Deloitte Economics: Coronavirus Impact Monitor - Black Friday Monitor: Retail, mink and vaccines
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Deloitte Economics: Coronavirus Impact Monitor Black Friday Monitor: Retail, mink and vaccines 15th edition, 27 November 2020
Coronavirus outbreak
The second wave has arrived in Denmark, while previously affected countries lose infection
momentum
7-day rolling average new daily confirmed COVID-19 cases for selected countries
• COVID-19 is continuing its spread across the world, with more US and Brazil Spain and France Denmark and Sweden
than 60 million confirmed cases in 188 countries. About 1.4m 180.000 60.000 5.000
people have lost their lives. 160.000
50.000
140.000 4.000
# Daily cases
• The second wave and its effects are being worst felt by those
120.000 40.000
countries with more lax lockdown procedures (e.g., Sweden 3.000
100.000
and America). The more stringent lockdown conditions being 30.000
80.000
rolled out again across most other nations are ostensibly 2.000
stemming the infection rates to a large degree. 60.000 20.000
40.000 1.000
• The political fallout from rising infection rates in France has 10.000
20.000
enabled a more aggressive containment strategy, which has
0 0 0
seen cases drop drastically. 1 Mar 15 May 15 Aug 26 Nov 1 Mar 15 May 15 Aug 26 Nov 1 Mar 15 May 15 Aug 26 Nov
• The Nordics have continued their disparate infection rates, as
Sweden pursued its first-wave method of minimal
7-day rolling average new daily confirmed COVID-19 deaths for selected countries
regulations, and unfortunately this has proved to be US and Brazil Spain and France Denmark and Sweden
insufficient in dealing with infection rate and death rate 3.000 1.200 120
compared to its Nordic peers.
2.500 1.000 100
• The second wave – it appears – is still leading to a
corresponding increase in deaths, albeit mitigated by health 2.000 800 80
# Daily deaths
preparedness in most countries, which is intensifying the 1.500 600 60
need to create and distribute a viable vaccine.
1.000 400 40
• Given the ongoing restrictions, it will be interesting to see
how retail and commerce in general are affected this 500 200 20
Christmas, with the shift perhaps from physical to online
0 0 0
retail softening much of the economic effect.
1 Mar 15 May 15 Aug 26 Nov 1 Mar 15 May 15 Aug 26 Nov 1 Mar 15 May 15 Aug 26 Nov
US Brazil Spain France Denmark Sweden
Source: World Health Organisation (WHO), the Danish Health Authority (Sundhedsstyrelsen), Danske Bank, Deloitte analysis
Coronavirus Impact Monitor – 27 November 2020 Page 2 Deloitte Economics © 2020
Impact on financial markets
Positive news on the outlook of introducing corona vaccines along with the outcome of the recent
US presidential election reflect positively on stock markets across Europe
• European equity markets continue to show some sector Equity markets: Sectoral indices in Europe1
divergence.
Major outbreak in Europe
• The positive news about the outlook for corona vaccines have 120 117
had a positive impact on the Transport industry, where the
110
index has augmented by 28% in the past month, however, still
(2 Jan 2020 = 100)
Sectoral indices
100 100
down by 16% compared to the beginning of 2020.
90 92
• Likewise, positive expectations for the Energy sector and the 80
83
Financial sector are reflected in European markets, where both 75
70
indices have had high increases in the recent weeks, and
60
Financial stocks are approaching levels from the beginning of
50
the year.
40
• As Medical & Pharmaceutical stocks have had a modest change, 301 Dec
Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1 Jul 1 Aug 24 Sep 1 Oct 1 Nov 1 dec
2019
they do not follow the increases seen in the other sectors. Transport Energy Medical & Pharmaceuticals Financial Technology
However, levels have returned to the same levels as at the
beginning of the year. OMX C25 Index, median quarterly net income, DKKm2
• Technology stocks continue to increase in value, with a year-to- 1,600
date return around 17%. 1,400
• The lower right-hand chart shows the development in quarterly 1,200
Quarterly net income
net income results for OMX C25 Index constituents. 1,000
800
• Following a sharp drop in Q1 2020, net income results for both 600
Q2 and Q3 2020 indicate that Denmark’s largest companies 400
have made a swift recovery with expectations pointing to a 200
continued recovery in Q4 and median quarterly net income 0
above pre-outbreak levels over the remainder of 2020. (200)
However, the figures for the 25th percentile indicate an Q1 2019A Q2 2019A Q3 2019A Q4 2019A Q1 2020A Q2 2020A Q3 2020 A Q4 2020E Q1 2021E
expected decrease. 75th percentile Median 25th percentile
Note: 1) Refinitiv European sectoral price indices measured by Refinitiv (Thomson Reuters), 2) A=Actuals; E=Expected. Q3 2020 numbers are a blend of actuals and estimates
Source: Thomson Reuters Eikon and S&P Capital IQ
Coronavirus Impact Monitor – 27 November 2020 Page 3 Deloitte Economics © 2020
Denmark’s mink industry crisis
After learning that COVID can be infected both by and from mink, the government responded with
an order to cull livestock en masse
Production value of pelts
(DKKm), inflation adjusted
• The Danish authorities worry that a mutated form of
coronavirus found in mink may hamper the effectiveness of a
future vaccine. This has led to rapid policy action by the sitting
government.
