The Times - UK (2020-08-07)

the times | Friday August 7 2020 1GM 35

Business

of unemployment, said that the rate

would climb to almost 12 per cent.

The Bank also warned that workers

could struggle to find jobs if the eco-

nomy changed permanently because of

the pandemic. If some sectors continue

to struggle while others enjoy a boom,

there could be a mismatch between

skills and the jobs available.

consumption and savings

The Bank warned that concerns about

job security could hold back consump-

tion and lead to higher levels of precau-

tionary household saving.

The household savings ratio — the

proportion of household incomes that

are saved — rose from about 6 per cent

before the pandemic to 25 per cent in

the second quarter. The ratio rose faster

than the drop in incomes so households

should have a buffer already. Policy-

makers warned, however, that the

trend could continue. The savings were

mostly made by high-income house-

holds, and low-income households

may cut back on spending as unem-

ployment rises.

business investment

Consumption will drive economic

growth, while the recovery in business

investment will be modest. Businesses

have been conserving cash and cancel-

ling investment plans and concerns

about the outlook will discourage them

from picking them up once more.

The Bank said that investment was

likely to have been 35 per cent lower by

the end of the second quarter than it

would be at the end of next year and

that “the near-term path of business in-

panies downgraded by the credit rating

agencies. Smaller firms were even more

exposed because they were often in

sectors such as hospitality and retailing

most hit by the virus restrictions and

had no access to equity market capital.

UK Finance, which represents the

banks, said this week the industry was

“committed to supporting the nation’s

businesses through the challenges they

are facing from the coronavirus crisis”.

Twenty-six lenders had made bounce-

back loans to 1.13 million small firms in

the past three months. They extended

£13 billion of interruption loans to 58,600

businesses. Banks were also showing for-

bearance to households, with 27 million

interest-free overdrafts, 1.9 million mort-

gage payment deferrals and 1.05 million

deferrals on credit card payments.

The committee left the countercycli-

cal capital buffer, a key tool it uses to

encourage or discourage lending, at an

accommodating 0 per cent.

It’s a Hammerson

house of horror

A

ll comedy duos like to

bow out with a bang. But

who could have expected

such a bravura twist

from the “Two Daves”?

They’ve made their final hurrah a

Hammerson horror show.

It’s left investors crying with

laughter — or maybe just crying.

True, Covid-19 is partly to blame for

the swansong routine of the

outgoing chairman David Tyler and

chief executive David Atkins. But

their black comic genius still shines

through. What better treat for

shopping centre audiences at the

likes of Birmingham’s Bullring and

London’s Brent Cross?

The pair’s main skit? Issuing no

less than “3,678,209,328 new shares”

via a £552 million rights issue: a sum

trumping Hammerson’s pre-

announcement £430 million market

value. It was such a jaw-dropper it

came with a 1-for-5 share

consolidation. The new stock?

“2,400 per cent” of the old register

(report, page 36).

Still, that’s not the best joke. It’s

that the rights issue is being priced at

15p, a 94.6 per cent discount to the

consolidated price. Yes, 15p. Or a

thirty-sixth of the 534½p at which

the Two Daves launched their

£3.4 billion all-share bid in December

2017 for Intu; their rival which went

bust. That Intu-Outu caper, which

incensed investors, ended with them

recommending shareholders vote

down their own deal. Worse, they

followed up by breezily batting away

a 635p-a-share bid approach from

France’s Klépierre.

Yes, times have changed, with the

corona mayhem accelerating

shopping’s shift online and seeing

clients refuse to pay rent. But even

so. There’s another puzzler, too.

How does anyone square the rights

price with the half-year net asset

value? Yes, it’s been cut by 21 per

cent. But apparently it’s 458p per

share. Are the property valuers and

auditors having a laugh? Or is the

dislocation between the market’s

view of Hammerson’s value and the

one in the accounts really that vast?

Or is there actually some real value

there? The shares, down 15 per cent,

closed at 47½p.

True, the cash-call’s got the

backing of Hammerson’s two top

shareholders. But at a price: APG,

with 20 per cent, gets to buy the half

it doesn’t already own of VIA,

Hammerson’s European designer

outlets venture, for £274 million: an

“18.7 per cent discount to gross asset

value” and a deal “conditional on

the rights issue proceeding”. Activist

investor Lighthouse Capital, with

15 per cent, had already prised a

board seat. And now, remarkably, its

boss is allowed to make comments

in Hammerson’s interim results

statement. Is he now in charge?

Both knew of the Two Daves’

weak hand, even before they coupled

a £1.09 billion loss with the warning

that without the £826 million cash

coming in there’d be a “significant

doubt” over the group’s “going

concern” status. The five rights banks

capitalised on it too, with a mickey-

taking 15p underwriting price.

Banking, legal and other fees totalled

£32 million.

True, the Two Daves will put a

dent in Hammerson’s £3 billion net

debt and, unlike at Intu, secure

survival. Bizarrely, they even “expect

to resume dividends” this year. And,

of course, they’ve been unlucky,

including the corona collapse of a

£400 million retail parks sale. But Mr

Atkins has earnt £18.5 million over

his ten years in charge. And the duo

got too many big calls wrong. Sadly,

the joke’s been on the shareholders.

