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Vodafone 4Q20 schedule, OLED & new normal implications ?3


If you've already agreed with my (and subsequently, Alphabet's) opinion that COVID-19 is going to be with us for an extended period, and the world is not going to quickly revert to how it was, you may want to skip down below the following list & graphic for implications.  If not, perhaps this paper from the University of Minnesota will convince you.  It presents 3 scenarios and makes 5 key points:
  1. pandemic scenarios graphicBecause of a longer incubation period, more asymptomatic spread, and a higher R0, COVID-19 appears to spread more easily than flu.
  2. A higher R0 means more people will need to get infected and become immune before the pandemic can end.
  3. Based on the most recent flu pandemics, this outbreak will likely last 18 to 24 months.
  4. It likely won’t be halted until 60% to 70% of the population is immune.
  5. Depending on control measures and other factors, cases may come in waves of different heights (with high waves signaling major impact) and in different intervals.

R0 is simply the initial rate of infection.  I continue to think that there has been a significant level of unreported infection, which skews my outlook toward scenario 3.  However, I note that scenarios 1 & 3 are not exclusive; different geographies may well experience varying wave intensities.  America just recorded its highest daily death toll while Italy reached its lowest since early March.

Companies are adjusting to this viewpoint, even as many avoid giving any quantified guidance.  For broader context, Amazon has extended work-at-home where possible until at least October.  Meanwhile, the Fed is further increasing debt and won't even consider enforcing fiscal safety rules for another year or more.

Thus, although the outlook is slowly improving, I see April's V-shaped recovery as a response to unrealistic, politically-motivated media.  Despite that, Friday's declines looked very much like institutional book adjustment for reporting purposes, and thus don't necessarily indicate any extended follow through just yet, though European markets and early-morning American equity futures are both negative.  Economic as well as viral doubts are likely to persist until the election in November.

Nonetheless, evidence continues to mount that demand for fuel will remain depressed for an extended period, and that is why rig counts have continued to plummet across the globe.  Shell is the only company in the sector that I've seen be realistic and honest about this so far.  In its very long call it noted that the virus impact was not significant until March, and that pricing may increase without volume, which impacts the entire business value chain all the way through downstream and retail.  As a result it estimated that roughly 40% of its fiscal impact would be within OPEC, 40% would be shut-in, and 20% would be economic damage to the rest of the vertical.  So, while the media may tout necessary cuts and high percentage rebounds in oil prices, I remain focused on the point that WTI stabilizing in the $20s (current price $18.40) isn't going to help American shale at all.  Shell's management also pointed out that it now sees storage capacity becoming a major issue. You already had my ballpark estimate that Washington that can only delay the coming pain for a matter of weeks beyond this month.

With more activity occurring at home, one of the more interesting points in the IEA report that I referenced in conjunction with Energy Recovery's report is that renewable electricity is the ONLY energy source where demand is expected to increase this year.  Even natural gas is in decline.  This makes it no surprise that Chesapeake Energy is likely the next to go bankrupt, and as a reminder, the long term outlook doesn't necessarily improve either, as the Saudis shift the mix of their production.  In this context, it's a also a little worrying that Golar LNG Partners now only has an interim CEO, but hopefully that is just a sign that some sort of spin-off/roll-up is in the works, as happened with Cheniere.  Still, my answer to those who have asked me about GMLPP is that it was appropriately pricing the long term risk above $20 without capturing much of Golar's potential rebound.  There may be a little short term upside, now that the immediate financing struggles appear to be behind us, but the 10%+ yield this week is mostly worth considering for those who only care about income and can accept the possibility of future struggles.  

I still prefer telecom, and will be looking out for increased volatility in CTL after the report on Wednesday night in the wake of accounting changes.  My guess is that management will use them to make the customer #s look better and thus get the stock back into my $11-15 pre-COVID range, but I've underestimated how nefarious Storey & Co. can be in the past. 

For those who don't care about the short term, VOD looks safer.  The company plans to announce its full-year results on the morning of May 12th.  Guidance will be of most interest, and analysts are looking for the company to earn 75 cents per ADR in 2020 after a horrible end to the decade.  No other estimates are available, but the dividend will be due around the end of the month.  With all the cash the company has been raising, that shouldn't be an issue, though anything goes in the current competitive environment as Vodafone plans with Nokia for Australian 5G expansion.  Once again, no definitive schedule or budget was cited, and there signs of spotty delays elsewhere.

I also feel compelled to reference Samsung's report of ahead of UDC's on Thursday.  The Korean company predicts a "stagnant smartphone market" to hurt AMOLED screen sales in the second quarter, along with TVs.  Fitbit's report should also be affected, though not its Google buyout prospects; any declines would be an opportunity in my eyes.  It will be a tough market for launching new kid's products, though.  FIT would be just about the only retail or discretionary spending stock that I could take interest in right now.  In such an environment, a fire at Samsung's A3 line should barely even matter to investors.  The long term outlook is unchanged, with production shifting towards China and Merck continuing to build its business and patent portfolio.

In summary, I still expect a choppy advance, and April just looks like one big leg of that to me.  As far as I am concerned, the market is still nowhere close to realistically pricing the prospects for individual sectors, let alone stocks.  That represents both opportunity and danger.