John Menzies Ready for Takeoff as Lockdown Lifts

The Week: Morningstar columnist Rodney Hobson looks at the newsagent-turned baggage handler as travelling starts to resume, as well as Intu and Royal Mail 

Rodney Hobson 26 June, 2020 | 8:52AM
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You have to sympathise at least a little with John Menzies (MNZS), which belatedly accepted that distributing newspapers and magazines was a dying industry and moved into the burgeoning field of air travel, handling luggage instead of printed paper.

Alas, as we all know covid-19 has emptied the airports of travellers and it was looking pretty grim when Menzies issued such guidance as it could in March. Could there now be light at the end of the runway?

Revenue in April and May was down 64% compared with the same two months of 2019 but that was in line with March’s warning. There was no more bad news. Menzies says it has not incurred any bad debts so far, outstanding payments are being collected from customers and cash is being preserved. Even as things stand now, it can keep going into next year without breaching banking covenants.

Life is already starting to look better as various countries lift lockdowns and ease travelling restrictions. Menzies reckons July will see a revival of activity. A lot could still go wrong if the feared second wave of infections materialises later this year but there is at last some hope and if weaker rivals go to the wall then there could eventually be rich pickings for the stronger survivors.

The rise in debt last year, though comparatively small, was a disappointment but Menzies is committed to reducing the burden so I am not too worried on that score. Cash that would have been paid out in dividends will help.

The shares nosedived from 480p to 75p, a drop of 84%, and they have struggled to pick up again, trading currently around 130p. That is a far worse performance than for most shares. They look an interesting punt for anyone prepared to play a long game.

Intu Deep Trouble

A quick reminder that however tough life is for retailers it is far, far worse for retail property owners. Stung by criticism that that it would be unfair on employees and suppliers if it walked away from its commitments, JD Sports (JD.) has structured its pre-pack deal for Go Outdoors to include stumping up for various debts including branded stock, tax, customers’ returns and gift cards. Employees will be transferred with rights and conditions of employment intact.

Owners of shop premises are not so lucky but no-one except the affected shareholders will be kicking up a fuss. Few sympathise with shopping mall owners who set up inflexible leases stacked against tenants. Meanwhile, other retailers have failed to pay their full quarterly rents.

It’s another nail in the coffin of Intu Properties (INTU), whose shares have slumped to a miserly 3.87p. The wonder is that anyone thinks they are worth anything. It is not too late to get out and accept the pittance on offer.

Frail Mail

When Royal Mail (RMG) floated I described it as a property company that also delivered the post. All the value was in any land and buildings that could be flogged off, since there would be an inevitable continuing decline in letters that would not be entirely offset by any rise in parcel deliveries.

Interim executive chairman Keith Williams now says that the company “has not adapted quickly enough to the changes in our marketplace of more parcels and fewer letters”. What have the experts running the business being thinking about? Every results announcement and trading update since privatisation has shown exactly that.

Williams could start with plain English. What do “a £130 million saving in people costs” and “a management restructure impacting around 2,000 roles” mean? People will lose their jobs, by any chance? Then there’s “targeted pricing actions”. It sounds suspiciously like a mealy mouthed way of saying the cost of postage was increased.

Royal Mail needs someone who can call a spade a spade. Until it gets one, avoid the shares

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.