- Covid-19 crisis has devasted the global economy and marred the prospects of different budding businesses
- Investors should keep looking for value buying irrespective of the present circumstances
- BAE Systems Plc’s business may move back on track with ease in lockdown by different countries
- Whitbread Plc, one of the most successful hospitality brands in the United Kingdom will get a boost with gradually emerging normalcy
The outbreak of the novel coronavirus has certainly devastated the global economy. None of the countries was prepared to guard themselves against this unseen enemy. The unprecedented crisis induced by the novel coronavirus has challenged the leaders of science & technology in the contemporary world.
There was hardly any sector which got time to hedge against the deadly pandemic. Despite several fiscal stimulus packages announced by the government, many businesses have axed several jobs, and numerous are on the verge of collapse.
The pandemic has not just impacted the ecosystem within the countries but has also affected the macro-economic factors. As the lockdown was enforced in the last week of March, people were asked to stay indoors and practice social distancing. They were not allowed to involve in mass gatherings. Therefore, the entertainment zones and leisure businesses were first to go for forced shutdown.
On the macro front, the crude saw a major dip in prices due to lessened demand of oil amid the coronavirus crisis. The oil-producing nations were severely impacted, and businesses dealing with these nations are likely to get indirectly impacted. In this article, we would discuss stocks of BAE Systems Plc, and Whitbread Plc, which are cheaper as compared to their industry peers and currently facing the challenges discussed above.
BAE Systems Plc, in the last year (2019) had generated £2.5 billion in Revenue by the sale of arms and services to one of the largest military equipment buyers, Saudi Arabia, which is also one of the major oil producers. Saudi Arabia has been a regular buyer of defence equipment from BAE Systems.
With the prevalent macro-economic conditions, and oil prices going down, Saudi Arabia is exhausting up its reserves. Market experts believe that as the financial crisis grips the nation, the arms buyer might dishonour new weapons contracts and delay existing weapons purchase agreements. BAE Systems is likely to bear the brunt if this happens.
However, there is a ray of hope with the nations looking for exit strategies amid lockdown and recommence economic activities, the price of crude is likely to go up. The oil-producing nations have also revised their production targets in this regard. However, Saudi Arabia would continue to honour the maintenance contracts as it would like to keep the arms and defence equipment operational.
BAE Systems Plc: Business highlights 2019
(Source: Company’s filings, LSE)
During the unprecedented crisis, the company is counting on a strong order backlog and programme visibility. The company has strong growth prospects and has a good financial performance. The Order intake in 2019 by the company stood at £18.4 billion. The company has £45.4 billion worth of pending orders.
As per IFRS, the company’s revenue was up by 7 per cent to £1.5 billion in 2019. The operating profit of the company was up by £294 million to £1,899 million during the period, while the company’s annual dividend stood at 23.2 pence per share in 2019.
Recently, BAE Systems made a significant contribution to the nation by participating in manufacturing ventilators for the NHS to treat Covid-19 patients.
On 26th May 2020, while writing at GMT 11:11 AM, BAE Systems shares traded at GBX 506.20, up by 2.53 per cent from previous day’s price level. The stock seems to be undervalued as it has a much lower PE multiple of 11x in comparison to the sector which has a P/E multiple of around 15x. The stock created a bottom of GBX 428.60 on 23rd March when the Covid-19 induced lockdown was enforced. However afterwards, it recovered, and since then, the stock has given a double-digit return of 15.19 per cent.
Business overview: BAE Systems Plc
BAE Systems Plc (LON: BA.) is a United Kingdom-headquartered global defence, aerospace, and security company with operations primarily in the US, UK, Saudi Arabia, and Australia. The company employs around more than 80 thousand people around the world and delivers a broad range of advanced defence technologies that cover a plethora of applications. The company’s business is differentiated in five operating segments: Platforms & Services (US), Maritime, Cyber & Intelligence, Air, and Electronic Systems.
Whitbread Plc, the travel & leisure company, seems to have suffered a lot amid the crisis caused by the pandemic. With people being asked to stay indoors, the sustainability of the business model has been a challenge. Moreover, as the UK prepares for ease in lockdown, the industry has been put at the bottom of the charts.
Even if they gradually start operating post the removal of the lockdown, the company is likely to face certain challenges. Firstly, the company needs to convince the customer regarding safety and regain their confidence. Secondly, it needs to be seen how the industry shapes up as social distancing is going to be the new way of life.
Whitbread Plc: FY20 Business highlights
The company to shore up finances, has issued rights to its shareholders for raising £1 billion. The initiative would bolster its strategic initiatives in the UK and Germany amid the current crisis. The Premier Inn hotel chain owner’s revenue was up by 1.1 per cent to £2.1 billion. Amid a weak travel market, and rising costs, the company’s Underlying pre-tax profit fell by 8.2 per cent to £358 million.
On 26th May 2020, while writing at GMT 11:42 AM, Whitbread Plc shares traded at GBX 2,516, down by 3.16 per cent from previous day price level. The stock seems to be a bit cheaper in comparison to the sector. The stock created a bottom of GBX 1,551.14 on 19th March, when the fear of Covid-19 engulfed the market. Since then, the stock has given a double-digit return of 62.20 per cent.
Business overview: Whitbread Plc
Whitbread Plc (LON: WTB) is a Dunstable, the United Kingdom-headquartered leading hotel operator in the country, which is the owner and operator of Premier Inn. It is one of the most successful hospitality brands in the United Kingdom. The company aims to be the best budget hotel business in the world, and along with hotels in the Middle East, and Germany, it owns and operates more than thousand hotels and restaurants across the UK. The group is able to offer high-quality rooms in great locations and great customer value, along with a good return on capital, and operates a unique joint site model, which means that more than half of its hotels are located alongside its own restaurant brands.
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