Deloitte Economics’ Coronavirus Impact Monitor · 24 Feb 9 Mar 23 Mar 6 Apr 20 Apr 4 May 18 May 1 Jun 0.0 20,000 1.0 2.0 3.0 4.0 5.0 6.0 0 5,000 10,000 15,000 ... IMF World Economic

Deloitte Economics’ Coronavirus Impact MonitorIs C25 heading for a recovery by the end of 2020? 9th edition, 29 May 2020

Coronavirus Impact Monitor – 29 May 2020 Deloitte Economics © 2020Page 2

• Between 1 February 2020 and 28 May 2020, the

number of global confirmed COVID-19 cases rose from

9,800 to about 5.6 million.

• As the number of new cases in Europe show signs of

falling, countries are beginning to take steps to reopen

their societies and economies. The Danish government

has activated Phase II of the reopening to take effect

from 18 May 2020.

• In Denmark, the increase in the number of confirmed

cases has remained relatively low. As of 28 May 2020,

there were 11,480 confirmed cases. 4 May24 Feb 9 Mar 6 Apr23 Mar 20 Apr 18 May 1 Jun

0.0

20,000

1.0

2.0

3.0

4.0

5.0

6.0

0

5,000

10,000

15,000

11,480

5.6

Sources: World Health Organisation (WHO), The Danish Health Authority (Sundhedsstyrelsen)

Coronavirus outbreak

New daily confirmed cases continue to slow in Denmark, while the number of daily deaths are falling across the globe

• The chart shows the daily number of deaths in the

world, the United States and Denmark. There are

currently around 4,000-5,000 daily deaths in the

world, lower than the 6,000-7,000 peak in mid-April.

• In Denmark, the 7-day average daily death rate has

fallen significantly to around 2 per day, from a peak of

around 16 at the beginning of April 2020.

• In Denmark, there were 20 patients in intensive care

as of 28 May 2020, of which 11 patients were in

respirators. This number has fallen steadily since the

peak at around 100-150 at the beginning of April

2020. The Danish Health Authority has ~925

respirators available for COVID-19 patients.

# c

onfirm

ed c

ases g

lobally

(millions)

Confirmed COVID-19 cases: World and Denmark

# c

onfirm

ed c

ases in

Denm

ark

7-day rolling average confirmed daily COVID-19 deaths: World, US and Denmark

# D

aily d

eath

s

World US

Denmark (RHS) World (LHS)

1 May 1 Jun1 Mar 1 Apr

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1 Mar 1 Jun1 Apr 1 May

0

500

1,000

1,500

2,000

2,500

As of 28 May 2020

0

2

4

6

8

10

12

14

16

1 Apr 1 Jun1 Mar 1 May

Denmark


Note:

Source:

1) Refinitiv European sectoral price indices measured by Refinitiv (Thomson Reuters)

Thomson Reuters Eikon

Impact on financial markets

COVID-19 impact on equity markets has been most severe on the transport and energy sectors, while medical and pharmaceutical stocks have largely recovered

• The outlook for increased public expenditure and gradual

opening of economies have supported markets.

• European equity indices suffered material losses

following the COVID-19 outbreak in Europe, but have, to

some extent, recovered from the bottom reached in mid-

March 2020.

• The Transport industry, including airlines, continues to

be severely affected by the virus and the related travel

restrictions. The Refinitiv Europe Transport Price Index is

down by some 28% since the end of January 2020,

driven by a material decline in volumes.

• The European energy sector, including oil and gas

companies, has lost more than 30% since the end of

January 2020. Declining energy prices have applied

downward pressure on energy equities.

• Financials, including banks, have also experienced value

destruction. Market concerns about increased credit

losses and funding squeezes are likely drivers.

• The lower right-hand chart shows the development in

quarterly net income results for OMX C25 Index

constituents.

• Q1 2020 results were unsurprisingly down compared to

Q1 2019 results a year earlier, but consensus estimates

(dashed lines) point to a relatively quick recovery,

reaching about 2019 levels by the end of the year.