• Several different mutations have been discovered in the virus in
mink that do not arise in humans. However, one called "Cluster
5" is of particular concern, and 12 people are known to have
caught it in Denmark. More than 200 other people have
contracted other mink-related strains of the virus.
• The government admitted it lacked the legal framework for a
nationwide order and only had jurisdiction to cull infected mink
or herds within a safety radius.
Number of FTE employed
• The economic effect of this policy will be felt both for the fur FTEs
industry, from farm to retail, and more broadly, including
impacts on employment and reparations paid by the state.
• The industry had reported turnover of almost USD 1bn
(GBP 750m) in 2018-19. According to a Kraka report, based on
the farms' finances for 2016-2018, an elimination of the mink
profession in Denmark will lead to a total socio-economic loss of
2.5 billion.
• Further, Danish mink farms employ 2,700 full-time employees,
who must now find new employment.
BBC, Deloitte, Kraka
Coronavirus Impact Monitor – 27 November 2020 Page 4 Deloitte Economics © 2020Danish consumer spending – since lockdown
Whilst recovery from the economic crisis has been perceived, it is more subdued than previous
economic recessions due to the protracted nature of the cause
Danish Consumption Index
200
• 13 March 2020 saw the initial lockdown phase of the Danish
state, one of the first movers for restrictions globally.
150
• Normal consumer seasonality has been skewed by the changing
restrictions and lockdown procedures during the last eight
months. 100
• Whilst there have been several spikes in consumption, due to
the fears of scarcity and consumers forecasting their 50
consumption needs under the government-forecast scenarios,
the overall economy has suffered tremendously, and a
complete recovery to pre-COVID levels will take time. The initial 0
01-03-2020 01-05-2020 01-07-2020 01-09-2020 01-11-2020
shock to the economy not only causes the globe to enter a
recession, but it materially lowered future growth and Denmark Total excl. grocery stores
productivity estimates. Danish Consumer Confidence
• Danes are still very pessimistic about the return to normality, 4,5
and this is reflected in a negative consumer confidence, which 3,3
2,5
indicates bleak consumption forecasts heading into the 0,4
Christmas period and 2021.
• The government will need to devise and enact strong recovery
policy to be able to safe-guard Danish consumer interests, -3,1 -2,9
particularly those most affected by the lockdown, as well as -5,5
-6,2
plan about the relative scarcity of some import materials. -7,4 -7,6
-8,8
-11,9
dec-19 jan-20 feb-20 mar-20 apr-20 maj-20 jun-20 jul-20 aug-20 sep-20 okt-20 nov-20
Danske Bank, Statistics Denmark
Coronavirus Impact Monitor – 27 November 2020 Page 5 Deloitte Economics © 2020Retail & Hospitality Consumption – Denmark
Hospitality continues to struggle, whilst electronics boom for retailers in Denmark before the
Christmas period
5-day moving average index – spending levels
150
• After the initial economic drop-off, the economy re-emerged to
a more normal level in June and July. However, this
improvement was not felt across all sectors of the economy, as 100
shown in the graph, with cinemas, entertainment and hotels
suffering disproportionately due to their exposure to social
gatherings. 50
• The government’s policy on easing restrictions for eating out
and night life has allowed for some semblance of economic
0
normalcy to return, but there may be an extended period 05-03-2020 05-05-2020 05-07-2020 05-09-2020 05-11-2020
before these sectors of the economy return to pre-COVID
Cinemas Hotels and motels
levels. This structural burden could mean that more
Restaurants Tourist attractions and amusement parks
government support may be required well into 2021 for the
Theaters and concerts
hospitality sector.
• Alternatively, retail consumption for consumer goods, 300
particularly electronics, has seen a boost. The enormous
amount of time spent at home and remote working have
boosted the need for electronic goods, particularly things like 200
tablets, screens and peripherals.
• We would expect e-commerce to play a much larger role in the
consumer economy, as many businesses have been forced to
100
adapt the new economic circumstances. This disruption will
lead to a significantly quicker adoption of the online and
internet-centric business model. This could have knock-on
effects for physical stores and related real estate. 0
05-03-2020 05-05-2020 05-07-2020 05-09-2020 05-11-2020
Book stores Clothing stores Electronic stores Cosmetics stores
Note: Outlier and smoothing have been performed to allow visual coherence
Source: Danske Bank consumption data, Deloitte Economics
Coronavirus Impact Monitor – 27 November 2020 Page 6 Deloitte Economics © 2020Danish business sector confidence indicators
Sentiment across key sectors continues to recover, notably in the Industrials sector
• Recent October data suggests that sentiment across key sectors in the Danish economy continues to recover after falling sharply in April and May 2020.
• The Industrials sector indicates the highest increase in sentiment, though it remains pessimistic.
• The Retail sector in particular has recovered well and continues to do so, and currently has a positive outlook. However, this is slightly less positive in October 2020 than in
the previous month, indicating a reduced optimism following the second wave.
• While the Services sector also exhibits a less negative outlook than previously, it remains significantly lower than the other sectors and much lower than any point since
2011.
Industrials1 Services1
10 20
5
10
0
-5 0
Oct.
-10
(7) -10
-15 Oct.