Commercial broke

T

oday’s snapshot of corona

Britain: ITV’s second-quarter

ad revenues. No shock they

plunged by 43 per cent, making the

worst three-month drop in its

history (report, page 41). But look at

the breakdown: airlines, travel and

holidays down 97 per cent, cars by

69 per cent and retail 57 per cent.

Just about the only riser was

government and charities, up 74 per

cent. So pretty much lockdown

Britain, a point driven home by new

ITV advertisers: Intus facemasks,

meal delivery service Parsley Box,

home schooler Edplace and fitness

outfit Wattbike.

Still, with everyone at home, at

least ITV’s viewing was up 4 per

cent, despite streaming rivals. They

include Disney, which ingeniously

timed its UK launch for lockdown.

ITV also saw money-spinners

cancelled, notably the Euros football

and the favourite of boss Dame

Carolyn McCall, Love Island: the

show whose orange people remind

her of her former job at Easyjet.

How will that programme work in

an age of social distancing?

The market was relaxed about the

halving of “adjusted” earnings in the

first six months to £165 million, even

if pre-tax profits fell from £222

million to £15 million. The shares

rose 4 per cent to 63¼p. And a new

Spitting Image, only on BritBox, may

give ITV’s streaming service a boost.

How many advertisers come back is

another story.

Cloudy forecast

N

ostradamus has left the

building. So, without Mark

Carney and his forward

guidance, it’s hard to know just how

good a forecaster his successor as

Bank of England guv’nor will be.

Still, Andrew Bailey gave it a go,

cheering everyone up with his view

that instead of this being the worst

downturn for 300 years, it might

just be the biggest for a century.

The Bank has got more chipper

since May, not least on the jobless

front. It now sees unemployment

peaking at 7.5 per cent versus

around 10 per cent back then. Even

so, that’s tempered with the

realisation that the recovery might

not be so V-shaped after all. Getting

the jobless level to pre-pandemic

lows may take far longer, what with

labour-intensive hospitality and

retail taking such big hits.

Look at the Bank’s assumptions:

that social distancing “eases” and the

UK enjoys “orderly” post-Brexit free

trade with the EU. It hasn’t even

modelled a second wave. Too early to

bank on a Bailey bounce.

[email protected]

business commentary Alistair Osborne

UK v rest of the world Summary of Bank of England forecasts

The UK is likely to have suffered more
sharply from the lockdown than other
advanced economies. This is because
“social consumption,”, which includes
meals out and spending in bars and pubs,
is responsible for a larger chunk of
economic growth in Britain. These sectors
were choked during the lockdown so the
impact on the economy has been
more acute

Sources: Eikon from Refinitiv, IMF World Economic
Outlook (WEO), National Bureau of Statistics of
China, OECD, ONS and Bank calculations

UK (Bank

forecast)

Euro areaUS ChinaSwedenSpain

-21%

-12.1

-9.5

11.5

-8.6

-18.5

GDP for Q2 2020 Percentage change
on previous quarter

560

520

480

440

400

2015 16 17 18 19 2020

16 18 2020

GDP Business investment

Unemployment CPI inflation

Projection

£bn, reference year 2016

Projection

7

6

5

4

3

%

16 18 2020

Projection

4

3

2

1

0

-1

0%

-10

-20

-30

-40

Q2 Q3

2020 2021

Q4 Q1

Sources: DMP Survey and Bank calculations

vestment will reflect the lags involved

in investment spending, such that the

full impact of Covid-19 could take some

time to materialise”.

This will weigh on the supply side of

the economy and potentially lead to

long-term “scarring” of the economy’s

productive capacity. The supply capa-

city of the economy is projected to be

about 1.5 per cent lower by the end of

the forecast period.

inflation

Prices will remain low, in part thanks to

the recent VAT cut in the hospitality

sector. The bank said that about half of

this would be passed to consumers as

cheaper prices. CPI inflation will fall

further from its present 0.6 per cent and

average about 0.25 per cent in the latter

part of the year.

Key points from the Bank of England Inflation Report

Interest rates

The bank rate was kept

at 0.1 per cent after a

unanimous vote at the

monetary policy

committee meeting.

Policymakers also

agreed to keep the

stock of asset

purchases unchanged

at £745 billion.

Forecast changes

GDP revised from

-14 per cent to -9.5 per

cent in 2020, from

15 per cent to 7.5 per

cent in 2021 and from

3 per cent to 3.5 per

cent in 2022.

Inflation

Will fall further below

target, averaging 0.25

per cent in the latter

part of the year before

reaching the 2 per cent

target in the third

quarter of 2022.

Unemployment

Will peak at 7.5 per cent

in 2020, down from

previous forecast of just

under 10 per cent.

Main message

The economy is on

course for a prolonged

recovery but it will still

enjoy a V- shaped return

to normal. This could all

change if there is a

resurgence in the virus

and the country goes

back into lockdown. In

any case, weak

consumer confidence

and low investment will

drag on growth and the

bank is prepared to

inject more stimulus

should the economy

require it.

Outlook

The outlook for all

economies remains

uncertain and will

depend critically on the

pandemic’s course.