10 Feb30 Dec 27 Jan 9 Mar

90

13 Jan 24 Feb 23 Mar 6 Apr 20 Apr 4 May 18 May 1 Jun

40

50

60

70

80

100

110

Equity markets: Sectoral indices in Europe1

Secto

ral in

dic

es

(2 J

an 2

020 =

100)

Major outbreak in Europe

Transport FinancialMedical & PharmaceuticalsEnergy Technology

30 Dec 2019

0

(200)

600

200

400

1,200

1,000

800

Q3 2020 EQ1 2019 A Q2 2019 A Q3 2019 A Q4 2019 A Q1 2020 A Q4 2020 EQ2 2020 E

OMX C25 Index, median quarterly net income, DKKm

25th percentile Median 75th percentile

Consensus estimates

Q1 2

020 n

et

incom

e


Note:

Source:

1) Deloitte surveys conducted on 12, 19, 26 March, 2, 9, 16, 23, 30 April and 7 May 2020, involving about 2,000 colleagues and clients.

Deloitte surveys, IMF World Economic outlook (October 2019) for pre-COVID-19 figures; IMF World Economic Outlook (April 2020) for revised forecasts

Economic Outlook: IMF and Deloitte survey

Q1 GDP contracted sharply across Europe and US

Economic growth projections• The “sudden stop” in the global economy, caused by the COVID-19

pandemic, has translated into significant downward revisions of

economic growth projections worldwide. According to IMF’s April

predictions:

− The global economy is expected to contract by 3.0% in 2020

instead of the initially estimated 3.4% growth. This 3.0%

contraction in global GDP is much worse than the 0.1%

contraction experienced during the 2009 financial crisis, ref.

page 23 in the appendix.

− Danish GDP is projected to contract by 6.5% in 2020

compared to the pre-COVID-19 growth estimate of 1.9%. GDP

in Denmark shrank by 4.9% in 2009. The median forecast of

Danish 2020 GDP growth is -5.1% according to our survey of

professional forecasters, ref. page 24 in the appendix.

• Consistent with this, the eurozone economy contracted by 3.8% in

Q1 according to preliminary estimates from Eurostat. The French

and Spanish economies shrank by 5.8% and 5.2%, respectively, in

Q1, a sign of the extensive havoc caused by measures imposed to

curb the coronavirus’ spread. In the United States, GDP shrank at

an annualised rate of 4.8% in Q1.

• Deloitte’s latest survey among ~ 2,000 colleagues and clients from

all over the world on 7 May 2020 reveals that the majority of

participants continues to expect an economic rebound first in

2021. This appears to be aligned with IMF’s expectations of a 2021

rebound.

EurozoneWorld

1.4%

3.4%

Denmark

(3.0% )

5.8%

4.7%

(7.5% )

1.9%

(6.5% )

6.0%

2020 forecast pre COVID-19

Revised 2020 forecast post-COVID-19

Revised 2021 forecast post-COVID-19

Deloitte survey1: When do you think activity will rebound in your economy?

60%

23%28%

77%

19 Mar12 Mar

40%

83%

64%

36%

23 Apr

67%

26 Mar

62%

39%

2 Apr

17%

83%

9 Apr

33% 2020

41%

72%

16 Apr

59%

30 Apr

37%

63%

28 May7 May

24%

76%

17%

14 May

2021


Note: 1) Index is a composite measure based on nine response indicators, including school closures, workplace closures, and travel bans, rescaled to a value from 0 to 100 (100 = strictest response).

Oxford COVID-19 Government Response Tracker, Thomson Reuters Eikon

Government policy response impact

Q1 economic contraction broadly in line with the stringency of the lockdown in Denmark

(10%)

(9%)

(8%)

(7%)

(6%)

(5%)

(4%)

(3%)

(2%)

(1%)

0%

10 15 20 25 30 35 40 45 50 55 60

DenmarkGermany

Norway

France

United Kingdom

United States

Spain

Italy

Japan

South Korea

China

• Several countries have published first estimates of GDP

growth for Q1 2020. These initial GDP estimates

highlight how the coronavirus pandemic, and the

response to it, has affected the global economy. It is

expected that the duration of the outbreak, the public

health restrictions imposed to contain the virus spread,

and other voluntary social distancing measures, all

affect on the size of the economic slowdown.

• The Government Response Stringency Index captures

this information by collecting information on government

policy responses to measure the stringency of the

lockdown country by country.

• The Government Response Stringency Index is a

composite measure based on nine response

indicators, including school closures, workplace closures,

and travel bans, given the policies that have been put in

place in Denmark.

