War, Energy Crisis, Inflation, Recession, COVID on the Rise – Markets, Unsurprisingly, Tumble

In the December edition of Industry Watch, the focus was on the implications of a new infectious COVID variant, Omicron. In the March edition, the focus switched to the war in Ukraine and the sanctions imposed on Russia and the implications, if the war continued, of a global fuel, food, fertilizer and aluminium crisis. This on top of the shortages of many goods used in manufacturing – a legacy of COVID.

The real concern now is inflation. After decades of low inflation, this has now returned with a vengeance – with current predictions for the USA and European countries later this year reaching 9-11%, for example. The economic outlook is grim - fuel prices are now at an all-time high, food and most other prices are increasing due to shortages and higher transport costs. Negative growth leading to a global recession is a real possibility and governments are struggling to adequately respond.

Market trends

The chart below shows the change that has taken place in the various equity market values since the beginning of this year to 1) 22 March and 2) to 24 June. It also shows the change in value in equity markets from March 2021 to March 2022 and similarly, from June 2021 to June 2022.

To 22 March only three markets, the FT100 (+1%), the Dow Jones (+5%) and the S&P/TSX (+4.5%) showed growth, with most others showing losses of between 5% and 13%. However, by end June all markets were showing declines. The two UK markets fell least, European markets recorded losses of around 16%, with NASDAQ, the US technology-based market, showing the greatest decline at -28%, and the Dow Jones and S+P declining 14.4% and 10.3% respectively.

Asian stocks had mixed results – the Hang Seng and Nikkei lost value but by a much lower percentage than US markets, whereas the two Chinese markets, the FTSE Xinhua and the Shanghai Composite, actually gained in value between March and June, although both still showed market value losses.

Looking at the change in values, of the nine markets that gained in value from March 2021-March 2022, only one, the FTSE 100, maintained a gain in value in the June 2021-June 2022 period, and even then the gain was only 1.4%. The Asian markets had similar percentage declines in both one-year periods, while all the American markets showing a substantially greater loss in value June-to-June than March-to-March.

In summary, virtually all markets have declined in value from the beginning of this year to 24 June, with the European (CAC, DAX, SMI at -16.5%) and US markets (S+P -10.3, NASDAQ -28%) showing the greatest declines.

Some might call this a correction but, given the various negative issues prevailing, a bear rather than a bull market is not a surprising outcome.

Main global markets – growth in market value year to date and year-on-year.

Companies under pressure

An extra column has been included in the Industry Watch Chart this period – the actual change in market value of each company (at the time of Industry Watch) since the start of the year.

Using this new data, we see that only one company, Crane Co, has lost less than 5% in value in a year, and only one, Loomis, less than 10%. At the other end of the spectrum, De La Rue has lost 57.4% and Diebold Nixdorf 81%.

It would appear given these high falls in value, that either the markets have concerns about our industry, or they have concerns about the companies in it, or a combination of the two.

Substrates and banknotes – challenging for all

De La Rue’s share price fell 23.5% to 112.8p in the first quarter due to a trading update in January indicating a decrease in operating profit for the year. The company published its results for the year ending March 2022 in late May and, although the reported operating profit was in line with the guidance given in January, it indicated further headwinds that were anticipated to impact on this year’s operating profit, along with supply chain inflation that could add £5 million to operating costs.

The company’s share price fell by around 10%, after which it fell further to end the period 28.7% down (17% down after allowing for the fall in its market). In the full year its share price has fallen by 57.35% (by 48% after allowing for its market’s decline).

Crane Co’s first quarter results announced on April 25 indicated a good start to the year. Sales growth of 5% and order growth of 10% were said to be driven by a continued recovery across end markets, success with new product introductions and commercial excellence initiatives. Excluding special items, first quarter operating profit was $141 million compared with $128 million in the same quarter last year. Performance was solid in all three business segments.

Despite this, the company lost 23.25% in value in the period, but only by 10% after taking into account the fall in its market’s value. In the full year period, the company outperformed its market by 5% and is only 4.4% lower in actual market value.

In March Orell Füssli announced lower revenue but improved profitability for 2021, resulting in its share price outperforming its market by 4.1% in the first quarter.

