Wirecard, welcome to the 99 per cent club. The German cash processing and misplacing company qualifies for entry based on a September 2018 intraday high of €197.2 and a Thursday session low of €2.5, giving a roundable loss of 98.7 per cent. What’s most remarkable with its qualification is that 97.5 percentage points of the fall happened over the past six sessions. If only shareholders had some kind of warning.

Is there any way out of the 99 per cent club? Some companies (such as Taylor Wimpey) escape. Others (such as Baltimore Technologies, Marconi, QXL Ricardo, Cattles, Eagle Eye Telematics, Telewest, Kewill Systems, Energis, Seadrill, Ennstone, Blur, Durlacher and Enron) do not. Wirecard’s rally of as much as 50 per cent from the session low (which followed news that it would file for insolvency) suggests either a residual optimism about the company extricating itself from this latest bind, or maybe that its assets might have a value (to a white knight bidder, or on liquidation) greater than the ~€400m market cap, or possibly that short sellers would rather cash out now than argue about zero settlements later. Whichever way, good luck to all holders!

Wider market’s directionless, Europe having captured most of its selloff in reaction to the US’s controlled burn Covid strategy during Wednesday’s session.

Corporate wise, EasyJet pulled the trigger overnight on a cash call everyone had been expecting. Some 59.5m shares were placed at 703p apiece, a 5 per cent discount to Tuesday’s close, to raise £419m gross and expand EasyJet’s share capital by 14.99 per cent.

The structure’s a tad different from recent cash boxes, with 5 per cent of the stock issued on a conditional T+14 basis and divvied up proportionately with the unconditional stock ahead of a shareholder vote on July 14. It’s an elegant structure that looks designed specifically to encourage institutional shareholders into diluting Stelios Haji-Ioannou while giving him limited rope to grump about preemption rights. So long as the shares are trading above 703p by July 14, it might work.

Full-year results from EasyJet weren’t too interesting by comparison. Management’s aiming for another £300m of sale and lease backs on top of the £300m already done, which add to £1.4bn of debt financing and another £1bn of cash reserves. That compares with EasyJet’s £3bn revised cash burn forecast in a worst case scenario of being grounded for nine months and means the chances of getting junked aren’t overwhelming yet. Here’s SocGen:

In August, EZJ plans to fly 155 of its 335 aircraft, and to serve 75% of its network, but at significantly lower frequencies (c.30% of the normal flight programme). The key is profitable flying, i.e. each flight has to contribute a positive contribution margin. Current booking trends are encouraging. The quarantine rules in the UK remain an obstacle but could be lifted soon, according to EZJ’s management. EZJ sticks to its strategy of strong No. 1 or 2 positions at key airports, but is currently conducting an in-depth review of its network. It is also in negotiations with airport operators about adjusted conditions. EZJ will actively pursue opportunities should competitors struggle or cut their network. The staff numbers will be reduced by up to 30%, and consultations are underway.

The potential dilution for existing shareholders is a good 13% if all shares are placed. However, we think the market reception (after the initial downward pressure) could be positive, as EZJ is pushing forward its recapitalisation quickly (a step that several airlines probably still need to make). Furthermore, the updated liquidity and cost targets read quite well, in our view.

And Credit Suisse:

Following EZJ’s 1H20, and equity raise, we (i) leave our FY20E underlying PBT loss unchanged at £746m, and our FY21E PBT little changed at £136m (£138m previously), while reducing FY22E PBT from £490m to £446m based on fuel hedging. We factor in £419m new equity (0.4x 2019A EBITDA) and 59.5m new shares, but we focus on recovery opportunities and raise our TP by 15% to 855p.

We expect access to attractively-priced capital, an ability to cut costs, and resultant competitive positions to be key determinants of airline investment cases as we look out over the next 2-3 years. EZJ is demonstrating it has support from the capital markets (including aircraft lessors), seems suitably early and ambitious in cost cutting plans and we consider it very likely its competitive position will improve versus most competitors (including Air France-KLM, Lufthansa Group and Alitalia, albeit not British Airways in our view). This increases our confidence in EZJ’s ability to revisit historical return levels, driving our valuation. [W]e have previously addressed the need for EZJ to use this crisis to address its cost base and airport charges/crew costs in particular, and highlighted a meaningful opportunity for EZJ to re-calibrate its network to structurally improve returns as it reduces scale (route-level profitability, seasonality management) which can help EZJ recover £5 PBT per seat by FY22/FY23. . . . each 1% movement in revenue per seat is worth c.£37m to 2021E PBT.