Q1 2020 GDP growth vs the Oxford COVID-19 Government Response Stringency Index1

Q1 2

020 (

QoQ

) G

DP g

row

th

Sources:

Average of daily ‘stringency’ index for Q1 2020


Note: 1) Spending data is based on transactions, both domestically and abroad, with cards and MobilePay in stores for around 1m Danske Bank Danish personal customers. Excludes cash payments

and bank transfers. The charts show spending in 2020 compared with the same days in 2019 to correct for different spending patterns across the week. Source: Danske Bank

Private spending

Danish spending appears to be returning to more normal levels

• Danish spending data shows signs

that spending is slowly starting to

recover as the economy sluggishly

begins to open following the

lockdown since 11 March 2020. For

instance, compared with late March

2020, when total spending was down

by 20%, spending has been down by

only some 0%-12% in the past week.

• Spending at restaurants has been

picking up since mid-May in line with

the Phase 2 opening of the Danish

economy. We also see some positive

in other parts of retail. This includes

spending at gas stations where the

spending gap to last year’s levels has

narrowed to around 17% recently.

• Spending at airlines remains at very

depressed levels, consistent with the

tight travel restrictions in place.

50

60

70

80

90

100

110

120

130

27 Feb 21 Apr12 Apr3 Apr7 Mar 16 Mar 25 Mar 30 Apr 9 May 18 May 27 May

Total 7-day moving average Index=100=100

Private spending in Denmark (2020 versus 2019)1

Index

(100=

sam

e w

eekday in 2

019)

0

20

40

60

80

100

120

140

160

180

200

220

12 Apr7 Mar 9 May30 Apr16 Mar 21 Apr25 Mar 3 Apr 18 May 27 May

Electronics storesAirlines

Clothing stores RestaurantsGrocery stores

Hotels & motels Index=100

Private spending on select sectors (2020 versus 2019)1

Index

(100=

sam

e w

eekday in 2

019)


1) Net index which expresses the difference in percentage of companies, weighted by employees, which have stated positive and negative expected sector development

Statistics Denmark

Danish business sector confidence indicators

Sentiment across key sectors stabilised in May 2020

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

• Recent data suggests that sentiment across key sectors in the Danish economy stabilised in May 2020, after falling sharply in April 2020.

• Within the Services and the Industrial sectors, sentiment deteriorated slightly in May 2020.

• Sentiment has improved across the Construction and Retail trade sectors, possibly reflecting a more positive outlook on the economy as the government

implemented the first two phases to reopen society.

• Interestingly, sentiment within Industrials and Construction, while falling sharply in April 2020, did not reach the same levels as during the financial

crisis, suggesting that the COVID-19 related restrictions are perhaps not deemed to be as damning to the economy.

-60

-50

-40

-30

-20

-10

0

10

20

-50

-40

-30

-20

-10

0

10

20

-40

-30

-20

-10

0

10

20

Industrials1 Services1

Construction1 Retail trade1

2012 20182014 2016 2020

2012 20182014 2016 2020

2004 20162008 2012 2020

2004 20162008 2012 2020

Source:

Note:


Consumer• Consumers are less confident affecting non-essential goods sectors.

Energy & Resources• Coronavirus affects short-term prices, but prices are expected to

rebound in 2021.

Financial Services• The anticipated recession will have a large impact on the sector.

Industrials• Eurozone economic downturn shows signs of easing as lockdowns

are lifted.

Life Science & Health Care (LSHC)• Swift recovery of the LSHC sector with listed companies trading

above pre-corona levels.

Real Estate• Expectation-driven real estate market leads to price reductions in

the short term.

Technology, Media & Telco (TMT)• TMT sectors have shown relative resilient to COVID-19 as the world

has gone digital.

Transport• The transportation market in recovery following the opening of

several markets.

Public• The pandemic will cause a major deficit on public finances in both

2020 and 2021.

We refer to pages 12-20 for in-depth coverage of developments in the sectors above.

Coronavirus heatmap

Deloitte Economics’ view on the short-term outlook across selected sectors in Denmark

Sources: Deloitte analysis, Dansk Erhverv

Sector

Denmark

Short-term Outlook

Financial Services High impact Moderate recovery

Consumer Slow recoveryHigh impact

Transport High impact Slow recovery

Technology,

Media & TelcoModerate impact Moderate recovery

Real Estate High impact Moderate recovery

Energy & Resources High impact Moderate recovery

Life Science &

Health Care Neutral/Low impact Growth opportunities

Industrials High impact Moderate recovery


Key messages

Q1 has been tough on C25, but as restrictions are being lifted and economic activity slowly begins to rebound a limited optimism is observed

• In Denmark, the number of confirmed cases continues to slow. As of 28 May 2020, there were 11,480 confirmed cases. The reopening of the society

has not been accompanied by a significant increase in confirmed cases.