-20 -20 (14)
-25
-30 May -30
-35 (26)
-40 May
-40
-45 -50 (47)
2004 2008 2012 2016 2020 2012 2014 2016 2018 2020
Construction1 Retail trade1
20 20
Oct.
11
10
10
0
Oct. 0
-10
(9)
-20 -10
-30 April
-20
-40 (33)
-30 April
-50
(32)
-60 -40
2004 2008 2012 2016 2020 2012 2014 2016 2018 2020
Note: 1) Net index which expresses the difference in percentage of companies, weighted by employees, which have stated positive and negative expected sector development.
Source: Statistics Denmark
Coronavirus Impact Monitor – 27 November 2020 Page 7 Deloitte Economics © 2020Q3 GDP update
As Q3 GDP numbers are published, figures indicate that the reduced restrictions over the summer
have contributed positively to GDP
Q1 2020 Quarter-on-quarter GDP growth for selected countries1:
Q2 2020 Q1, Q2 and Q3 2020
Q3 2020 18%
16% 17% 16%
13% 12%
9% 8% 7%
4% 5% 5% 5%
2% 3% 3%
0% 1% 0%
(1%) (1%) (1%) (1%) (2%) 0% (1%) (2%)
(2%) (2%) (2%) (2%) (3%)
(4%) (3%)
(5%) (6%) (5%) (5%) (5%) (4%)
(7%) (7%) (7%) (8%)
(10%) (9%) (10%)
(10%) (10%) (9%)
(12%) (12%) (12%)
(14%)
(19%) (17%) (17%)
(22%)
(25%)
South Korea
Italy
Iceland
Sweden
OECD
Mexico
Denmark
Eurozone
Germany
Australia
Brazil
Spain
Russia
Finland
China
Japan
UK
France
Canada
Norway
US
India
• After clarity from the US election results, we will see more assurance in trade and global economics.
• New GDP figures for Q3 2020 have started to be released by various countries, including figures published for Denmark showing a 5% increase in Q3. This data captures
the quarter when most countries began to reopen following lockdown restrictions in Q2.
• Across the OECD as a whole, GDP increased by 9% in Q3 2020 based on data available at the time of writing. Comparing this with the Q2 figure showing a 17% drop, this
illustrates how the virus so far has had its greatest impact in Q2, when most countries had lockdown restrictions.
• The increase in Q3 in most countries indicates a similar pattern to the figures reported by China in Q2, which was one of the first countries to implement lockdowns but
also among the first ones to reopen. In Q3, China reported a small yet positive increase of 3%. However, as many countries have reimplemented lockdown restrictions due
to the second wave, it is uncertain whether a similar pattern will continue in Q4.
• Some countries have fared better than others. Based on data available at the time of writing, France, Spain, the United Kingdom and Italy experienced a 18%-16%
increase, but these countries experienced greater decreases in GDP in Q2.
Note: 1) Some figures are preliminary and subject to change
Source: OECD, UK Office for National Statistics, Statistics Denmark
Coronavirus Impact Monitor – 27 November 2020 Page 8 Deloitte Economics © 2020Coronavirus heatmap
Deloitte Economics’ view on the short-term outlook across selected sectors in Denmark
Consumer
• Hospitality suffers, but electronics and consumer goods are near normal or Denmark
above pre-corona. Sector
Energy & Resources Short term Outlook
• Coronavirus continues to depress electricity prices, while coal and gas are at
pre-crisis levels.
Financial Services Consumer Neutral/Low impact Moderate recovery
• Valuation recovery stagnates, and the sector contemplates long-term
changes.
Industrials Energy & Resources Moderate impact Slow recovery
• Overall positive manufacturing outlook, with localised productivity and
positive trends into Q4.
Life Science & Health Care (LSHC) Financial Services High impact Moderate recovery
• Medical & Pharmaceuticals stocks have been performing well and are well
above pre-outbreak levels. Lifted higher by vaccine positivity.
Industrials Moderate impact Moderate recovery
Real Estate
• Stock prices are down by 10% from January, and M&A activity is down by
10%-15% on last year, but with an overall positive outlook of moderate Life Science & Health
recovery, which is supported by record-low interest rates. Neutral/Low impact Growth opportunities
Care
Technology, Media & Telco (TMT)
• TMT sectors continue their strong growth, as the world has migrated more
Real Estate Moderate impact Moderate recovery
of its entertainment and work online.
Transport
• The transport market is in recovery following the opening of several Technology,
Neutral/Low impact Growth opportunities
markets. Media & Telco
Please note that variations in industries may occur. We refer to pages 12-19
for an in-depth coverage of developments in selected industries. Transport Moderate impact Slow recovery
Coronavirus Impact Monitor – 27 November 2020 Page 9 Deloitte Economics © 2020Key messages
Increased consumer sentiment for retail, vaccine hope and American election certainty
• COVID-19 is continuing its spread across the world, with more than 60 million confirmed cases in 188 countries. About 1.4m people have lost their lives.
• COVID trends for some countries like the United States and Sweden are on a worrying level and will require much stricter measures to materially decrease infection levels.
• The American election is all but finalised and has allowed the global community to obtain a high degree of certainty with the change of administrations. A particular boon
is likely to be seen in the renewable energy and sustainability sectors, with Biden intimating that America will re-enter the Paris Climate agreement.