Lufthansa’s rallying after opportunist 15.5 per cent shareholder Heinz Hermann Thiele said before today’s EGM vote that, rather than being obstructive and trying to chisel out better terms, he’d back the €9bn bailout offered by Berlin. His support “removes a tail risk for the group having to file for insolvency protection,” says Morgan Stanley, which also says “sell”.

While this could be seen as a relief, we do not think the insolvency risk is priced into shares (based on its near term performance vs peers). . . . [W]e think that, even considering the liquidity of the stabilization package, shares do not reflect the impact of Covid-19. While investors may be inclined to look at normalised earnings, we think this misses two things: (i) Lufthansa’s revenue exposure to business travellers (c50%) and long haul routes (c50%) likely means a slower recovery than mainly intra-EU peers; and (ii) yields may come down initially, slowing cash flow recovery. Our sensitivity analysis suggests 2020 cash losses could range between €4-8bn, 55-100% of the pre Covid-19 market cap. With shares down 45% YTD, we think they are pricing in a recovery and partial cash flow normalization by 2021, which seems unlikely to us. Finally, we think Lufthansa’s restructuring will be a challenge, due to the difficulty in lowering unit costs while reducing capacity.

Royal Mail’s recent trip higher on the Flight to S██e comes to an end with another mess of an update. The 2020-21 outlook for UK core postal operations is both vague and much, much worse than expected. GLS, the Dutch-based logistics bit of Royal Mail, seems to be doing okay but the chairman says it’s of strategic importance to the group, so anyone reading the recent stakebuilding by Daniel Křetínský as raising the prospect of a breakup isn’t on the same wavelength as management. Here’s Berenberg:

Royal Mail has reported its FY 2019/20 results, with group revenues of £10,840m (consensus: £10,835m) and EBIT post transformation costs of £325m (consensus: £315m). However, the real focus is on the expected effect from the ongoing pandemic; the hit has somewhat reduced in May versus April, but we think that group EBIT is probably already down by c£100m yoy ytd. The company has given some indications of how bad it thinks the full hit from the pandemic could be; we estimate the mid-point of the estimated effects equates to group underlying EBIT of -£350m for the year, versus current consensus of around -£80m. Although the company plans to cut c2,000 management roles to save £130m per year, the benefits will not be visible until FY 2021/22. There is also no indication of any plans to sell or spin off the European business (GLS) any time soon, despite shareholder hopes to the contrary.

The company has not given proper guidance for FY 2020/21, although it continues to believe that its UK parcels, international and letters (UKPIL) business will be loss-making (current consensus estimates range from - £267m to -£68m of EBIT for the division). However, it has given estimates for the full impact of COVID-19 through the financial year under two different scenarios (UK GDP down by 10% or 15%). The range of effects on the UK division is expected to be between £450m and £850m at EBIT (before restructuring costs), while GLS is expected to be either roughly flat at EBIT or down by c£50m. The mid-point of both combined scenarios is group EBIT of -£350m (ranging from around -£130m to -£580m); consensus estimates full-year EBIT of -£83m, ranging from a loss of £242m (we are at -£229m) to £102m in operating profit.

Speaking of rights issues, InterContinental Hotels gets a downgrade from Jefferies as part of a big lodging sector note. It gets straight to the point:

We now assume an L-shaped RevPAR recovery (previously V-shaped), based on Jefdata consumer surveys, corporate guidance and industry forecasts. ..

Dalata (Buy, €4.50, +40%) - INITIATION: Mid-cap top pick/Undervalued: 1) Strong UK pipeline (80%); 2) Well-positioned to take advantage of gap in 3/4 star hotel market; 3) Cheaper than peers on EV/EBITDA and FCFE yield; and; 4) Trading at 45% discount to property NAV (€1.1bn). Dalata trades on 6.6x FY22E EBITDA.

Melia (Hold, €4.50) - INITIATION: Slowest to recover: 1) Market leader in resorts; 2) Asset light pipeline (90%) but muted impact (+13% EBIT); 3) Trading at 68% discount to property NAV (€3.3bn) but gap unlikely to narrow soon; and; 4) Slowest to recover (70% international demand). Melia trades on 6.6x FY22E EBITDA.

Scandic (Unpf, SEK27, -25%) - INITIATION: Weak model: 1) Minimum guarantees on leases pressure margins; 2) Lowest liquidity headroom at six months (ten months assuming rent deferred); 3) Smaller pipeline than peers (11% portfolio); and 4) trading on higher multiple than peers (7.4x FY22E EBITDA).

