LSE Listed Blue-Chip Value Stocks to Watch Out in May 2020: AZN, ULVR, GSK, DGE, AV & SVT

As unprecedented times call for exemplary measures, global economies have introduced several stimulus packages to safeguard the markets and businesses such as Covid Corporate Financing Facility, Coronavirus Business Interruption Loan Scheme, Bounce Back Loan scheme, Coronavirus Job Retention Scheme, among others. Further, it has been observed that some industries such as Pharmaceuticals and Biotechnology, Consumer Staples, Utilities and Online Retailers have been performing resiliently during such tough times. Meanwhile, the Companies have been retaining a robust balance sheet position and sustaining the business conservatively to tackle the uncertainties presented by the Coronavirus mayhem.

The United Kingdom market tumbled (on 13^th May 2020, before the market close) as the GDP shrank by 5.8 per cent in March. Moreover, the investor sentiments were hammered with a steep decline in retail sales in April. Globally, the markets have been volatile as sentiments are dented by surge in COVID-19 infection rate with lockdown easing and tension over a spat between US-China relations. Meanwhile, the Companies have been retaining a robust balance sheet position and sustaining the business conservatively to tackle the uncertainties presented by the Coronavirus mayhem.

Today, we are going to discuss six FTSE-100 listed stocks to look at in May 2020 in light of prevailing market conditions – AstraZeneca (LON:AZN), Unilever (LON:ULVR), GlaxoSmithKline (LON:GSK), Diageo (LON:DGE), Aviva (LON: AV.) and Severn Trent (LON:SVT). Let’s quickly take a glance over their operational and financial position to understand their business growth trajectory and action plans taken lately to combat against coronavirus pandemic.

Key Fundamental Statistics

Most Recent Regulatory Updates of FTSE 100 Stocks

AZN

• 6^th May 2020: AstraZeneca received an approval from the Food and Drug Administration for Farxiga for the treatment of heart failure.
• 30^th April 2020: AstraZeneca partnered with the University of Oxford for manufacturing and distribution of the potential vaccine to prevent Coronavirus infection.

ULVR

• 1^st April 2020: Unilever PLC completed the merger between GlaxoSmithKline Consumer Healthcare Ltd and Hindustan Unilever Limited (HUL). Unilever’s holdings have been diluted from 67.2 per cent to 61.9 per cent in HUL (post-merger).
• 24^th March 2020: Unilever PLC published the final terms for its €2,000,000,000 bonds issuance on the European markets.

GSK

• 7^th May 2020: GSK sold its 5.7% stake in Hindustan Unilever at gross proceeds of INR 254.8 billion.

DGE

• 28^th April 2020: Diageo launched USD 2.5 billion of fixed rate USD denominated bonds into three tranches consisting USD 750 million (2.125% fixed rate notes due 2032); USD 1 billion (2.000% fixed rate notes due 2030) and USD 750 million (1.375% fixed rate notes due 2025).

AV.

• 4^th May 2020: Aviva PLC’s prospectus for £7,000,000,000 Euro Note Programme has been approved by the Financial Conduct Authority.

SVT

• 1^st May 2020: Severn Trent appointed Sharmila Nebhrajani as a Non-Executive Director, with immediate effect.

Quick Glimpse of Stock Performance

AstraZeneca PLC (LON:AZN) is exploring the ultimate potential of its existing medicines and rapidly advancing the pipeline by progressively dedicating into Research and Development

AstraZeneca PLC is a science-led biopharmaceutical company which is engaged in the development, commercialization, and discovery of prescription medicines. It is headquartered in Cambridge, United Kingdom and present in over 100 countries. The Company has a sizeable pipeline in place with 167 projects in different stages of clinical development, 1 new molecular entity (approved in the last quarter.) and 7 new molecular entities (at a later stage). The Company has a workforce of more than 70,600 people while over 3,100 employs hold PHDs.

Segments at a Glance

• Operationally, the Company operates with four business segments – Oncology, Respiratory, Cardiovascular, Renal & Metabolism and Other Disease Areas.
• Geographically, the Company differentiates its revenue into four major regions - Emerging Markets, United States, Europe and Established Rest of World. These four regions represented 35%, 33%, 18% and 14% of revenue, respectively in FY2019.

(Source: Company Website)

First Quarter of 2020 (as on 29^th April 2020) – Solid Growth in All Therapy Areas and Emerging Markets

(Source: Q1 Update, Company Website)

Total revenue increased by 17% at CER. AZN estimates low-to-mid single-digit revenue benefit from COVID-19. Robust medicine performance across the Board: new medicines (up 49% at CER); Oncology (up 34% at CER), New CVRM (up 8% at CER), Respiratory & Immunology (up 22% at CER) and Emerging markets (up 16 at CER). Multifaceted response to the COVID-19 pandemic leveraging current and potential new medicines with testing capabilities increased by humanitarian aid. Despite lower other operating income (down 19%), the core operating profit rose by 16% at CER. Core earnings per share $1.05 (up 21%at CER), including 20% tax rate Pipeline saw robust progress.