• The likely promise of a functioning COVID vaccine on the near-term horizon has positively affected many stocks, with the assurance and minimisation of uncertainty
playing a large role in improving investor confidence.
• The Danish Government has instigated the culling of a majority of the minks used in the pelt industry, and this has led to some unemployment and increased economic
costs.
• Consumer confidence remains negative and worrying, with a lack of improvement from the restrictions still in place during this second wave. Some retail sub-sectors have
maintained disproportionate growth, such as electronics and e-commerce, whilst some other sectors like hospitality and entertainment have extremely bleak outlooks
heading into the Christmas and 2021.
• Many economies around the globe have seen stark recoveries, with an improvement in the management of the crises on local and regional levels. The recovery will take
well into 2021, however, to meet the pre-COVID expectations of the economic forecasts.
• It remains to be seen how management of the virus will affect the efforts for economic recovery, and how the impact and rollout of a vaccine will influence the level of
aggression in solving this economic crisis.
• Deloitte Economics will continue monitoring the impact of the coronavirus in Denmark and globally. Find our updates here
For questions on the contents of this report, please contact:
Majbritt Skov Tinus Bang Christensen Peter Lildholdt
Partner, Head of Deloitte Economics Partner Vice President
Mobile: +45 30 93 44 63
Mobile: +45 30 93 54 71 Mobile: +45 40 35 25 36
tbchristensen@deloitte.dk
maskov@deloitte.dk plildholdt@deloitte.dk
Disclaimer: The information in this document is intended for knowledge sharing only.
Coronavirus Impact Monitor – 27 November 2020 Page 10 Deloitte Economics © 2020Industry outlook
Consumer Page 12
Energy & Resources Page 13
Financial Services Page 14
Industrials Page 15
Real Estate Page 16
Technology, Media & Telco (TMT) Page 17
Transport Page 18
Public Page 19
Coronavirus Impact Monitor – 27 November 2020 Page 11 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate TMT Transport Public
Resources Services
Industry outlook: Consumer
Consumer indexes have increased significantly and retail multiples near pre-corona level
Highlights from the industry (as of 26 November 2020)
Based on top 10 companies
120,0 Deloitte State of the Consumer Tracker
115.8
110,0
109.6 Consumers’ intention to spend more during the next four weeks
Indexed share price
100,0
Clothing/ Household Restaurant/
95.0 Electronics Furnishings Groceries Medicine
footwear goods takeout
90,0
93.0
80,0
70,0 -16% -15% -27% 24% 17% 11% -22%
60,0
25 Jan 25 Feb 25 Mar 25 Apr 25 May 25 Jun 25 Jul 25 Aug 25 Sep 25 Oct 25 Nov Consumers’ intended purchase channel
20 20 20 20 20 20 20 20 20 20 20
1 2 3
Retail Hospitality Consumer MSCI World
57% 52% 63% 60%
81% 78% 80%
Retail index has moved from index 105.7 to 115.8 (since last update). 12% 13% 13%
10%
30% 35% 26% 7% 7% 15% 8% 27%
Hospitality index has moved from index 81.2 to 93.0 (since last update). 12% 12%
Consumer index has moved from index 89.2 to 95.0 (since last update).
In store Online - Pickedup Online - Delivered
Trading multiples and economic outlook
Index: MSCI World Retailing Index (top 10 companies) Latest consumer confidence index4 (as of October 2020) has increased to
Historical averages Coronavirus impact
(EV/FY0 EBITDA) (EV/FY0 EBITDA) 98.4, illustrating a positive development, but still indicating a somewhat
-0.7x doubtful attitude towards the future economic development.
101
13,0x 14,4x 14,5x 17,0x 16,3x 98,4
98
95
Oct-06 Oct-08 Oct-10 Oct-12 Oct-14 Oct-16 Oct-18 Oct-20
10y avg. 5y avg. 3y avg. 1 Jan 2020 Current
Consumer confidence index (OECD-Europe)
Note: 1) MSCI World Retailing Index; 2) MSCI World Consumer Services Index; 3) MSCI Consumer Staples Index; 4) Based on OECD-Europe region
Sources: Capital IQ; MSCI; European Parliament; Deloitte State of the Consumer Tracker
Coronavirus Impact Monitor – 27 November 2020 Page 12 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate TMT Transport Public
Resources Services
Industry outlook: Energy & Resources
Coronavirus continues to affect electricity prices, while coal and gas are at pre-crisis levels
Highlights from the industry (as of 26 November 2020)
140 Hydropower generation
120 − Prior to the COVID-19 crisis, electricity prices were already pressured in the
Nordics due to a warm winter, which increased the generation capacity of
100
Norwegian hydropower plants.
80
− Further, the mild winter decreased demand for electricity.
60
Lockdown affects demand
40 − The coronavirus lockdown negatively affected the demand of both public
20 institutions, private individuals and corporations.
1 Jan 20 1 Mar 20 1 May 20 1 Jul 20 1 Sep 20 1 Nov 20 1 Jan 21
Carbon market prices
Natural gas TTF, spot Coal API2, spot Nordic electricity future, Q4-20 − Lower emissions of CO2 and other greenhouse gasses led to a decrease in
carbon prices.