New RevPAR assumptions/valuation: FY19 RevPAR to be reached in FY22/FY23 (previously FY21). We expect Whitbread to recover first (90% domestic) and Melia to recover last (70% international). We compare NTM EV/EBITDA to pre COVID-19 multiples (c.15% discount). Given the uncertain path to recovery we see less upside. We use a blend of DCF and EV/EBITDA to derive PTs and apply a 20% discount to our pre COVID-19 multiples and adjust WACC/growth to factor in higher uncertainty.

Accor (Buy, PT reduced to €33, +30%) - Large-cap top pick/Self-help: With €3bn in non-core assets, Accor has plenty of self-help opportunities. We believe the stock is undervalued on FY22E 6.7x EBITDA. We cut FY20-FY22E EBITDA by 158%/55%/0%.

IHG (d/g to Hold, PT reduced £41) - Quality priced in: IHG is well positioned with the franchise business model and domestic exposure, however, we think this is reflected in the price (FY22E 9.6x EBITDA). We cut FY20-FY22E EBITDA by 43%/23%/4%.

PPHE (d/g to Hold, PT reduced £11.50) - Valuation gap stays: PPHE trades at a 50% discount to FY19 EPRA NAV (£25.46). We believe it will take longer for the valuation gap to narrow in this environment. We cut FY20-FY22E EBITDA by 129%/50%/3%.

Whitbread (Hold, PT reduced £22) - Positioning priced in: Poised to take market share, yet operating leverage and 8.4x FY23E EBITDA suggest shares fairly valued vs pre-COVID-19 NTM 11x EBITDA. We cut FY21-FY23E EBITDA by 215%/17%/+2%.

Jefdata: We track web traffic on the top five hotel and accommodation websites in Europe and point to a rebound. However, our surveys suggest a long road to recovery.

Liquidity headroom updated (months): Accor (43), Whitbread (33), IHG (24), PPHE (15), Dalata (14), Melia (12), Scandic (6).

Elsewhere in sellside, RBC Capital Markets does some fantasy M&A on Centamin:

Our view: New CEO and board appointments will likely increase focus on improving operations at Sukari and lower the risk of a move into new projects in West Africa. This should mean CEY focusing on cash generation and increasing returns across multiple metrics. We forecast a FY dividend +27% vs. consensus. We move our Target to GBp 210 on higher multiples and rating to Outperform from Sector Perform on CEY’s improved operational certainty and superior returns.

We think both Martin Horgan’s appointment as CEO and recent board additions are a positive for CEY. After two years of operational disappointments we think the team’s renewed focus will primarily be on delivering on operational targets. Whilst the recent departure of a second Chief Operating Officer (COO) could be read as concerning, we actually think a stream-lining of management structure could be a positive. Q1 was a good start to the year and CEY has flagged a strong H2 meaning good momentum into year end.

With focus on getting Sukari back on track we think there is less risk near term of CEY looking to build something from its West African exploration portfolio. We continue to believe the options there may struggle to stack-up vs. Sukari. Similarly we expect M&A (acquisitions) to be on the back burner for now, no bad thing given again we see few assets that fit with Sukari. Whilst we don’t expect Endeavour Mining to come back with another offer for CEY near term we do think ongoing consolidation in the global gold space (such as Alacer- SSR ) indicates a bidder for CEY may materialise in time. Sukari is now one of the few large gold assets outside the majors.

CEY has a net cash balance sheet. Our work today suggests the group is differentiated on dividends (+5% yield) vs. global mid-cap precious peers. CEY has also returned >100% of FCF in the past. We forecast a 2020E dividend of US14c/sh currently, +27% ahead of consensus. ROIC and ROCE also look attractive averaging 13% and 25% respectively on a 3-year forward basis. This comes before potential tailwinds of lower oil prices and an off-balance sheet funded solar plant come through on costs over the next couple of years. 

... which is separate to a bigger, longer bit of research pushing the gold miners more generally:

Gold has outperformed most major asset classes YTD and yet our conversations with investors indicate exposure among non-specialists remains limited. With swelling central bank balance sheets and rates in the US and most major developed economies close to or below zero, we see the macro backdrop as supportive. We also see a scenario where broader equity markets could come back under pressure as COVID-19 macroeconomic impacts are fully realised, something that should be positive for prices. Headwinds may come from near-term deflation and a potentially strong US dollar. However, we note that RBC’s commodity strategist recently outlined upside scenarios to over $2,000/oz .

