20 ★ 4 April/5 April 2020
company raised £400m in bonds this
week to lock in some cash. That comes
close on the heels of capital raised in
December on a lower coupon. Analysts
have begun to reduce growth
expectations for revenues for this fiscal
year, which ends in March 2021, from
mid single digits to zero.
No surprise that Experian has
suffered a share price sell-off. Over the
past month, the FTSE 100 constituent
has trailed the index, knocked down
from its pricey starting point. In the
past three years the company’s forward
price to earnings multiple soared to
over 30 times, far above its previous
long term average of half that, and
more than rivals Equifax and
TransUnion.
Yet there may be scope for Experian
to win business from the tumult. In
addition to consumer credit checks, the
company offers risk management using
its proprietary databases.
All companies will need more of this
in the coming year. Banks alone are
already struggling to deal with the
demands put upon them. Governments
and central banks have promised
hundreds of billions of dollars in
potential loans. Banks have at least
double the capital buffer they had
before the financial crisis. Even so,
credit losses from older as well as new
loans will surely mount.
Experian will struggle with a bad
couple of quarters in 2020. Longer
term, however, it should find ways to
expand its risk management speciality.made a net profit of $11.6bn on $280bn
in sales in 2019. Boss Jeff Bezos remains
the world’s richest person, according to
Bloomberg’s Billionaires Index.
Finding new employees will not be a
problem. Nearly 10m Americans have
lost their jobs in just two weeks. But its
warehouses already have an unusually
high turnover rate, according to the
National Employment Law Project.
The cost of maintaining a healthy
workforce should not outweigh the cost
of finding and training new staff to
replace those who leave.
Keeping Americans supplied with
essential goods during the crisis has
made Amazon indispensable. Its share
price is slightly up in the year to date
while the wider market has collapsed.
But the pandemic has sharpened an
existing pay debate that could raise
retailer costs long term. If Amazon
wants to emerge from the coronavirus
crisis a hero, it needs to do more to
keep its workers safe.Few activities expose the divide
between haves and have-nots in the US
like online shopping. Fortunate
Americans isolated at home during the
coronavirus pandemic are using online
deliveries from the likes of Amazon to
stay safe indoors. The people who
provide deliveries have been dubbed
essential workers. Yet they are some of
the country’s lowest paid.
Workers at Amazon and Whole
Foods staged walkouts this week,
asking for protective gear and hazard
pay. Many are worried that working
conditions put them at risk of catching
coronavirus. Amazon, the country’s
second-largest employer, has tried to
play down employee criticism. It has
already temporarily boosted its
minimum wage by $2 to $17 an hour.
If additional safety provisions and
higher pay counter bad publicity and
regulatory censure then Amazon can
afford to do more. The move to
increase pay through to the end of
April will cost Amazon $350m. That
works out to about 0.2 per cent of last
year’s operating expenses. Amazon
Michael Mackenzie
The Long View
Less than one month ago, the UK
government’s promise of an
“infrastructure revolution” raised
hopes of a new era of prosperity for the
sector. The mood has since soured. The
coronavirus outbreak has forced half of
all construction companies to close
their sites. More may follow suit.
Updated guidelines that would have
led to the closure of additional sites
were withdrawn on Thursday. Even so,
contractors are under pressure to down
tools, particularly in London where
they are blamed for overcrowded Tube
trains. Costain has halted London-
based projects accounting for 30 per
cent of sales. Even before then the
contractor was under pressure,
needing to raise £100m to shore up its
balance sheet. Shares trade on just
2.3 times next year’s earnings, having
fallen almost 80 per cent in a month.
By contrast, Balfour Beatty’s shares
have held up relatively well, falling just
11 per cent in the past month and
trading on a price-to-forward earnings
multiple of 11. Its balance sheet is
strong, with £395m of net cash and
£375m of undrawn facilities. It has the
resources to survive even if it has to
halt work, at a cost of between £20m
and £100m a month, calculates UBS.
