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Home / Blog / blog / Trader’s Corner || Sporting Chance for Teen Favourite; Choppy Waters for Cruise Ship Giant || 27-3-2020

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Trader’s Corner || Sporting Chance for Teen Favourite; Choppy Waters for Cruise Ship Giant || 27-3-2020

Teen fashion favourite JD Sports saw its share price climb seven per cent as it delayed the publishing of its full-year results till it had clarity on the impact of the coronavirus epidemic.

The sports retailer also dropped its guidance for the new financial year as all its stores in the UK, US and Europe closed their doors. JD Sports said it is still taking online orders and it reassured investors that it had ‘more than adequate’ cash and debt resources to get through the current crisis.

So, is the sports retailer likely to be one of the winners when the pandemic is over?

The sports giant says it is looking at ways to limit its cash burn although it acknowledges that online sales would be a relatively small mitigation now that its physical stores have closed. In a statement about its full year results, it said: “Given the current uncertainty and the potential for further government action where our fascias are still able to trade, the board does not believe it appropriate to provide financial guidance for the current financial year ending 30 January 2021,’ Analysts are optimistic about the retailer’s long-term prospects, pointing to its healthy balance sheet and previous profitability.

Peel Hunt said: “JD’s starting point in terms of balance sheet strength is a very good one: it has about £300m of cash on the balance sheet and facilities for nearly a billion up its sleeve. So, longevity is not an issue here, but it is for other sports retailers and JD will doubtless emerge from this much stronger.”

Before this week’s share price rise, the stock had fallen considerably, like most retailers, but with the price now at 516.40p at the time of writing, the consensus seems to be that JD Sports could be one of the ones left standing when this is all over.

Cruise ship giant, Carnival has been on a rough ride in the wake of coronavirus, but its shares did gain 33 per cent at one point this week.

The stock has fallen back slightly now but it’s still up on last week’s all time low, now standing at 1,235p at the time of writing.

The cruise ship operator has had to suspend voyages and, unsurprisingly, its bookings for the rest of 2020 are ‘meaningfully lower’ than previous years. Bookings for the first half of 2021, however, are only slightly lower than 2020, which has surprised analysts. While it’s estimated the cruise ship giant, which owns Cunard, Seabourn and Princess Cruises, is losing $600 million for every month operations are suspended, analysts at UBS highlighted that at its year-end it had a tangible book value of $21 billion and $38 billion in property and equipment. Plummeting oil prices could be another positive for Carnival potentially lowering fuel costs when operations restart.

The average rating from analysts on the cruise shop operator’s stock is still ‘hold’ but there’s no doubt there are choppy seas to navigate for some time yet.

Housebuilder Persimmon has joined the roll of companies cancelling dividends to conserve cash and its share price has risen seven per cent in the wake of the news.

The housebuilder cancelled a dividend that was due to be paid next month and postponed one for July, as it attempts to navigate the uncertainty of the current pandemic. The firm said its construction sites were also ‘commencing an orderly shutdown’ with only essential work taking place to make partially built homes safe. Its share price now stands at 1,939p having almost halved since mid-February.

The new-build firm was beleaguered by problems about its build quality and customer care issues, but prior to the current crisis, it had made some headway in addressing these. Cancelling and postponing dividends seems a sensible choice in the current climate – while Persimmon has liquidity of around £715m in total, its difficult to know how long this is likely to last. All housebuilders are at the mercy of coronavirus although when the situation changes the UK housing market will probably still be an attractive proposition with affordable mortgage rates and a housing shortage still in place. The question for firms like Persimmon is whether they can withstand the turbulence for however long it lasts – William Ryder from Hargreaves Lansdown said: “Housebuilders risk facing the double danger of falling volumes and falling prices. Together, these twin threats can demolish profits and cashflow surprisingly quickly, and while we’re not at that point yet, the likelihood is rising.”

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