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Covid Chronicles

29 September 2020

Back in February when we were first being shocked by the threat of Coronavirus, I wrote the following in my blog of the 27th:

“I can’t help but feel the global governmental response to coronavirus is a panic-stricken knee-jerk. In fact, the common response is to quarantine vast numbers of people who could have been in contact with a discovered carrier. I write as someone whose medical knowledge is minimal, to say the least, but surely it would make more practical sense to isolate and protect the high-risk groups. The symptoms, after all, for the rest seem generally pretty mild. There will, no doubt, be those who think I’m being heartless but this would have far less potential for economic disaster.”

I am willing to accept that, on the first wave of the virus, governments, including ours, were fighting an unknown quantity. Ours sought guidance from a team of scientists and medical experts and, once their strategy was initiated, it certainly had to be given time to evolve. Granted, there were plenty of mistakes. Understandable, perhaps, as long as lessons were learned. Unfortunately, as a second wave of the virus moves around the world, there seems little evidence of that being the case.

The problem with relying solely on medical scientists is that they are just that. They are not economists any more than economists are medical scientists. Left entirely to their own devices they would, no doubt, ultimately defeat Covid but, with that being their sole aim, the economy would, in all likelihood, be completely destroyed in the process. In a ravaged economy starved of cash for normal public services, the death toll from everything other than Covid would be enormous.

There is also a limit to the population’s forbearance. Lockdown during a warm, sunny summer is one thing but then again throughout grey, cold, wet months is something else entirely. Boris needs to liven up his game, rely less on the science and more on the economics. Perhaps it is time to cocoon us old fogeys and the vulnerable and let everyone else get on with a proper life. A groundswell of opinion in the ruling party suggests the pressure is on Boris to change tack.

Brexit Brinkmanship

It seems the EU is incapable of agreeing anything without negotiations running to the 11th hour plus 59 seconds and so it is once again. Following a year of refusal, prevarication and outright bloody-mindedness, it seems that, with a month to go, a little light is being cast. With a £90bn EU/UK trade surplus to protect, there are going to be some hopping mad German car manufacturers and French vineyards if the obsequious Michel Barnier fails to reach an agreement with our man Frost. The chances of something being achieved appear to have increased slightly in the last few days.

Having said that, come the 1st November at least we will have certainty. Either we have a deal or we trade under WTO rules like most of the rest of the world. Markets don’t like uncertainty and the UK market has had a double dose this year with combination of Covid and Brexit, leaving it the cheapest looking of all the major equity markets and possibly nicely set for a rally. This, perhaps, is already being evidenced by overseas corporate interest in our undervalued companies, the latest of which, William Hill, is fighting off two possible raiders. Even HSBC has seen Chinese Ping An Insurance increase its stake to 8%, taking advantage of the badly beaten-up share price.

Expect plenty more overseas interest, especially from America, whilst our market sits at such a discount to the rest of the world.

The Saga saga

Readers will, no doubt, recall that back in March I finally threw in the towel on Saga at the then price of 25p. That seemed a pretty pathetic price at the time, the shares having been battered by very weak management, misleading statements and, the final straw, Coronavirus effectively mothballing the two new cruise ships for the duration. The weight of bad news became too much. The share price has continued to fall, despite a white knight riding to the rescue, and now sits at a miserable 12p.

That white knight is Roger de Haan, son of the founder and the man responsible for growing the business over several decades before two private equity groups took it off his hands at a handsome price. Mr de Haan is stepping in with a twofold refinancing deal. The first sees him injecting £100m of equity capital at 27p per share, a massive premium to the then market price. The second part is by way of a placing and open offer to existing shareholders at 12p, which Mr de Haan is effectively underwriting. The entire fundraising is around £150m.

It has to be said that de Haan knows this business inside out. He is putting his money where his mouth is and at a price considerably higher than other shareholders are to pay. It is also a considerable premium to the current market price with the quote straddling 12p. Make no mistake it is still a pretty high-risk gamble, particularly whilst so much uncertainty surrounds the cruise and tours business, even though the finances will have been stabilised by the issue. As such it is only suitable for those with a risk profile that accommodates such situations.

Russell Dobbs FCSI

Chartered Wealth Manager