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Knutsford Express Reports Net Loss Due to the Impact of the Pandemic on Passenger Travel Published: 15 April 2021

  • COVID-19 containment measures continue to adversely impact passenger travel and Knutsford Express’s bottom-line. For the 9-months ending February 2021, the company reported a net loss of $60.63Mn (EPS: -$0.13) relative to a net profit of $103.18Mn (EPS: $0.21) over the same period last year.
  • The deterioration reflects a 50.7% ($468.86Mn) decline in revenues to $456.37Mn. Revenues contracted as the ongoing pandemic continues to affect passenger travel negatively given ongoing curfews, reduced disposable incomes as well as passenger fears around public transportation.  Leveraging the available opportunities, the company expanded its courier services as the demand for e-commerce rose amid the pandemic.
  • A 35.5% (or $282.89Mn) reduction in administrative expenses also helped to mitigate the impact of lower revenues on its bottom line.
  • Knutsford’s investment in other revenue-generating measures, such as the recent opening of another courier outlet at Sovereign Centre, is expected to provide some relief to the company’s top and bottom-line. It should also benefit from new business initiatives such as the investment in its Drax Hall Business Centre (Phase 1) development, which is now fully tenanted, and the expected completion of Phase 2 in the first quarter of the upcoming financial year.
  • A vaccine-led recovery in key source markets and the rollout of the local inoculation program augurs well for international travel and a rebound in local economic activity. These factors will be key determinants of the company’s rebound prospects.
  • Following the 36.2% decline in the company’s stock price in 2020, it has declined by a further 5.9% since the start of 2021 and currently trades at a P/B of 4.5x which is in line with the Junior Market average.

(Source: Knutsford Express Financials & NCBCM Research)

Paramount’s Earnings Continue to Decline Published: 15 April 2021

  • The nine-month period ending February 2021 was a challenging period for Paramount as the company continued to battle the negative impact of the COVID-19 pandemic on its operations. Net profit declined by 43.1% (or $21.04Mn) to $27.74Mn as the general falloff in the transportation sector weighed down its lubricants division. At the same time, its food division suffered from the closure of educational institutions and the lockdown of the entertainment industry.
  • Revenues contracted by 11.6% (or $133.87Mn)  to $1.02Bn, and other operating income fell by 52.6% (or $20.84Mn).
  • This substantial falloff in income was largely softened by the company’s cost rationalization program, which saw a 14.3% (or $115.52Mn) and 7.7% (or $22.99Mn) reduction in direct and indirect expenses, respectively.
  • Paramount’s revenues will continue to be adversely impacted in the short term by the re-tightened restrictions. However, it should gradually improve as restrictions are lifted allowing for the re-opening of schools and a rebound in economic activity and the entertainment sector.  
  • Paramount’s stock price has declined by 3.4% year to date following a 35.3% falloff in 2020. The stock currently trades at a P/E of 70.0x earnings, well above the Junior Market Distribution average of 27.4x.

(Source: Paramount Trading Financials & NCBCM Research)

Ecuador’s Lasso Moves to Hit the Ground Running With Tax Reform Published: 15 April 2021

  • Ecuador’s President-elect Guillermo Lasso plans to introduce tax reforms as soon as he takes office next month. The reforms would be aimed at encouraging commerce and boosting government revenue with an eye on balancing the budget by the end of his term.
  • The 65-year-old career banker, who with Sunday’s election victory, will become the first fiscal conservative to govern Ecuador in close to two decades, wants to cut taxes rather than increase them. Lasso is banking on the combination of lower tax rates and stepped-up collection that deters tax evasion to balance the budget.
  • The president-elect’s plans run counter to suggestions from the International Monetary Fund, which has yet to distribute $2.5 billion of a $6.5 billion funding agreement signed last year, that Ecuador raises its 12% value-added tax, one of the lowest in the region.
  • Instead, Lasso wants the new tax system to allow a cut in VAT during four annual holidays to stimulate retail and tourism. His plan aims to end a 2% tax on sales for small companies -- on the premise that taxes should be paid on profits rather than sales -- and to phase out a 5% currency export tax that’s undermined foreign direct investment.
  • Lasso will need to build bridges with other political parties to advance his agenda and making decisions contrary to IMF suggestions could impact the government’s ability to attract more funding from the institution to support economic and fiscal recovery.