The big question hanging over the
sector is whether the coronavirus
outbreak — and resulting hit to the
public finances — will force the UK
government to scale back its
infrastructure ambitions. The growth
of home working might permanently
reduce demand for travel.
Infrastructure funds might be better
spent on improving broadband, say
some transport experts.
Then again, cranking up
infrastructure spending is a textbook
way of helping an economy to recover.
Working for the public sector is
traditionally a hardscrabble — and
low-margin — task. But it will be an
advantage in the current crisis.
Companies with strong balance sheets
and the means to take on future
government work will outperform.
UK construction:
financial muscle required
Amazon:
pay fray
Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lexThe Netflix documentary Tiger King
has been a romping coronavirus
lockdown success. American big-cat
breeders have fixated audiences with
their bitter feuds and vivid dress
sense. The apparent mistreatment of
exotic animals was less amusing.
A collapse in gate revenues could
now trigger a welfare crisis. The
deaths of 50 wild animals let loose
from an Ohio animal park in 2011
provides one grisly precedent.
Revenues depend on high visitor
numbers. When they drop, animals
still need caring for. Fixed overheads
are steep, not least for all the meat
consumed by big predators. Up to 50
per cent of operational costs will still
need covering during the lockdown.
Many zoos have set up coronavirus
fundraising drives to survive. Well-
run zoos with genuine conservationmissions can hope for state support.
Poorly run ones face closure. At least
one has threatened to kill older
animals if food is unaffordable.
In the US there are more tigers in
captivity than living wild in Asia. As
Tiger King shows, rules for private
animal ownership and roadside zoos
are lax. Less than 10 per cent of
animal attractions are accredited by
the US industry body. These zoos and
backyard tiger cages are common.
Attitudes are changing towards
keeping large, exotic animals in
captivity. The Blackfish documentary
delivered a painful financial hit to
theme-park group SeaWorld by
exposing the suffering of orcas.
If Tiger King discourages emulation
of the business model of big-cat
showman Joe Exotic, so much the
better.I
nvestors’ search for income is get-
ting harder by the day. Sector by
sector, companies have suspended
their dividends under pressure
from regulators and politi-
cians. European banks and insurers
received their punishment in deep falls
in their share prices. Some payouts are
also likely to evaporate in the US, where
any company taking government loans
willnotbeabletoissuedividendsorbuy
backsharesforupto12monthsoncethe
debtisrepaid.
The loss of equity income compounds
the pain for investors in a world where
interest rates have been slashed to zero
and many central banks are effectively
capping long-dated bond yields through
asset buying. This has intensified
demand for companies with strong bal-
ance sheets that can continue paying
dividends. But now many reliable
incomestockshavebeenputonhiatus.
Thereis,however,anotherareawhere
investors can find income with a degree
of security: high-quality corporate
bonds.Theranksofhighlyratedcompa-
nies in Europe, the UK and the US have
importantbackersintheformofcentral
banksthatarebuyingtheirdebt.
Investorshavelongfollowedtheman-
tra of not fighting central banks, so
those in search of income are taking the
interventions as a signal to buy high-
gradecredit.
Is now the time to switch out of
stocks? Some strategists think that the
outpouring of fiscal and monetary sup-
port in recent weeks means equities
have pretty much fallen to their Cov-
id-19lowsandnowprovideanattractive
entrypointforlong-terminvestors.
But two further signals are required
before there are grounds for a sustaina-
ble recovery in the stock market. The
first is conclusive evidence that govern-
ments are beating the coronavirus pan-
demic, with no second-wave outbreaks.
The other is valuation, when equity val-uations have fallen enough to reflect the
imminentrecession.
At this juncture, equity market
declines in the region of one-third are
not seen by analysts as fully reflecting a
significant downturn in earnings, while
the further suspension of dividends and
buybacks should weigh on fragile mar-
ketsentiment.
How bad could the hit to income be?
