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Huw Simpson

9fin followers may have noticed more green stealing into our Earning Flashes over the last quarter. In this report we look closer at top line progression over the last eighteen months, and then at how the Q4 2020 and Q1 2021 compare to prior year figures.

Note, while we’ve included Q1 2021 figures, as only half of issuers have so far reported*. Figures quoted on an LTM basis, unless stated otherwise.

Overall, Losses declined in Q4 2020, growth returned in Q1 2021. LTM (QoQ) basis Q4 2020 -0.6%, and Q1 2021 +1.2%. Quarterly (YoY) basis Q4 2020 -2.3%, and Q1 2021 +4.4%.

By Industry, Energy is still declining, but at a marginally slower rate (Q4 2020 -7.6%, Q1 2021 -6.1%). Industrials are lagging, remaining industries have stabilized, and Consumer Discretionary has returned to growth (Q4 2020 +0.6%, Q1 2021 +4.9%).

By Sector, Consumer Services, Transport, Gaming and Restaurants continued to see sharp losses. Telecoms and Diversified Tech saw strongest growth in Q4 2020, while Retailing, Automotive Manufacturers and Communication infrastructure were Q1 2021 winners. Healthcare equipment and services were - unsurprisingly - growing throughout.

By Rating, better rated companies have performed better. Unrated companies historically lie between Triple CCC and Single B. However, Q1 2021 results currently suggest Unrated growth was below Triple CCC.

By Country, US firms outgrew all others. Central & Western European firms saw a return to growth in Q1 2021, after increasing losses in Q4 2020 vs. Q3 2020. Some energy-focused Northern European firms saw sales decrease further.

Using LTM figures, there’s a perhaps obvious sales decline throughout 2020, after which initial first quarter numbers signal a more positive outlook, helped as declining Q1 2020 numbers roll out of the LTM.

Subdued economic demand and low oil prices confirmed Energy as the poorest performer, tracking further declines of -8.9%, -7.6%, and -6.1% in Q3 2020 through Q1 2021. Single asset refiner Raffinerie Heidie posted LTM growth of -16.4% in Q4 2020, decreasing to -6.3% in the first quarter - utilisation rates remain low (76%), and although forward margins are improving, product demand is very reliant on a return to pre-COVID normality. Similarly, French-based CGG saw demand for its seismic-geoscience service plummet with oil prices. While less than 25% of revenues are exposed to exploration, LTM growth fell -19.1% in the fourth quarter, again reducing to -5.0% in Q1 2021. However, for Nordic seismic group PGS, Q1 marked a turnaround, growing +7.2% (Q3 2020 -23.1%, Q4 2020 -19.6%). Activity levels were 89% in the first quarter, and second and third quarters are “more or less fully-booked”.

Although Consumer Discretionary saw greater losses at the peak of lockdown in Q2 2020 (-12.9%), as economies opened up toward the end of 2020 and into 2021, demand stabilized (+0.6%), then returned in force (+4.9%). After two disastrous quarters in the first half of 2020 Italian eyewear group Marcolin has slowly been regaining territory - finally posting positive LTM growth of +4.5% in Q1 2021. James Bond’s carmaker of choice, Aston Martin, saw Q1 dealer sales more than double, boosting LTM sales +22.2%. Release of the it’s debut SUV, the DBX, and order growth for the GT/Sport meant full year guidance was retained, at around 6,000 vehicles.

The modest and slighter growth in Consumer Staples, Healthcare and Real Estate reflects resilience of low beta names, benefiting from longer term contracts and essential status.

Within the Discretionary space, Consumer services (especially travel agents and gyms), and Restaurants are still hurting from various restrictions, limited by social distancing and capacity constraints. Retailers (Q1 2021 +8.7%) have seen a bounce back in demand, although concerns remain around the sustainability of this increase as purchase patterns normalize after initial splurges. There’ve also been more positive moves in Automotives. Both manufacturing and suppliers were impacted earlier than most, as production capabilities in Asia fronted declines in Q1 and Q2 2020. After leveling off in Q4 2020, Q1 is showing healthier growth (manufacturers +5.7% / suppliers + 4.1%).

Within Industrials, Transportation continues to decline, as holiday plans are pushed back. Airlines and Cruise operators were frequent fliers in various capital market and state aid programmes, piling on debt to survive prolonged periods of cash burn. Similarly, Equipment Rental saw lower demand from travel restrictions. Car hire firms Europcar (Q4 -14.5%, Q1 -11.4%) and Avis Budget (Q4 -13.0%, Q1 -7.1%) have had a rough time. For the French group, the Van and Truck was the only area to see growth on the year, although monthly figures show growth picking up in March. Avis also saw a pick-up at the end of the quarter, and through its fleet disposition strategy, profitability margins have also started to improve.

Unsurprisingly, Healthcare Equipment & Services had a good year, with lab groups averaging +5% growth throughout the year, weighted toward the third and fourth quarters as testing rolled out worldwide. For french lab group Cerba, 2020 was a big win, growth was as high as +16.4% - comfortably aided by a net €236m boost from Covid. It was a similar story for Synlab (+9.2%) and Unilabs (+12.5%).

Sales performance amongst rating groups developed as expected. Double BB names remained largely resilient, and were the only group to see growth in Q4 2020 (+0.4%), compounding with the highest growth in Q1 2021 (+2.1%). Single B tracked just below, -0.5% in Q4 2020 and +1.4% in Q1 2021.

While Triple CCC saw declines in Q4 2020 of -10.9%, Q1 2021 stemmed the decline, +0.7%. Unrated names (which include Finnair and Air France KLM) usually sit between Single B and Triple CCC. At present however they’re yet to see turnaround, and languished at -5.0% in Q4 2020 (-1.9% in Q1 2021).

In Central & Western Europe, the UK and Spain battled for last place in Q2 2020, but both since returned to growth by Q1 2021. At the other end, US and German firms have largely outperformed European peers. Further declines for France in Q1 2021 perhaps just reflect the number of issuers who’ve reported to date (currently includes Air France -25.8%, Europcar -11.4% & CGG -5.0%).

In contrast, Northern European firms haven’t rebounded to the same degree in Q1 2021. Norway continues to suffer from the mixed performance of Energy firms (Prosafe -15.9%, Aker Solutions -7.3%, PGS +7.2%, Aker BP +8.8%). Alongside construction groups YIT (-3.3%) and SRV Yhtioet (-2.2%), flag carrier Finnair (-54.0%), and financial services group Ferratum (-6.0%) limit Finland's growth.

For completeness, we’ve also presented YoY figures. Q4 2020 Sales still saw a decline (-2.3%), although Q1 was in the green (+4.4%), for the first time in four quarters. You can see the above charts repeated below on a YoY basis.

If you would like further information about this or any of 9fin's articles, please contact team@9fin.com 

Q4 2020 and Q1 2021 Sales Report - Green Shoots and Red Leaves

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