Mild winter puts pressure on Nordic electricity prices prior to the COVID-19 crisis.
− Coal became cheaper, lowering overall prices, as coal was marginally price
Electricity demand decreased marginally due to the coronavirus lockdown.
setting. This created a self-enforcing effect, which drove down prices even
Significant drop in carbon emissions, resulting in lower prices. further.
Economic outlook
Selected futures
-40.1% +12.0%
Both coal and gas prices are back to pre-COVID levels, but electricity prices
-43.7%
continue to be depressed. Q4 Nordic electricity futures were c. 40% lower at the
35 33 end of Q3 compared to the beginning of the year.
25 28
21 18
The impact on electricity producers continues to be significant, but we expect
prices to rebound, as the marginal cost of conventional energy sources increases.
Nordic power, Q4-20 Nordic power, FY-21 EUA, Dec-20 The carbon market has rebounded significantly in recent month.
1 Jan 2020 26 Nov 20201
Note: 1) At the end September for Nordic Power, Q4-20
Source: Thomson Reuters Eikon
Coronavirus Impact Monitor – 27 November 2020 Page 13 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate TMT Transport Public
Resources Services
Industry outlook: Financial Services
Valuation recovery stagnates, and the sector contemplates long-term changes
Highlights from the industry (as of 22 September 2020)
120 Banks and consumer finance
110 [97.8] − Capital cushions among banks have proven to be adequate for most of the economic
scenarios for 2020 laid out by central banks. Regardless, they must rebuild, and in the
100 [82.3]
short-term, banks should expect credit losses on a scale not seen since the Global
90 [82.3] Financial Crisis (GFC). In future, banks may undertake overhauls of their business
80 models. In the current low-rate and low-growth environment, not all banks will succeed
[81.5]
70 with such transformation, which may prompt consolidation in the industry.
60 [76.4]
50
Insurance
[59.9] − Allianz SE expects global insurance premium income to shrink by 3.8% in 2020, which is
40
three times the pace witnessed in the GFC. However, insurers may benefit from greater
30
risk awareness. Demand for more comprehensive and simpler health insurance may
1/31/20 2/28/20 3/31/20 4/28/20 5/29/20 6/30/20 7/31/20 8/31/20
increase, and with travel expected to only gradually recover from the collapse during
Nordic Banks Nordic Insurance European AM lockdowns, the industry may undertake product improvements and premium changes in
Nordic Consumer Finance Nordic DCA MSCI World several areas.
While the average world market has almost returned to price levels that Asset Management
preceded the COVID-19 crisis, the Financial Services sector remains under − COVID-19 caused a halt to a long and consistent annual growth trajectory for asset
pressure from renewed concerns of new COVID-19 outbreaks. managers, presenting several imperatives for their businesses. These include developing
Nordic banks and asset managers have seen market value stagnate, adding differentiated product offerings (e.g., sustainable investing), providing advice supported
pressure to the gains made over the summer. Consumer Finance and DCA have by strong digital capabilities, improved approaches to cost cutting, streamlined service
shown the largest gains in market value since their mid-March low point. deliveries and transformation of operating models.
Trading multiples and economic outlook
Index: S&P Capital IQ1
Market capitalization (1 Jan = index 100) Coronavirus impact (P/BV)3 Loan provisions related to COVID-19 were front-loaded in H1 2020, but with
16-03-20 22-09-20 -0.4x government support schemes expired, and newly instituted lockdown measures in
place throughout the Nordic region, increases in actual losses are expected in the
82 81 82 1,8x
69 65 67 76 60 1,4x coming quarters.
52 43 1,1x
While not on the same scale as the GFC, the economic consequences of the pandemic
have proved to be severe. The effects of COVID-19 may restructure the Financial
Services sector in several dimensions, including competitive structure, sources of
Nordic European Nordic Nordic Nordic 1 Jan 16 Mar 22 Sep
Banks AM Consumer Insurers DCA2 2020 2020 2020
growth, innovation, customer interaction, and digital technologies.
Banks
Notes 1) Indices are from Stoxx Europe 600 Financial Services and MSCI World; 2) DCA: Debt Collection Agencies; 3) P/BV is measured as average of Nordic Insurers, banks, and DCA.
Sources: A. Allianz Insurance Report 2020: https://www.allianz.com/en/economic_research/publications/specials_fmo/01072020_Insurance_Report.html
Coronavirus Impact Monitor – 27 November 2020 Page 14 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate TMT Transport Public
Resources Services
Industry outlook: Industrials
The manufacturing sector in the Eurozone stands out as a bright spot in the economy
Share price development year-to-date Manufacturing PMI level for the Eurozone reaches 53.6
Indexed share price as of: November August
180 56.7
26 Nov 29 Oct
160 53.4 October July
163.3 126.6 US 53.2 September
140
115.3 103.3 53.1
120 50.9
109.0 99.3
100 The manufacturing sector in
100.0 83.5
80 55.2 Eurozone remains something
53.7 of a bright spot, with
60
UK 54.1
40 55.2 especially factories in
1 Jan 20 1 Mar 20 1 May 20 1 Jul 20 1 Sep 20 1 Nov 20 53.3 Germany continuing to show
Industrials Materials Automotive MSCI World
encouraging resilience led by
53.6 further surge in demand.