• The COVID-19 crisis has caused dramatic supply and demand shocks in the world economy, and these shocks are inevitably causing major disruptions

to trade.

• Governments all over the world have introduced major aid packages, which amount to two-digit percentages of GDP, including credit measures.

• Q1 GDP contracted sharply across Europe and the United States, and unemployment rates have sky-rocketed. More than 40 million Americans have

claimed unemployment insurance since mid-March 2020 pushing unemployment to levels not observed since the Great Depression. Projections of GDP

growth rates reveal a significant contraction of the world economy in 2020.

• The OMX C25 index for Q1 2020 was unsurprisingly down on Q1 2019, but consensus estimates point to a relatively quick recovery, reaching about

2019 levels by the end of the year.

• The COVID-19 crisis is now in the recovery phase, where lockdown restrictions are being lifted in most Western countries. This is reflected in increased

spending, and economic activity is slowly beginning to rebound. Sentiment across key sectors also seems to stabilise.

• Deloitte Economics will continue monitoring the impact of the coronavirus in Denmark and globally. Find our updates here

Disclaimer: The information in this document is intended for knowledge sharing only.

For questions on the contents of this report, please contact:

Majbritt Skov

Director, Head of Deloitte Economics

Mobile: +45 30 93 54 71

[email protected]

Peter Lildholdt

Assistant Director

Mobile: +45 40 35 25 36

[email protected]

Tinus Bang Christensen

Partner

Mobile: +45 30 93 44 63

[email protected]

https://www2.deloitte.com/dk/da/pages/covid-19/covid-19-oekonomisk-udsyn.html


Industry outlook

Consumer

Energy & Resources

Financial Services

Life Science & Health Care

Public

Technology, Media & Telco (TMT)

Transport

Industrials

Real Estate

Page 11

Page 12

Page 13

Page 14

Page 15

Page 16

Page 17

Page 19

Page 18


Consumers will spend less on restaurants, apparel and electronics

Consumers’ intention to spend more over the next four weeks

Consumer intended purchase channel

Note:

Sources:

1) MSCI World Retailing Index; 2) MSCI World Consumer Services Index; 3) MSCI Consumer Staples Index; 4) Based on OECD – Europe region

Capital IQ; MSCI; European Parliament; Deloitte State of the Consumer Tracker

Industry outlook: Consumer

Consumers are less confident affecting non-essential goods sectors

Retail index has moved from index 93.4 to 101.3 (since last update).

Hospitality index has moved from index 80.0 to 84.9 (since last update).

Consumer index has moved from index 91.7 to 92.5 (since last update).

Highlights from the industry (as of 27 May 2020)

Trading multiples and economic outlook (as of 27 May 2020)

10y avg. 5y avg. 3y avg.

13.2x11.7x14.1x

Index: MSCI World Retailing Index (top 10 companies)

CurrentJan 1, 2020

17.0x 14.8x

-2.2x

Historical averages

(EV/FY0 EBITDA)

Coronavirus impact

(EV/FY0 EBITDA)

As of April 2020, the consumer confidence index4 was 98.02 indicating a

somewhat doubtful attitude towards the economic development, possibly

resulting in higher saving and less consumption among consumers.

Based on top 10

companies

1 2 3

Indexed s

hare

price

101.3

84.9

92.5

90.7

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

110.0

26 Dec 19 26 Jan 20 26 Feb 20 26 Mar 20 26 Apr 20 26 May 20

Retail Hospitality Consumer MSCI World

98.0

95

98

101

Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Apr-20

Consumer confidence index (OECD-Europe)

AlcoholRestaurant/

takeoutMedicines

Household

goodsGroceriesElectronicsBooks

Apparel/

footwear

17%

25%

16%

49%16%

34%

27%68%

38%

26%

33%41%

29%

31%

16%

19%

16%

65%

20%

62%

17%

68%

27%

40%

Online/delivered Mixed In-store

-14% -18%10%23%30%-17%-6%-17%

ConsumerFinancial Services

Energy & Resources


Public TMT TransportIndustrials Real Estate


Hydropower generation

− Prior to Corona, electricity prices were already pressured in the

Nordics due to a warm winter, which increased the generation capacity

of Norwegian hydropower plants.

