLC will hold its annual general meeting on 26^th May 2020.
• 4^th May 2020: The Company’s £7,000,000,000 Euro Note Programme has been approved by the FCA (Financial Conduct Authority) which enables the Aviva PLC to issue debt instruments comprising a range of hybrid securities.

Operational Update – Delivered Decent Performance in Life Insurance

• On 21^st May 2020, the Group provided the first-quarter trading update, with an increase in General Insurance sales of 3 per cent and robust performance in Life Insurance where new business surged by 28 per cent.
• In the first quarter of 2020, VNB (value of new business) rose by 18 per cent to £311 million as compared with the corresponding period of the last year (Q1 FY19: £263 million).
• Led by decent start to the year in bulk purchase annuities, UK Life new business sales was £2.9 billion in Q1 FY20, a growth of 162 per cent against the same period last year (Q1 FY19: £1.1 billion). Also, the new business trends were pleasing in Protection, with an increase in sales of 20 per cent.
• The net fund flows from the UK Savings and Retirement surged by £0.7 billion to £2.3 billion in Q1 FY20 (Q1 FY19: £1.6 billion), reflecting sustained growth in sales across both retail savings (up 42 per cent) and workplace savings (up 27 per cent).
• In Europe, the life new business sales reduced by 14 per cent to £3.3 billion in Q1 FY20 against the same period last year (Q1 FY19: £3.8 billion).
• For the first quarter of 2020, the new business volumes from Singapore surged by 57 per cent to £0.4 billion (Q1 FY19: £0.3 billion), with a continued robust performance from the Financial Advisor channel.
• In General Insurance, global NWP (net written premiums) climbed by 3 per cent to £2.4 billion (Q1 FY19: £2.3 billion), which includes UK NWP surged by 1 per cent to 1.0 billion, Canada NWP was up by 8 per cent to £0.6 billion, and Europe NWP rose by 2 per cent to £0.7 billion.
• On 31^st March 2020, the estimated solvency ratio stays robust at 182 per cent and Solvency II estimated own funds stood at 372 pence per share (FY19: 423 pence per share). Aviva's holding company liquidity stood at £2.5 billion at 30^th April 2020.

Share Price Performance

(Source: EODHD/Others, Thomson Reuters) - Daily Chart as of May 21st, 2020, before the market close

AV’s shares were trading at GBX 236.40 on 21^st May 2020 (before the market close at 2:22 PM GMT+1). Stock's 52 weeks High is GBX 439.40 and Low is GBX 205.70. Total outstanding market capitalization stood at around GBP 9.39 billion.

Outlook

The Company has observed decline in new business sales during the initial trends of second quarter, driven by enforced confinement measures of the Government. For the financial year 2020, the sales volumes are likely to stay below expectations. In addition to the projected general insurance claims impact from Coronavirus, economic activity and financial market performance expect to impact revenues in the savings and asset management businesses. Aviva is supporting the broader community and customers, through the contribution of 43 million pounds to numerous funds and charities, as well as the several client support initiatives. Overall, Aviva PLC seems committed to attaining the 2022 targets.