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“UK and European markets were much calmer on Thursday with small gains seen across most of the major indices. Asia was a bit more volatile, but on the whole there wasn’t a repeat of Wall Street’s 4%+ troublesome losses seen last night,” says Russ Mould, Investment Director at AJ Bell.
“The big story of the day was a sharp rebound in the oil price. Brent crude jumped by nearly 10% to $27.15 a barrel after Donald Trump said he expected Saudi Arabia and Russia to reach a deal soon to end their oil price war. Vladimir Putin also called for global oil producers and consumers to find a solution to ‘challenging’ oil markets.
“This gave a big lift to shares in oil producers, including Royal Dutch Shell up 7% and BP up 5.6%."
Carnival
“Earlier this year shares in cruise ship operator Carnival were trading above $51. The troubled business is now issuing new stock at a mere $8 a share as part of a broader $6.25 billion rescue fundraising, suggesting that investors were only prepared to take equity if they got a bargain price to compensate for the high risks involved.
“The price of the new shares wasn’t the only clue that Carnival is in dire straits. It had originally planned to raise $1.25 billion in new equity but that was significantly downsized to $500m.
“The bulk of the new money is coming from issuing $4 billion worth of bonds that come with an 11.5% coupon and secured against its assets. Under normal circumstances, you wouldn’t expect one of the largest leisure companies in the world to issue debt at such high interest rates, but it goes to show how desperate Carnival now is. It is also raising $1.75 billion through issuing convertible bonds.
“Demand for its cruises has evaporated because so many countries around the world are on lockdown and the headlines have been dominated in recent weeks about people stuck on cruise ships with coronavirus, creating some fear about this form of leisure.
“Investors brave enough to back the fundraising might think they are getting a bargain, yet Carnival is ploughing through cash at a high rate. The prospectus for the fundraising says it needs $1 billion a month to cover operating costs, cash refunds of customer deposits, servicing debt and some other factors. That implies it needs life to return to normal by autumn otherwise it could be asking investors for even more money.”
Pets at Home / Gear4Music
“It is incredibly pleasing to see two companies say their earnings will beat market expectations. Pets at Home and Gear4Music have delivered positive news desperately sought by investors in a market full of doom and gloom.
“Sales of pet food via the internet will have soared in recent weeks as animal lovers struggle to get supplies from their usual supermarket. And it seems that the nation has taken up a variety of music instruments during the lockdown, although pity any neighbours who are now hearing the sounds of a new drum kit coming through the walls.
“It is also pleasing to see Pets at Home be so generous including more than £1 million going to pet charities, a £1 million crisis fund for staff and discounts for NHS workers.
“Increasingly consumers are noticing these kind gestures and how businesses are going above and beyond their normal duty to help others. They will be the ones who are held in high esteem once the crisis ends and that could translate into increased customer loyalty.”
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