54.8
Stock markets have surged, primarily driven by global events, where two significant risks
Eurozone 53.7
have been taken out of market-COVID vaccines and the US election. 51.7
IHS Markit Manufacturing PMI:
Index =50: No change
The significant surge in Automotive is partly explained by Tesla keeping beating consensus 51.8 Index 50: Expansion
Trading multiples
MSCI World Industrials Index MSCI World Materials Index MSCI World Automotive Index
Historical averages Coronavirus impact Historical averages Coronavirus impact Historical averages Coronavirus impact
(EV/EBITDA) (EV/EBITDA) (EV/EBITDA) (EV/EBITDA) (EV/EBITDA) (EV/EBITDA)
+0.6x +1.6x +0.2x
12.1x 13.1x 13.3x 13.8x 14.4x 10.6x 11.9x 12.0x 11.8x 13.4x 9.8x 9.9x 10.3x 11.1x 11.3x
10y avg. 5y avg. 3y avg. 1 Jan 2020 Current 10y avg. 5y avg. 3y avg. 1 Jan 2020 Current 10y avg. 5y avg. 3y avg. 1 Jan 2020 Current
Since last update (29 October 2020), the EV/EBITDA Since last update (29 October 2020), the EV/EBITDA Since last update (29 October 2020), the EV/EBITDA
multiple is up from 12.3x to 14.4x. multiple is up from 13.1x to 13.4x. multiple is up from 10.9x to 11.3x.
Note: 1) Data as of 26 November 2020
Source: Capital IQ; MSCI World Indices; IHS Markit; Bloomberg
Coronavirus Impact Monitor – 27 November 2020 Page 15 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate TMT Transport Public
Resources Services
Industry outlook: Real Estate
Despite COVID-19, the Real Estate M&A market is expected to drop only by 10%-15% in 2020
Highlights from the industry (as of 27 November 2020)
110 2,0% General recovery from COVID-19, but uncertainties influence the industry
100 1,8% − The industry as a whole is not as severely hit, as some would have expected eight
(2 Jan 2020 = 100)
months ago, but some sectors are hit more than others. Residential, offices and
Stock price index
90 1,5%
Interest rate
logistics are doing well, while retail and hotels are struggling to recover.
80 1,3% − In addition, there is still uncertainty about the potential change to taxation of
70 1,0% properties from 2023, and recently the government has announced that the new
public valuation model of commercial properties will be postponed, leaving even
60 0,8% more uncertainty about real estate taxation.
50 0,5% M&A market expected to drop by c. 10%-15% in 2020
Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20
− Despite a troublesome Q2, the first three quarters of 2020 are at about the same
STOXX 600 Real Estate Index Danish long-term mortgage rates
level as 2019. However, Q4 is not expected to perform as well as in 2019.
The leading Real Estate Index has increased steadily since March and is now trading at a 10% − In total, the Danish RE M&A market is expected to reach c. DKK 50-55bn in 2020
discount compared to January. compared to c. DKK 60bn in 2019. Two thirds of transactions are residentials and
offices.
Interest rates are below pre-COVID-19 level, supporting the Real Estate M&A market with
cheap financing. − If there will be a reasonable solution to the liquidity issue from the new
proposed taxation model, we believe that 2021 will be at 2020 level.
Trading multiples and economic outlook
Index: Custom weighted average index1 For the first time since the beginning of COVID-19, price multiples for the selected industry
Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA) companies are now exceeding pre-COVID-19 levels. However, despite the recovered price
+0.1x multiples, there are companies with substantial retail and hotel assets which still struggle.
27.6x 25.4x 28,0x 30,7x 30,8x As interest rates may continue at a record-low level, Real Estate assets will continue to be an
attractive asset class.
Private housing prices are expected to continue to increase in Q4 2020, which is supported
by continuous strong demand and historic low supply.
10y avg. 5y avg. 3y avg. 1 Jan 2020 Current
Note: 1) Based on Collier International, Patrizia AG, Agat Ejendomme A/S, Jeudan A/S, and Park Street Nordicom A/S
Source: Finans Danmark, Thomson Reuters Eikon, Capital IQ, Colliers International, Danmarks Statistik, Konjunkturanalyse 2019, and Cushman Wakefield RED
Coronavirus Impact Monitor – 27 November 2020 Page 16 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate Transport Public
Resources Services TMT
Industry outlook: TMT
TMT sectors have shown relative resilient to COVID-19, as the world has gone digital
Highlights from the industry (as of 26 November 2020)
130 TMT perceived as a defensive sector, which has less to lose from COVID-19
120 119
115
114 Telecom: Spend among consumers is often within a contract; demand is up; need
110
110 is not discretionary (new cars) or constrained (leisure).
100
90 Media and Entertainment: Financial impact varies across sub-sectors. Media
80 consumption up (e.g., Netflix, Disney+), but willingness/ability to pay may be
70 constrained, as economic outlook exacerbates. Events (consumer, business)
60 mostly heavily restricted; cinemas, theatres, museums mostly closed. TV and
1 Jan 20 27 Nov 20 movie production mostly halted. Theme parks mostly closed.
Information Technology1 Communication Services1 Media and Entertainment1 MSCI World
Technology: Some segments (e.g., robotics, communication software) seeing
TMT companies are trading above the overall equity market. record demand; digital transformation being accelerated; companies catering to
SMEs may suffer from customer liquidity.