− Further, the mild winter decreased demand for electricity.

Lockdown affects demand

− The coronavirus lockdown has negatively affected the demand of both

public institutions, private individuals and corporations.

Carbon market prices

− Lower emissions of CO2 and other greenhouse gasses have decreased

carbon prices.

− Coal becomes cheaper, lowering overall prices, as coal is marginally

price setting. This creates a self-enforcing effect, which drives down

prices even further.

Source: Thomson Reuters Eikon

Industry outlook: Energy & Resources

Coronavirus affects short-term prices, but prices are expected to rebound in 2021

The mild winter puts pressure on Nordic electricity prices prior to the Corona crisis.

Electricity demand has decreased marginally due to the Coronavirus lockdown.

Significant drop in carbon emissions resulting in lower prices.


As the effects described above are temporary and a result of the current

lockdowns and restrictions on travel, we expect an increase in prices once

the restrictions are lifted.

Although the short-term impact on electricity producers is significant, we

expect prices to rebound in 2021. This is supported by significantly larger

price drops in electricity futures prices in the short-term compared to the

long-term.

Economic outlook

1 mar 201 jan 20 1 apr 201 feb 20 1 maj 20 1 jun 20

20

30

60

40

50

70

80

90

100

110

Natural gas TTF, spot Coal API2, spot Nordic electricity future, Q3-20

Selected futures

2635 33

25

922 23 21

Nordic power, Q3-20 EUA, Jun-20Nordic power, Q4-20 Nordic power, FY-21

-63.9%

-38.2% -29.0% -13.4%

Jan 1, 2020 May 27, 2020


Energy & Resources




Banks and consumer finance

− Credit businesses that retain a large physical branch network or have IT inefficiencies will find a drag on their cost bases. This is at a time where they must work through increased loan loss provisions amplified by the adoption of IFRS9 accounting standard in 2018. A higher cost base juxtaposed against a continued low base rate environment and an inability to generate high levels of net interest margin. Inefficient or subscale players may need to look for new capital or become part of a wider market consolidation.

Insurance

− Lloyds of London estimates a USD 203bn underwriting loss for the insurance industry as a result of the global pandemic. Obviously, some asset classes will fair better than others (e.g., motor insurance will benefit from lockdown versus business interruption insurance). Dependent on products and attitudes to reinsurance, there may be stress in the insurance industry.

Asset managers

− A Deloitte study demonstrates that consumers expect to spend more on wealth management services as a response to the COVID-19 crisis (click here to read the study). Asset managers who have been successfully able to pivot from physical meetings to conduct sales and provide advice virtually may be able to capture market share. However, the shock to equity markets will negatively affect income across the sector.

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

A. https://www.theguardian.com/business/2020/may/14/lloyds-of-london-coronavirus-payouts

Industry outlook: Financial Services

The anticipated recession will have a large impact on the sector

Equity values of financial services firms have made a modest recovery from the mid-March 2020 low point. Uncertainty, particularly in consumer finance, and debt collector businesses continues to be priced into valuations.


The impact of the COVID-19-led recession on financial services firms will be felt, as government support schemes unwind in the next few months. Firms that have been affected by lockdown measures may trade through the summer months before losing the battle with cash flow issues and debt servicing issues during the autumn.

Financial Services businesses that are easily able to interact with their clients online, and offer a good user experience, are better placed to thrive during the recession. Many of the tech elements, most notably the proliferation of smart phones, were not available during the financial crisis. This provides customers with a greater number of alternative providers.

Trading multiples and economic outlook

100

70

40

30

90

50

60

80

110

120

5/25/201/9/20 1/24/20 2/25/20 3/26/20 4/28/20

Index: S&P Capital IQ

Jan. 1, 2020

1.7x

Mar. 16, 2020

Current

1.0x1.3x

-0.4x

Coronavirus impact (P/BV)

81

80

64

44

87

Nordic Consumer Finance

Nordic Insurers

Nordic Banks

Nordic DCAs

European AM

27-05-2020

Market capitalization (1 Jan = index 100)

2

3

[64.1]

[44.1]

[80.6][87.0]

[80.4]

1

[89.0]

[A]

