20 May 2020 by jbchevrel
Marks and Spencer (MARSPE) reported this morning before the open. This names was in Main 03-30 XO 31-33. Market participants who have been concerned about MARSPE liquidity or balance sheet have been reassured that the company’s cash position was better than expected. CDS tightened -20bp on the 5y point, and shares gain +11%. CovidTD, CDS range was 160-525 (c2c) stock range was 85-185 (c2c). Now (435,95) is a 25% retracement from the wide in CDS and 10% retracement from the low in stock. MARSPE had scrapped its 2019 dividend and is unlikely to pay one in the current year, while its lenders have relaxed covenant conditions on its main lending facility. Pre-ex PBT came £403m for year to March, down from £511m last year during the same calendar period. This is the lowest in at least three decades. MARSPE profit came £237m food £224m clothing & home. MARSPE said CF £150m better than expected, although still substantially below pre-Covid level, -57% YTD. MARSPE is now part of companies not providing guidance given too high uncertainty. But estimates compiled by Capital IQ suggest 2020 PBT £139m. MARSPE expects Covid-19 to cause -46% clothing sales -6% food sales this year. That represents c £200m worth of clothing and an all-in cost of £145m. MARSPE will aim to cut £500m costs, looking “at all levels”. In order to mitigate the impact. In March MARSPE began selling on Zalando, the pan-European fashion website. That too may contribute to smooth the shock, as online sales are poised to outperform physical outlets. So far MARSPE has closed 54 stores of an expected total of 100-120. The proba of default at 1y is 4% (8% at the worst). The proba of default at 3y is 17% (23% at the worst). The proba of default at 5y is 31% (38% at the worst).