Media and Entertainment quickly recovered after the shockwave on the stock market. As
people stay home, the entertainment market is making records.2
Trading multiples and economic outlook
Index: MSCI World Information Technology1 Forrester has revised its IT spending forecast downward and expects a 50%
Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA) probability that global tech markets will decline by 2% or more in 2020 if a full-
+4.2x fledged recession hits.
27.1x 25.1x 27.1x 32.2x
28.0x Gartner expects global IT spending in 2020 to decline by +6%.
Software spending is the subsector expected to show the highest resilience, while
computer equipment and IT consulting and systems integration services spending
10y avg. 5y avg. 3y avg. Jan 1, 2020 Current are expected to show weaker growth.
Note: 1) MSCI World industry indices used (top 10 companies for sector indices), 01-01-2020 = index 100; 2) In EMEA and selected Asian countries, physical games sales are up by 63% according to GamesIndustry.biz.
Source: S&P Capital IQ, Gartner Market Databook (April 2020 update), Forrester Research (March 2020)
Coronavirus Impact Monitor – 27 November 2020 Page 17 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate Public
Resources Services TMT Transport
Industry outlook: Transportation
The transport market is in recovery following the opening of several markets
Highlights from the industry (as of 26 November 2020)
130 Transport stocks indicate belief in the market’s recovery
122.4
120 − The rapid spread of COVID-19 has had a major impact on transport of global
113.2 goods, with ripple effects from the shortfall in demand for goods from China.
110
109.8
− The growth in stock prices since the low point in mid-March indicates an
100
expectation for a recovering demand, as global trade picks up after countries
90
have opened up, driving the recovery of physical retail.
80
70
Airlines struggling to take off
60
− The MSCI Transportation Index has more or less recovered (it is now above
Dec 19 Feb 20 Apr 20 May 20 Jul 20 Sep 20 Oct 20
pre-outbreak levels), which has been driven by the Railroads and Air Freight
MSCI World MSCI Transportation Danish Transportation Index and Logistics sub-industries, which hold a large weight in the index.
− This masks some of the other sub-industries’ fortunes, such as airlines, whose
Transportation indices have largely followed the total market in recovering from lows around stock prices are still well below pre-outbreak levels.
March this year, implying an increased need for goods transportation.
Trading multiples and economic outlook (as of 26 November 2020)
Danish listed transport companies1 The Shanghai Containerized Freight Index (SCFI) has risen by 81% since the
Historical averages Coronavirus impact2
(EV/FY1 EBITDA) (EV/FY1 EBITDA) beginning of the year, having picked up markedly over the last few months.
+1.1x
2000
7,2x 7,6x 7,5x 8,1x
7,0x
6,0x 1500
1000
500
10y avg. 5y avg. 3y avg. Last close Trough Current 2019 2020
2019
0 20 40 60 80 100
Note: 1) A.P. Møller-Mærsk, D/S Norden, DFDS, DSV Panalpina, NTG, TORM, 2) Lowest YTD was 6.0x on 20 March 2020
Sources: Capital IQ, Shanghai Shipping Exchange, Forbes, IHS Markit
Coronavirus Impact Monitor – 27 November 2020 Page 18 Deloitte Economics © 2020Consumer Energy & Financial Industrials Real Estate Public
Resources Services TMT Transport
Industry outlook: Public
Easing the Danish public’s uncertainty and outlook to promote recovery
Highlights from the industry (as of 27 November 2020)
A timeline for COVID-19 government response
Reducing the severe impacts of the second wave
Pre-
Initial response Adapt Recover and thrive − The government’s continued focus is on containing the second wave of the
COVID-19 outbreak, while minimising the severe economic consequences.
A new norm in
government Danish investments and finances
Level of flexibility
flexibility is set − Total Danish private customer deposits reached DKK 1,020bn, exceeding DKK 1tn
and speed in for the first time ever. In October alone, Danes increased deposits by not less
government
than DKK 28.6bn, boosted by the extraordinary disbursement of frozen holiday
pay, under which a total net amount of DKK 28.2bn was disbursed according to
∼4-6 months ∼8-10 months ∼12-18 months
figures from ATP.
TIME
− Uncertainty about the future has caused Danish corporations to hold back on
Act to promote safety and continuity
investment during the COVID-19 outbreak.
• Ensure the safety of citizens
Adapt measures through experience
• Focus on essentials Increased support for financial system
• Gradual reopening
• Fast response to an unknown and Recover and emerge stronger − Danmarks Nationalbank will undertake ownership and become administrator of
• Fast and specialised restriction
unprecedented situation • Responsible total reopening of
adaptations to changes in
society
the new Danish reference rate, DESTR, scheduled to be launched at the
• Offer maximum flexibility infection rates
• Long-term enhancements in the
beginning of 2022 following a test period in 2021. Similar reference rates are
• Learning from experience
public sector managed by central banks in other countries.
• A new level of flexibility
Economic outlook
The European Commission has approved Danish plans to set up a fund with a target size of up to DKK 10bn (c. EUR 1.34bn) to recapitalise large enterprises affected by the coronavirus
outbreak.