European AMBanking

DCA MSCI WorldConsumer Finance

Insurance


Energy & Resources



Note:

Source:

https://www2.deloitte.com/ch/en/pages/financial-services/articles/navigating-towards-a-next-normal-after-covid19-wealth-management.html

https://www.theguardian.com/business/2020/may/14/lloyds-of-london-coronavirus-payouts


Note:

Sources:

1) Data as of 28 May 2020

Capital IQ; MSCI World Indices; IHS Markit; Trading Economics

Industry outlook: Industrials

Eurozone economic downturn shows signs of easing as lockdowns are lifted

Since the last update on 7 May 2020, the EV/EBITDA

multiple has been up from 11.8x to 12.8x.

Share price development year-to-date

Trading multiples

1 Feb 20

110

60

1 Jan 20 1 Mar 20 1 Apr 20 1 May 20

50

70

80

90

100

Industrials Materials Automotive MSCI World

11.7x

10y avg. 5y avg.

14.2x

3y avg.

13.1x

Jan 1, 20

13.8x

Current

12.8x

-1.0x

MSCI World Industrials Index

Historical averages

(EV/EBITDA)

Coronavirus impact

(EV/EBITDA)

3y avg.5y avg.

10.3x

10y avg.

11.5x 11.7x 11.8x

Jan 1, 20

12.7x

Current

+0.9x

MSCI World Materials Index

Historical averages

(EV/EBITDA)

Coronavirus impact

(EV/EBITDA)

MSCI World Automotive Index

Historical averages

(EV/EBITDA)

Coronavirus impact

(EV/EBITDA)

10.1x

5y avg.10y avg.

9.8x

3y avg.

10.0x

Jan 1, 20 Current

10.5x11.1x

-0.6x

The “Manufacturing PMI Output Index1” is slowly picking up in May 2020

The index is based on the

survey question:

“Is the level of

production/output in your

company higher, the same or

lower than one month ago?”

Index =50: No change

Index <50: Contradiction

Index >50: Expansion

34.9

Eurozone

UK

Germany

18.1

35.4

35.3

France

38.5

41.0

16.3

43.9

31.5

19.7

15.1

35.8

May April March


multiple has been down from 13.1x to 12.7x.


multiple has been up from 9.8x to 10.5x.

90.693.1

98.5

78.0

85.184.3

92.4

69.3

The industrial indices and the stock market in general have further rebounded in

recent weeks with activity level in the economy picking up.

Indexed share price as of:

28 May 7 May

Consumer Financial Services

Energy & Resources




Collaboration is the new normal

− COVID-19 has further accelerated an ongoing trend of collaboration

among LSHC companies, scientists, and public institutions.

− Examples of recent private collaborations are:

− Bavarian Nordic and AdaptVac for COVID-19 vaccine

− Consortium of 15 large life science companies, including Novartis,

Johnson & Johnson, and Pfizer, to share knowledge

Race for COVID-19 vaccine or other treatment

− The antiviral, Remdesivir, has shown promising results in preliminary

trials with improved recovery time and potential survival benefits.

− Race for developing a vaccine is still ongoing with a horizon of 12-18

months.

− According to Milken Institute, 123 candidate vaccines and 203 different

treatment variations are being developed as of 7 May 2020.

Note:

Sources:

1) MSCI World Health Care Index (top 10 constituents); 2) MSCI World Pharmaceuticals, Biotechnology and Life Sciences Index (top 10 constituents)

Milken Institute, Deloitte Health Forward Blog, Capital IQ, NIH

Industry outlook: Life Science and Health Care (LSHC)

Swift recovery of LSHC sector with listed companies trading above pre-corona levels

Significant recovery in both Health Care and Life Science in recent weeks continues.

Life Science trades above pre-corona levels.

Significantly faster recovery and better performance among Life Science and Health

Care companies compared to the general market.


LSHC companies trade above pre-corona levels.

Countries are reopening, and many health care systems are again

focusing on other illnesses and treatments than COVID-19.

Rapid recovery expected for LSHC companies unrelated to COVID-19

treatments as demand for non-essential medications and equipment rises.

Continued high demand for COVID-19 related therapies and equipment.


85.1

99.2

10y avg.

14.1x

5y avg. 3y avg.