With gold prices +17% YTD at near seven-year highs, investors may imagine that gold stocks have rallied hard. And yet the GDX global gold miner index is up just +21%. Whilst our EMEA precious coverage has somewhat outperformed (+24%), our analysis today suggests that gold equities globally remain close to multi-year lows both relative to gold metal and the wider market. With more new investors looking from other sectors at the gold equities, we expect a focus beyond operations and FCF to returns and, in particular, ROCE and ROIC. Since 2002 our global RBC coverage has averaged a slightly negative ROIC, albeit with peaks at c. 9%. When we compare this to our coverage’s (real) WACC of 7%, the industry does not screen well. However, the biggest driver of changes in returns is the gold price so higher prices YoY bode well at a time when management teams, for now, remain relatively conservative; something that is likely supportive for delivering value. On dividends our EMEA coverage remains well ahead of global peers with rising yields generally expected into 2021, something that could help our names outperform on a relative basis.

In terms of the pandemic, the impacts on the global gold sector continue to evolve. Few companies are willing to commit to what the longer-term impacts may be. Q2 is likely to be a tough quarter for many, but given our positive 12-month view, we think any weakness could be a buying opportunity. We do think structurally higher costs could be here for the rest of 2020 and lift our coverage’s cash costs by an average of $29/oz or +3% today to reflect likely lower productivity and higher costs related to social distancing. With no company immune, we see underground miners as likely to be most impacted by changes to onsite procedures due to the pandemic. We have a preference for names that have been impacted less to date.

Given the above, we remain overall constructive but still selective on our EMEA coverage. In the large cap space we see Polymetal as having an attractive balance of ounce growth and returns. For global investors AngloGold also screens as a catalyst-rich re-rating story with a potential move in London listing that could deliver a wider investor audience. Fresnillo (Sector Perform) remains a more difficult proposition as measures to deliver an operating turnaround may be further delayed by COVID-19. In the mid-caps we upgrade Centamin to Outperform from Sector Perform seeing new management as increasing focus on operational delivery and a peer leading dividend as attractive. For global investors Endeavour Mining is a re-rating story as the group grows in scale post closing its Semafo transaction. We downgrade Hochschild to Sector Perform from Outperform seeing shares as fair value given impacts from COVID-19 on its operations and delays to exploration slowing near-term mine life extensions.

Rightmove’s down to “sell” at Berenberg:

Stuck between a rock and a hard place - back down to Sell: Rightmove shares have recovered 35% since our March upgrade, outperforming the FTSE 250 by c5%. At the same time, agent backlash against Rightmove has increased markedly, with the "Say No To Rightmove" campaign gaining traction. Many agents are angered by Rightmove's initial response to COVID-19 and are reluctant to pay the full price ever again. We believe Rightmove's substantial discounts (a likely response to this initial backlash) - recently extended until the end of September - are now exactly the right solution and admire the company's management team for thinking about medium-term value preservation. However, we believe not only that there is a high chance that some level of discounting will continue until the end of this year, but that it will be near-impossible for Rightmove to return to the same level of price increases achieved in the past without an agent rebellion. Agents have long protested against Rightmove's pricing and we believe this is their carpe-diem moment; we expect significant pressure on future revenues and margins. At c30x P/E, we do not feel valuation fairly reflects these risks and thus downgrade to Sell with a GBp385 price target, suggesting c30% downside from current levels.

And Barratt gets a push from Davy as part of a housebuilder sector thing:

The main high-level changes to assumptions are:

▪ Volume: The downtime taken by builders saw the sector lose close to two months’ work. We also assume that the run rate of volume returns to only 90% of previous levels later this year and that 2021 volumes remain 5% below 2019 levels. These assumptions mean that volumes overall will fall by over 20% in 2020.

▪ House price inflation: Initially, we are forecasting a 5% fall in house price inflation in 2020, with a modest recovery in 2021. We expect house prices to return to pre-COVID-19 levels at the end of 2022.

The equity market moved quickly to the new reality, and the sector is now 34% below February’s high. Relative to the UK market, the sector is 22% off the highs. We believe this sell-off is overdone and that the current valuation multiple of c.1.7x trailing tangible book value being 17% below the five-year average leaves room for a re-rating in the short term. We are thus overweight the sector.

Within the sector we are upgrading Barratt Developments to ‘Outperform’. In conjunction with a compelling valuation argument, we believe the relatively short landbank at the company will allow for flexibility in the land market if opportunities arise in the short term. There is 22% upside to our new 628p price target.

Alongside Barratt, Bellway is our top pick. The company has de-rated materially relative to our coverage universe, and we believe the stock is significantly undervalued at only a modest premium to book value (1.06x). Our price target is 3,388p, giving 29% upside.

We also retain our ‘Outperform’ ratings on Taylor Wimpey (price target 170p) and Vistry Group (price target 967p).

• No Markets Now on Friday 26th July. Back Monday. A number of AV Telegram group chats are also available.

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