Rolls-Royce to suspend dividends and abandon current profit targets
British manufacturer Rolls-Royce will be suspending its dividend payouts and abandoning its profit, cash and deliveries targets due to the drop in its civil aerospace business caused by the coronavirus pandemic.
One of the biggest engineers of aircraft engines in the world, Rolls-Royce has been harshly hit by the global measures prohibiting travel. Its civil aerospace arm generates almost half of the company’s revenues and makes its profit from the number of hours its engines fly.
However, this has been hit by the fact that many widebody aircraft are now grounded as flights have been cancelled to contain the spread of the coronavirus.
This is the first time that the aero-engine manufacturer has suspended dividend payments since its privatisation in 1987, the FT reported.
Adam Vettese, an analyst at investment platform eToro, said: “In any normal market, Rolls-Royce would have been punished heavily for scrapping its dividend and warning of a slide in revenues. However, this is anything but a normal market.
“The aerospace giant’s shares have risen so sharply this morning because of its relatively strong liquidity position as well as the steps it has taken to shield itself financially from the current harsh economic environment.
“How long that last though, with airlines across the world grounding their fleets, remains to be seen. If the coronavirus continues its stranglehold on the global economy by the summer, Rolls-Royce could be posting a much less optimistic update next time round.”
“Investors are keen for the market to have bottomed but I'm not sure they'll easily weather the storm to come”
Craig Erlam, senior market analyst at OANDA Europe, said: “There's no shortage of volatility at the start of the week, or overconfidence for that matter, as stock markets jump on some apparently promising numbers in recent days.
“Europe appears to have turned a corner, with Italy and Spain - the worst hit in the region - seeing a sustained period of declining new cases and deaths. Other countries are starting to see similar results as well which is certainly cause for optimism after a quite horrific month. The quarantine measures are clearly having the desired effect; let's just hope people continue to respect them or we could be back to square one.
“Optimism is misplaced as far as the UK and US is concerned though. The next week or two is going to be grim and one day of better data from the US doesn't change that. Investors are keen for the market to have bottomed but I'm not sure they'll easily weather the storm to come and their nerves will likely be heavily tested.”
Mark Barnett loses Invesco Perpetual Income and Growth Trust mandate
After Mark Barnett and Invesco lost management responsibilities on the Invesco Perpetual Income and Growth Trust, AJ Bell head of active portfolios Ryan Hughes said: “News that Mark Barnett and Invesco have been served notice on their management of the Perpetual Income & Growth Investment Trust does not come as too much of a surprise given the scale of the underperformance of the trust against the FTSE All Share over the past few years, however it will be a blow to Invesco having also lost the Edinburgh Investment Trust.
“It clearly was of little comfort to the board that other value focused investment trusts have suffered even more in the recent sell-off, while they also have clearly lost confidence in the manager’s ability to capitalise on any post-coronavirus bounce-back which will hopefully come once we emerge from the other side of this current crisis. The £400m trust will now be a highly prized opportunity for a range of UK equity managers, particularly when the assets of so many will have been hit hard by recent market falls.”
Calastone: Coronavirus causes record fund outflows
Investors pulled cash out of UK-based funds at their fastest pace on record during March as markets sold off because of the continued spread of the coronavirus pandemic, Calastone data suggests.
The Calastone Fund Flow Index shows March witnessed the largest outflows on record for any month “by a long shot”, the most week-to-week volatility and the biggest divergence between the appetite for different asset types since the firm started collecting the data.
In all, investors took a record £3.1bn out of their fund holdings last month, which is almost exactly three times more than in the previous worst month on Calastone’s record: June 2016, when the UK voted to leave the EU.
However, the firm added that “the big story was in fixed income”. Although it might be expected for equity funds to bear the brunt of the selling, by the end of March an “unprecedented” £3.7bn had been yanked out of bond funds.
Edward Glyn, head of global markets at Calastone, said; “Market crises are superficially all the same as volatility soars and asset prices collapse, but they differ enormously in the detail. The temporary loss of fixed income as a safe-haven asset class to counterbalance some of the huge losses in equity markets left investors with little option but to ride it out or park their money in cash or cash-equivalents like money market funds.”
For equity funds overall, just £244m flowed out in March. However, this headline figure disguises the fact that £1.7bn was redeemed from active funds last month while passive strategies took in a record£1.4bn.
Glyn added: “The massive divergence between passive and active funds can be partially explained by long-term trends driving the growth of index investing and by the hard anchor of monthly direct debits, but these factors aren’t enough on their own to account for the huge disparity in March.
“It seems investors attempting to catch market troughs may simply be focusing on timing and just relying on the index to do the rest. But in fact, active managers tend to do rather well in difficult times for stock markets so the big outflows from that segment at a time of such big inflows to passive funds are a little surprising.”