(Source: Bloomberg & NCBCM Research)

Cuban Communists Under Pressure To Accelerate Economic Reforms Published: 15 April 2021

  • Retiring Cuban Communist Party leader Raul Castro promised a decade ago he would transform the Soviet-style command economy into a more mixed and market-driven one “without haste and without pause.”
  • Now, with the Caribbean country in crisis and even the most basic goods in short supply, the party is under pressure to act faster as it convenes this weekend for its eighth congress since the 1959 Revolution.
  • The April 16-19 congress comes as Cubans battle worsening shortages of basic goods, including food and medicine. An economic crisis has been exacerbated by a tightening of decades-old U.S. sanctions and the coronavirus pandemic.
  • A long-time European investor in Cuba agreed, saying the government needed to push ahead with reforms to improve competitiveness, including the further devaluation of the peso currency, liberalization of agriculture, and greater incorporation of small- and medium-sized companies into the economy.

(Source: Reuters)

IMF Calls For Additional Euro Zone Fiscal Stimulus In 2021-22 Published: 15 April 2021

  • Eurozone countries should provide an additional fiscal stimulus of 3% of GDP in 2021-2022 to boost economic growth by 2% of GDP by the end of next year and reduce the negative effects of the pandemic, the International Monetary Fund said.
  • In its regional outlook for the eurozone, the IMF said the extra fiscal boost could then be followed by stronger consolidation once excess capacity has been reduced.
  • "Such additional support to the tune of 3% of GDP over 2021−22 could lift output by about 2% by the end of 2022 and more than half the medium-term scarring due to robust supply-side effects," the IMF said in the report.
  • "This would have greater benefits for households with low incomes and fewer side effects than additional monetary stimulus. It would also bring inflation closer to target in many countries and help rebuild monetary policy space," it said.
  • Eurozone countries provided more than 3 trillion euros in national fiscal stimulus and liquidity schemes last year to keep their economies going and some, like Italy, are announcing new support measures as the third wave of the pandemic triggers new lockdowns across the bloc.

(Source: Reuters)

Fed Sees Pickup in Inflation, Labour Market Gains as Reopening Underway Published: 15 April 2021

  • The U.S. economic recovery remains on track supported by stronger consumer spending amid a pickup in the labour market and inflation that is expected to pick up pace as the economy reopens, according to the Fed’s Beige Book released Wednesday.
  • The central bank’s Beige Book economic report, based on anecdotal information collected by the Fed’s 12 reserve banks through April 5, showed the U.S. economy continued to recovery at a modest pace and consumer spending strengthened amid easing pandemic restrictions. 
  • Inflation, meanwhile, appears to be on the move, driven by input costs that will likely continue to push up prices in the near term.
  • Federal Reserve Chairman Jay Powell continued to downplay the prospect of sustained inflation pressures and continued to suggest there was a still a ways to go until the economy is back at pre-pandemic levels.


COVID-19 Impact on Tourism Causes Dolphin Cove to Incur a Net Loss For 2020 Published: 14 April 2021

  • The sharp downturn in the tourism industry was reflected in Dolphin Cove’s financial year ending December, as the company incurred a net loss of US$1.12Mn (-$0.29 cents) relative to a net profit of US$1.61Mn in 2019.
  • The pandemic had led a significant decline in visitor arrivals with a session of the cruise activity a key segment for the company. This was compounded by the closure of operation in the second quarter and though operations resumed towards the latter part of the year, activity still remains significantly below pre-COVID levels. Consequently, revenues declined by 71.2% to US$4.27Mn. Other sources of income also declined, such as finance income which fell by 44.7%, but was however offset by the 51.9% reduction in finance costs. A reduction in admin and operating expenses by 56.4% and 51.2%, respectively tempered the deterioration in the company’s performance. The company also benefited from a tax credit of US$305,219 compared to the previous year’s tax expense of US$673,307.
  • After decreasing by 8.7% during 2020 to $8.78, Dolphin Cove’s stock price has fallen a further 14.4% since the start of 2021. The stock closed Tuesday’s trading session at $7.52, with a corresponding P/B of 0.78x, which is below the Junior Market Others Average of 5.0x.