11.7x13.7x

Index: MSCI World Health Care Index

Jan 1, 2020

14.2x

Current

14.2x

0.0x

Historical averages (EV/EBITDA FY0) Coronavirus impact (EV/EBITDA FY0)

103.6

1 2

Indexed share price development

60

65

70

75

80

85

90

95

100

105

110

22 Dec 19 22 Jan 20 22 Feb 20 22 Mar 20 22 Apr 20

Healthcare Life science MSCI World


Energy & Resources




Towards normality

− Government’s focus is to move society towards normality and avoid an

increase in the reproduction rate.

− As part of a controlled reopening, all citizens can book an appointment

to a COVID-19 test.

The recovery phase has intensified

− Pressure on government to increase the pace, by which the economy is

reopened.

− Phase 2 of the reopening has been extended to include for instance zoos

and museums.

Deficit on public finances

After a surplus in 2019, a deficit of 7.2% of GDP is expected in 2020. The

deficit is expected to be 1.8% of GDP in 2021.

− The public EMU debt is expected to increase from 33% pf GDP in 2019 to

41% in 2020.

− European recovery fund of about DKK 5,000bn is being negotiated in EU.

Sources: Deloitte Insights, Government’s response to COVID-19. From pandemic crisis to a better future, April 2020, Ministry of Finance, May 2020

Industry outlook: Public

The pandemic will cause a major deficit on public finances in both 2020 and 2021

Consumer


Aid packages and focus on supporting the private sector through earlier start-up of planned investment and prepayment of suppliers are expected to ease the negative

impact on the economy.

Aid packages and the economic setback will have an immediate negative impact on public finances and may challenge government spending in the long term.

The severe and long-lasting financial and economic impacts of the pandemic depend on the effects of the aid packages and the strategy for the reopening of society.

Digitalisation in the public sector may be boosted as the crisis has reinforced virtual ways of working.

Economic outlook

A timeline for COVID-19 government response

Financial Services

Energy & Resources




Retail

− Despite the reopening of the retail sector, footfall is not at pre-COVID-

19 levels.

− As the number of transactions in retail is back to pre-COVID-19 levels,

we believe that a shift to online trade has already taken place. As

such, new occupiers and business models need to be developed by

landlords.

− The reopening of many cafés and restaurants has not attracted

customers as expected, and it will take time before "normality".

• Residential

− Historically, there has been a close relationship between consumer

confidence and growth in housing prices.

− This suggests decreasing prices in 2020. However, transaction volumes

have recovered since Easter – also driven by the summer housing

market.

1) Based on Collier International, Patrizia AG, Agate Ejendomme, Jeudan A/S, and Park Street Nordicom

Finans Danmark, Thomson Reuters Eikon, Capital IQ

Industry outlook: Real Estate

Expectation-driven real estate market leads to price reductions in the short term ...

The leading real estate index is recovering from the COVID-19 chock in March 2020. Despite the

current challenges in some sectors, the industry is in general better prepared financially.

Interest rates are now fixed at a higher level. However, in troubled times, we normally see a

spread to bigger economies such as Germany, which may last throughout the COVID-19 crisis.

Consumer


As seen opposite, price multiples are not affected significantly by COVID-19, and in

general the major listed RE companies are well-positioned to handle the crisis.

Decreasing prices in 2020 for single-family houses and apartments in the major

Danish cities are expected due to reduced volumes. Many households have

significant savings, and financing costs are still very low. However, as volumes and

prices are expectation-driven, we believe that the uncertainty about the financial

impact of COVID-19 will put things on a hold – for now!


10y avg. 5y avg.

28.1x

3y avg.

27.6x 25.4x

Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA)

Index: Custom weighted average index1

Note:

Sources:

Financial Services

Energy & Resources



Current1 Jan 2020

31.2x30.6x

+0.6x

0.5%

0.8%

1.0%

1.3%

1.5%

1.8%

2.0%

50

60

70

80

90

100

110

01 Jan 22 Jan 12 Feb 04 Mar 25 Mar 15 Apr 06 May 27 May

Inte

rest ra

te

Sto

ck p

rice index

(2 J

an 2

02

0 =

10

0)

STOXX 600 Real Estate Index Danish long-term mortgage rates


TMT perceived as a defensive sector, which has less to lose from COVID-19

Telecom: Spend among consumers is often within a contract; demand is

up; need is not discretionary (new cars) or constrained (leisure).

Media and Entertainment: Financial impact varies across sub-sectors.