DKK 450m will go towards extending many compensation schemes dedicated to culture and sport until 31 January 2021, improving social conditions under the restriction regime.
After a budget surplus in 2019, the IMF calculated a decrease of 6.5% of GDP in 2020. In 2021, the economy is expected to grow by 6%. The reality of this is dependent on a vaccine and hefty
intervention from the state and treasury.
Digitalisation in the public sector may be boosted, as the crisis has reinforced virtual ways of working.
Sources: Deloitte Insights, Danmarks Nationalbank
Coronavirus Impact Monitor – 27 November 2020 Page 19 Deloitte Economics © 2020Industry outlook: Deloitte contacts
How Deloitte can help you
Consumer Energy & Resources
• Please use the contact details opposite to get in touch with our
Financial Advisory industry group leaders and find out how we can Mads Damborg Troels Ellemose Lorentzen
assist you. Partner Partner
• We are well-positioned to assist in a range of tasks, such as those
Email: madsdamborg@deloitte.dk Email: tlorentzen@deloitte.dk
below.
Mobile: +45 30 93 54 81 Mobile: +45 30 93 56 90
Focus areas Financial Services Life Science & Health Care
Björn Lagerstam Mads Damborg
State aid packages
Partner Partner
Email: blagerstam@Deloitte.dk Email: madsdamborg@deloitte.dk
Liquidity scenario analysis
Mobile: +45 30 93 48 30 Mobile: +45 30 93 54 81
Debt covenant advice and financing Government & Public Services TMT
Rikke Beckmann Danielsen Kasper Svold Maagaard
Business restructuring and M&A Partner Partner
Email: rdanielsen@deloitte.dk Email: kmaagaard@deloitte.dk
Bankable business plan development Mobile: +45 30 93 56 92 Mobile: +45 30 93 54 54
Stakeholder management and process control Industrials Real Estate
Niels Stoustrup Mads Skaarup
Impact assessment Partner Partner
Email: nstoustrup@deloitte.dk Email: maskaarup@deloitte.dk
Economic modelling and forecasting Mobile: +45 30 93 59 15 Mobile: +45 61 67 90 50
Coronavirus Impact Monitor – 27 November 2020 Page 20 Deloitte Economics © 2020Appendices
Market volatility and European credit default probability Page 22
Deloitte Government Response Portal Page 23
Coronavirus Impact Monitor – 27 November 2020 Page 21 Deloitte Economics © 2020Market volatility and European credit default probability
Equity market volatility remains elevated but has decreased in the past month
VSTOXX Index1
100
• The VSTOXX Index measures 30-day implied volatility of
90
the EURO STOXX 50 equity index and reflects investors'
80 81
uncertainty about future equity market moves. 74
Volatility index
70
• As shown, the coronavirus induced an increase in volatility in 60
spring to a level comparable to that experienced during the
50
GFC in 2008.
40
• Volatility has since fallen back but increased its weigh on the 30
financial markets in September following accelerating COVID- 21
20
19 case numbers. However, the decrease in volatility has
10
continued in the past weeks.
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
iTraxx Europe Crossover index: Default probability2
%
• The chart opposite shows the development in the implied 70
default probabilities based on the 5Y iTraxx European 61.7%
Crossover spread of Credit Default Swaps and an assumed 60
50.2%
Default probability in %
recovery rate of 40%. It measures default probabilities on a
50
portfolio of sub-investment grade corporate debt in Europe.
43.3%
40
• The default probability has fallen significantly from the peak
reached in March 2020, and the current level (20%) is now 30
once again in line with long-term levels.
20 19.9%
• As the index reflects cost of debt, refinancing remains costlier
10
for leveraged companies compared to pre-outbreak, even
though interest rates are very low. 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Note: 1) VSTOXX as volatility index of EURO STOXX; 2) Default probability calculated based on 5Y iTraxx European Crossover CDS and a recovery rate of 40%
Source: Thomson Reuters Eikon
Coronavirus Impact Monitor – 27 November 2020 Page 22 Deloitte Economics © 2020Deloitte Government Response Portal
Database of financial, tax, business and social measures announced by governments globally
• To aid our clients in navigating the complex landscape of COVID-19 assistance programmes, we have developed a free digital portal that captures the latest financial, tax,
business and social measures enacted by country.
Access the portal!
Coronavirus Impact Monitor – 27 November 2020 Page 23 Deloitte Economics © 2020This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities (collectively, the “Deloitte organization”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No representations, warranties or undertakings (express or implied) are given as to the accuracy or completeness of the information in this communication, and none of DTTL, its member firms, related entities, employees or agents shall be liable or responsible for any loss or damage whatsoever arising directly or indirectly in connection with any person relying on this communication. DTTL and each of its member firms, and their related entities, are legally separate and independent entities. Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. Our global network of member firms and related entities in more than 150 countries and territories (collectively, the “Deloitte organization”) serves four out of five Fortune Global 500® companies. Learn how Deloitte’s approximately 330,000 people make an impact that matters at www.deloitte.com. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please seewww.deloitte.com/about to learn more. © 2020 Deloitte Statsautoriseret Revisionspartnerselskab. For information, contact Deloitte Global.
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