Citi estimates that earnings per share
and dividends for European companies
could halve this year, and that income
hunters should focus on segments such
asutilities,telecomsandhealthcare.
As for US stocks, the bank expects
earnings per share for S&P 500 compa-
nies to fall by a quarter, with dividendssliding30percent.Citianalystsseepay-
outsfromconsumerstaplesandutilities
as more resilient. Tech is another
option, though the earnings-to-divi-
dendpayoutratioremainslow.
After the financial crisis, three years
passed before US payouts were fully
restored. Now, S&P dividend futures
indicate it may take until the end of the
decade. That estimate may be exagger-
ated, but some still predict a lengthy
period of meagre growth in dividends.
“We expect the next few years to see
dramatic cuts in cash returned to share-
holders via dividend payouts,” said John
Velis,macrostrategistatBNYMellon.
Given the uncertainty over the scale
and duration of the slump, selective
areas of high-grade credit have been
attracting buyers. Credit investors have
quickly jumped back in after indiscrim-
inate selling hit top-tier corporate debt
and created buying opportunities. Sup-ply is there, too. Companies are building
theircashreserves,withUSinvestment-
grade debt sales hitting a record $261bn
inMarch,accordingtoBankofAmerica.
Expect that to continue this month, as
investors are attracted by the additional
yield over government bonds. Fund
managers are also mindful that higher-
quality companies stand to survive this
tempest, with some emerging stronger
asmoreindebtedrivalswither.
Another factor for income-seekers is
the trajectory of the ultimate recovery.
The past decade has shown the value of
owning a combination of high income-
paying and fast-growing companies
against a backdrop of poor demograph-
ics,highdebtandlowinflation.
Some argue that government spend-
ing and unlimited debt purchases by
central banks will push inflation higher.
If that were to happen, owning fixed-
ratedebtwouldbepainful.
That said, such an outcome will take
time to arrive given the shutdown of
activity and the collapse in commodity
prices. Buyers of high-grade corporate
debt with a maturity inside four years
could well have time to shift their port-
folios towards equities as dividends
return.
Income might keep its lustre for
longer, should the great wave of fiscal
stimulus fall short of repairing the dam-
age inflicted by coronavirus. That is a
thesis of the latest working paper from
the Federal Reserve Bank of San Fran-
cisco on the “Longer-Run Economic
ConsequencesofPandemics”.
Its authors argue that “investment
demandislikelytowane,aslabourscar-
cityintheeconomysuppressestheneed
forhighinvestment”.
That suggests a bigger glut in savings
to come, weighing on the eventual
recovery in global economies and giving
furtherurgencytothehuntforincome.[email protected]Top-grade debt
gains lustre as
dividends dry up
Animals on lockdown
in US zoos(^0500) 1,500 2,
US industry
association
accredited zoos
Unaccredited
but licensed
exhibition facilities
Total licensed
animal exhibition
facilities
Source: US Department of Agriculture and the
Association of Zoos and Aquariums
Animals in
accredited US zoos
800,
In accredited
zoos globally
‘000s 1,
More captive tigers in the
US than in the wild*
0 2 4 6 8
Wild in
Asia
Captive in
the US
Captive in
Asia
- Estimated figures
Sources: WWF; National Geographic
Tiger King/coronavirus: overloaded arks
Experian, the world’s largest credit
data company, wants people feeling
financially squeezed by the
coronavirus pandemic to check their
credit score. This will sound like a
torturous exercise to many. A
downturn in demand for personal
finance audits is going to crimp the
cash flow of the credit bureau itself.
Credit checking for consumers and
corporate clients makes up the
majority of Experian’s top line. This
may explain why Experian feels the
need to check its own credit lines. The
Experian/credit checks:
testing times
Twitter:@FTLex
Higher-quality companies
stand to survive this
tempest, with some
emerging stronger
APRIL 4 2020 Section:FrontBack Time: 3/4/2020 - 18: 57 User: stephen.smith Page Name: 1BACK, Part,Page,Edition: EUR, 20 , 1