Outlook - Leveraging Scientific Expertise in the Fight against COVID-19 Pandemic

Total revenue expected to surge by a high single-digit percentage and core EPS expected to increase by a mid- to high-teens percentage. Capital expenditure is projected to be roughly stable and restructuring expenses will decrease against the previous year. AstraZeneca operations are benefited by an increase in the inventory for short-term in the distribution channel, patient’s loyalty towards improved treatment-regimen and longer prescriptions.

Unilever PLC (LON:ULVR) – Operating at substantial liquidity and financial position with a broad portfolio of brands and scale of operations to weather short term uncertainties presented by the pandemic.

Unilever PLC is a FMCG (fast-moving consumer goods) Company. It was officially formed in 1930 and presently, it has a portfolio of more than 400 brands in around 190 countries with approximately 155,000 employees.

Glimpse of Segments

• Operationally, the Group operates with three segments, namely Beauty & Personal Care, Foods & Refreshment and Home Care, which represented 42%, 37% and 21% of the Group turnover in the financial year 2019.
• Geographically, the Group differentiates its revenue into three regions – Asia/AMET/RUB, Europe, and The Americas.

(Source: Annual Report, Company Website)

First Quarter of 2020 (as on 23^rd April 2020) – Reflecting Decent Performance, with Robust Balance Sheet and Cash Position, Despite the Unprecedented Crisis.

(Source: Q1 Update, Company Website)

Underlying sales were flat, with an increase of 0.2% in volume and negative price of 0.2%. During the lockdown, there is a downturn in out of home ice cream, food service, and retail sales. As per the E-commerce market, shoppers are moving to online channels. The Company is contributing EUR 100m to tackle the Coronavirus situation. For the most vulnerable small & medium-sized suppliers and small-scale retail clients, it is also giving a cash flow relief of EUR 500m. Quarterly dividend per share maintained at EUR 0.4104.

Short Term Impact Created By COVID-19

ULVR is keeping the factories running, while it is also opening up new capacity for hand hygiene and food. As well as, the business has been able to maintain the supply of the products. The Group is adapting to new demand patterns and also saw upswings in sales of in-home food and hygiene products. It is supporting communities via donations and partnerships. Due to COVID-19 pandemic, Unilever is withdrawing the prior growth and margin outlook for 2020.

GlaxoSmithKline PLC (LON:GSK) - Reported a decent growth in Q1 2020 and persevering towards developing a potential vaccine for COVID-19 disease in collaboration with Sanofi and Vir Biotechnology.

GlaxoSmithKline PLC is a healthcare company with global operations. It operates with three business divisions - pharmaceutical, consumer healthcare and vaccines. The Company was established in 1715 in London and presently, it employs over 99,000 people (including around 12,000 in Research & Development division). In Q1 2020, the Group developed or manufactured 15 new vaccines and 37 new medicines. Geographically, the group reports its financial by majorly into three regions or countries – United States, United Kingdom and Rest of World while the US contributes the largest amount of turnover.

(Source: Company Website)

First Quarter of 2020 (as on 29^th April 2020) – Reflecting Robust Start to 2020

(Source: Q1 Update, Company Website)

Reported Group sales surged by 19% at AER and CER (Proforma up 10% CER) to £9.1 billion, driven by an increase in Pharmaceuticals (up 6% at CER), Vaccines (up 19% at CER) and Consumer Healthcare (up 46% at CER). Sales growth also reflects the additional impact of augmented demand and robust underlying performance. Total operating margin stood at 22.2%. Led by an increase in the value of shares in Hindustan Unilever and good operating performance, the total EPS surged by 87% at AER (up 89% at CER) to 31.5 pence. Free cash flow stood at £531 million. For the quarter, the declared dividend was 19 pence. GSK continued robust underlying performance across new products.

2020 Outlook - Expectations for Growth in Key New Products

For the full-year 2020, GSK expected a decline in the range of -1 per cent to -4 per cent at CER. Focusing on the two-year programme for dividing the GSK into two new companies. GlaxoSmithKline has developed a strong pipeline of opportunity from its producing assets and is making an investment in those assets to fetch higher returns in the long-term. The primary objective is to develop multiple adjuvanted Coronavirus vaccines and to generate growth and return on investment by controlling spending.

Diageo PLC (LON:DGE) – Withdrawn guidance for FY2020; Plan to return GBP 4.5 billion of capital to shareholders from 2020 to 2022.