This period Orell Füssli’s share price only fell by 3.1% and it outperformed its market by 9%. In the full year the company underperformed its market by 2.5%.

Despite the positive annual results for 2021 announced in March, Spectra Systems’ share price in the first quarter fell by 7.5% and it underperformed its market by 1.5%. This quarter its share price fell by 13.5% and it underperformed its market by 9.5%.

In the full year the company has lost 26.6% in value, which reduces to 16.5% when its market’s decline in value is taken into account.

CIT – Loomis and Prosegur outperform

Based on a strong all-round performance in 2021, Brinks’ share price increased by 2.9% in the first period to March, and outperformed its market by 7.5%.

In this period, to June, Brinks announced record first quarter results, including revenue growth of 24%, and confirmed confidence in achieving the 2022 guidance financials. The company also stated that ‘pricing should continue to offset inflationary pressures and we do not expect global supply chain disruptions to materially affect our operations’.

Despite this, Brinks’ share price fell by 13.8% in the period and it underperformed its market by 2.5%.

In the full year the company has lost 26.6% in market value, reduced to 16.5% when the fall in its market is taken into account.

Loomis also posted improved results for FY 2021 in the first quarter with revenue up by 4.8% and operating profit by 10.5%. The company’s value increased by 13.8%.

This period, like Brinks, Loomis announced record sales for the first quarter (up 25% to SEK 5.6 billion) and operating income (EBITA) up by 44% to SEK 516 million, increasing the operating margin from 8% to 9.2%.

Nevertheless, the company’s share price in the period fell by 8.1%, but it outperformed its market by 8%.

In the full year Loomis’ market value has declined by 9.3% but it marginally (+0.05%) outperformed its market.

Prosegur’s results for 2021 indicated a decrease in operating profit (EBITA) of 13.6% but net profit for the year at €59 million was the same as the previous year. Its share price fell by 0.7% and it underperformed its market by 6.7%.

This period, as with both Brinks and Loomis, Prosegur reported substantially increased sales of €946.9 million (up 18% over the first quarter of 2021). EBITA also increased (by 19% to €60 million) but consolidated net profit fell by 36.7% to €10.6 million.

Despite the net profit result, Prosegur’s share price increased by 3.3% this period and it outperformed its market by 15%.

In the full year Prosegur’s market value has declined by 26.7% and it underperformed its market by 16.5%

ATM and Service Providers – the Glory goes to Glory!

Diebold Nixdorf recorded a net loss of $78.8 million for 2021, substantially less than the $270 million loss of 2020. Despite this improvement, its share price fell by 14.6%. Its first quarter results this year showed a decline in revenue compared with Q1 2021 of 12.1%, while operating profit (GAAP) fell from $36.2 million to a loss of $83.4 million.

The market was not impressed. The company’s share price fell by 65.2%, its market value reduced to only $191.1 million. It a full year the company has lost 81.1% of its market value, underperforming its market by 72%.

In the first period of this year, NCR announced that revenue for FY 2021 increased by 15% and EBITDA by 38.8%, increasing its operating margin by 3% to 17.4%: the company’s share price increased by 2.4%.

Although the company’s first quarter results for this year indicated a revenue increase of 21% over Q1 2021, increased costs reduced the gross margin, leading to an operating income of $33 million compared with $110 million in 2021. The company recorded a net loss of $34 million compared with $30 million profit in Q1 2021. It also reduced its full year operating profit guidance by approximately 6.7%.

As a result, NCR’s share price fell by 20.25% in the period, reduced to 11.5% after allowing for its market’s decline in value.

In a full year NCR’s value fell by 30.6%; 21% after allowing for its market’s decline in value.

Glory reported its full year results to March 2022 last month. Revenue for the year increased by 4.2% to ¥226.5 billion but operating income fell by 27.5% to ¥10.3 billion due to increases in the cost of sales and selling, general and admin expenses. Net income increased by 15.6% to ¥7.5 billion.

Glory’s share price fell by 2.1% in the period but, after taking into account its market’s change, the company actually gained 3% in value.

In the full year Glory’s market value fell by 11.9%, reduced to 4% after taking into account its market’s decline in value.

Company Performances – June 2022