(Source: Dolphin Cove Ltd. Financials)

Venezuela government wants to use funds frozen in the U.S. to pay for vaccines Published: 14 April 2021

  • Venezuela’s government wants funds frozen in the United States to be put toward paying for coronavirus vaccines and will keep working with the opposition to negotiate this payment, the head of the government-controlled legislature said on Tuesday.
  • Allies of opposition leader Juan Guaido have for months been in talks with state officials to buy vaccines through the COVAX program using funds frozen by the U.S. Treasury as part of sanctions against the government of President Nicolas Maduro.
  • Maduro over the weekend said his government had paid some $64 million to the GAVI Vaccine Alliance, spurring doubts as to whether the government would pull the plug on talks to use the frozen funds for the inoculation campaign.
  • In 2019, Washington froze $342 million held by the Venezuelan central bank in the United States, as part of a sanctions program that sought to remove Maduro from power. The funds were put under the control of opposition leader Guaido and the interim government he created, but moving them requires a license from the U.S. Treasury Department Office of Foreign Assets Control (OFAC).
  • The ability to access the funds would provide the country with the resources to secure a sufficient amount of vaccines for its citizens, which will help to support economic recovery prospects and governments’ fiscal performance.

(Source: Reuters & NCBCM Research)

Federal Aid Inflows Will Keep Puerto Rico's Current Account Surplus Wide Published: 14 April 2021

  • Puerto Rico will continue to run wide current account surpluses in the coming years, benefiting from strong inflows of federal aid related to hurricane reconstruction and Covid-19. Fitch Solutions forecast Puerto Rico’s surplus will narrow to 14.5% of GNP in the Fiscal Year 2021 (FY21; July 2020-June 2021), from 17.3% in FY20, as imports recover more quickly than exports in the near term.
  • Despite a narrower goods and services surplus, strong federal aid inflows will keep Puerto Rico’s overall current account in surplus. The federal government has allocated tens of billions of dollars to Puerto Rico to help its recovery from 2017’s Hurricane Maria and a series of earthquakes in early 2020, which was supplemented by aid from the CARES Act and American Rescue Plan stimulus bills passed in 2020 and early 2021.
  • Risks to aid inflows have diminished significantly under the Biden administration. Former President Donald Trump was generally critical of aid for Puerto Rico, arguing that it would be stolen or wasted, and his administration repeatedly put holds on spending assigned by Congress. In contrast, Biden’s administration has taken a number of steps to increase the flow of aid to the island, including removing restrictions on aid from the Department of Housing and Urban Development and funding for education.


(Source: Fitch Solutions)

Fed's Harker says central bank will 'hold steady' for now Published: 14 April 2021

  • The U.S. economy could grow by around 5% to 6% this year, buoyed by increased vaccinations and strong fiscal aid, but the Federal Reserve is not going to pull back its support yet, Philadelphia Federal Reserve Bank President Patrick Harker said on Tuesday.
  • "For now, Fed policy is going to hold steady," Harker said in remarks prepared for a virtual event organized by the Delaware State Chamber. "While the economic situation is improving, recovery is still in its early stages, and there’s no reason to withdraw support yet."
  • Policymakers agreed last month to leave interest rates near zero and keep purchasing $120 billion a month in bonds until the economy makes "substantial further progress" toward the Fed's goals for inflation and maximum employment. A full economic rebound cannot happen until more people are vaccinated and the U.S. reaches herd immunity, he said.
  • Despite concerns among some economists and politicians that inflation could shoot higher as the economy heals, Harker said he is concerned with the opposite - inflation that is too low. Over the longer term, the Fed wants inflation to run above its 2% target to make up for long periods of falling short of the goal, Harker said.

(Source: Reuters)