Diageo is an alcoholic beverage company, which is operating with over 200 brands that sold in around 180 countries. It was established in 1997 and presently, it employs around 28,400 people in over 150 sites globally. The group holds an extensive brand portfolio of diverse beverages including Scotch Whisky, Vodka, Rum, Liqueur, Beer, among others. Their brand consists of Johnnie Walker, Captain Morgan, Smirnoff, among others.

(Source: Presentation, Company Website)

Trading Update (as on 9th April 2020) – Reflecting Impact of COVID-19 Outbreak and Well Positioned for a Recovery in Consumer Demand

In light of the current challenging environment, the management said that the social distancing measures, comprising the closure of the on-trade channels, had been introduced in most of the markets. The Group has delivered a healthy balance sheet, with 2.8x of adjusted net debt to EBITDA ratio. As earlier announced, Diageo has accomplished the issuance of new euro and sterling bonds for a totaling of around GBP 1.9 billion. DGE is donating alcohol for making more than 8 million bottles of sanitiser.

Short Term Scenario: Focus on Well Being of Employees

The Company expects growth opportunities from the Asia Pacific and Greater China business as the situation normalizes. During this challenging time, the highest priority is to safeguard the well-being and health of the people, while taking essential action to defend the business. Diageo has decided to withdraw its guidance for FY20.

Aviva PLC – Maintaining a solid financial and liquidity Position to weather the short-run disruption.

Aviva PLC (LON: AV.) is an insurance Company with global operations. Apart from insurance, it also serves with savings and retirement business. It serves approximately 33.4 million customers with around 31,000 employees. As of financial year, 2019, The Group had nearly GBP 510 billion of assets under management. The Group provides various Insurance, Savings and Retirement products and solutions, which are differentiated into the five divisions – Life Insurance, General Insurance, Europe Life, Asia Life and Investment, Saving and Retirement. The Group performance in 2019 can be seen in the picture below:

(Source: Company Website)

Update (as on 8^th April 2020) – Talking About COVID-19 and 2019 final dividend Stance

The Board of Aviva agreed to withdraw the final dividend for FY2019 in respect of the Covid-19 disruption and will reconsider the dividend in the fourth quarter of 2020. By retaining the dividend, Aviva has boosted its liquidity position and thus estimated group capital ratio will surge by 7 per cent to around 182 per cent as of 13th March 2020. AV did not intend to adopt the UK Government funded scheme to furlough employees and had launched several initiatives to support employees, customers and Britain’s economy.

Future Scenario – Well Positioned with Sound Business Model

The Group made several changes in its organizational structure and leadership to enhance operational efficiency and greater accountability. In addition, Aviva was reviewing its plans for capital expenditure and all material discretionary spend. The Company was not able to quantify the impact of Covid-19 outbreak on claim expenses in its life and general insurance business. In the long run, AV is well-positioned to meet future opportunities.

Severn Trent PLC (LON:SVT) – Operating as one of three water stock in the UK, which has a track record of cost control and decent dividends.

Severn Trent is the United Kingdom-based Company, which provides Water and Wastewater services. It serves around 4.5 million households and supplies around 2 billion litres of drinking water every day. Additionally, the Group treats around 2.9 billion of wastewater every day.

(Source: Presentation, Company Website)

Trading Update (as on 31^st March 2020) – Reflecting Robust Financial Position

Since the earlier trading update on 28^th January 2020, there was no material change to existing year business performance. In the light of COVID-19 pandemic, the main priority of Severn Trent is health, safety and well-being of the people and for millions of customers. The Group has a strong financial liquidity position extending out to early 2022 to manage through the existing unprecedented crisis, recently supplemented by GBP 200 million US Private Placement receipts. SVT stay well-positioned to deliver at least GBP 25 million of net customer ODI outperformance payments for 2019/20, as earlier guided.

Short Term Scenario – Reflecting Challenging Market Conditions

Water Utility is primarily a defensive business and the Group intend to plant 1.3m trees by 2025 to improve the environment. Severn Trent has a proven track record of paying a consistent dividend. The Company has good financial resilience to manage the impact of the COVID-19 outbreak. Despite the current crisis, the business will update the contingency plans accordingly and continue to monitor the cash flows closely.

Comparative Stock Performance of Severn Trent Plc with FTSE-100 Index

In the last one-year, Severn Trent Plc share price has increased 24.19 per cent as compared to the FTSE 100 index performance.

(Source: EODHD/Others, Thomson Reuters)

Comparative Stock Performance of AZN, ULVR, GSK, DGE, and AV

In the last one-year, AZN and GSK share prices have increased by 54.70 per cent and 12.29 per cent, respectively. Whilst ULVR, DGE, and AV share prices in the last one-year have decreased by 9.91 per cent, 12.97 per cent, and 41.44 per cent, respectively.

(Source: EODHD/Others, Thomson Reuters)