Media consumption up (e.g., Netflix, Disney+), but willingness/ability to

pay may be constrained as economic outlook exacerbates. Events

(consumer, business) mostly heavily restricted; cinemas, theatres,

museums mostly closed. TV and movie production mostly halted. Theme

parks mostly closed.

Technology: Some segments (e.g., robotics, communication software)

experiencing record demand; digital transformation being accelerated;

companies catering to SMEs may suffer from customer liquidity.

Note:

Sources:

1) MSCI World industry indices used, 01-01-2020 = index 100; 2) In EMEA and selected Asian countries, physical game sales are up by 63% according to GamesIndustry.biz.

S&P Capital IQ (May 2020), Forrester Research (March 2020)

Industry outlook: TMT

TMT sectors have been relatively resilient to COVID-19 as the world has gone digital

TMT companies are trading above the overall equity market.

Media and Entertainment quickly recovered after the shockwave on the stock

market. As people stay at home, the entertainment market is making records2.


Forrester has revised its IT spending forecast downward by a best-case

scenario where the global tech market growth is slowing to ~2% in 2020.

If a full-fledged recession hits, there is a 50% probability that the global

tech market will decline by 2% or more in 2020.

Software spending is the subsector expected to show highest growth,

while computer equipment and IT consulting and systems integration

services spending are expected to show weaker growth.


1 Mar 201 Jan 20 1 Feb 20 1 May 201 Apr 20

60

70

80

90

100

110

120

102

91

21.3x

3y avg.10y avg. 5y avg.

16.1x

24.1x

Index: MSCI World Information Technology

Jan 1, 2020 Current

28.3x28.0x

+0.3x

Historical averages (EV/EBITDA) Coronavirus impact (EV/EBITDA)

112108

MSCI WorldInformation Technology1 Communication Services Media and Entertainment


Energy & Resources




500

700

900

1100

1 11 21 31 41 51 61

Note:

Source:

1) A.P. Møller-Mærsk, D/S Norden, DFDS, DSV Panalpina, NTG, TORM, 2) Lowest YTD is 4.6x on March 20th

Capital IQ, Shanghai Shipping Exchange, Forbes, IHS Markit

Industry outlook: Transportation

The transportation market in recovery following the opening of several markets

Highlights from the industry (as of May-29)

Trading multiples and economic outlook (as of May-29)

Transportation indices have largely followed the total market as a recovering market

implies and increased need for goods transportation

The transportation stocks indicate belief in the market’s recovery

− The rapid spread of COVID-19 has had a major impact on global goods

transport, with ripple effects from the shortfall in demand for goods

from China

− The recent surge in stock prices since the low point in mid-March

indicates an expectation to a recovering demand global trade as

several countries are now opening up, driving the recovery of physical

retail

Accelerated conversion to e-commerce to aid in recovery

− As of mid-April, US retailers’ online YoY revenue growth was 68%,

substantiated by a 146% YoY growth in number of online retail orders

− A big rush on freight capacity and subsequent increase in freight rates

is expected as demand recovers and companies try to get their

products on the water

10y avg. 5y avg. 3y avg.

7.1x 7.5x 7.5x

Historical averages

(EV/FY1 EBITDA)

Trough CurrentLast close 2019

7.4x

4.6x

7.5x

+0.1x

Coronavirus impact2

(EV/FY1 EBITDA)

Danish-listed transportation companies1

2020

The Shanghai Containerized Freight Index (SCFI) is down 19.0% to 829

from its high 1023 in week 1, however up 9.5% YoY

2019

104.0

95.999.0

6065707580859095

100105110115120125130

May 19 Jul 19 Sep 19 Oct 19 Dec 19 Feb 20 Mar 20 May 20

MSCI World MSCI Transportation Danish Transportation Index


Energy & Resources




Industry outlook: Deloitte contacts

How Deloitte can help you

• Please use the contact details opposite to get in touch

with our Financial Advisory industry group leaders and

find out how we can assist you.

• We are well-positioned to assist in a range of tasks,

such as those below.

Mads Damborg

Partner

Email: [email protected]

Mobile: +45 30 93 54 81

Consumer

Troels Ellemose Lorentzen

Partner


Mobile: +45 30 93 56 90

Energy & Resources

Mads Damborg

Partner


Mobile: +45 30 93 54 81


Kasper Svold Maagaard

Partner


Mobile: +45 30 93 54 54

TMT

Tinus Bang Christensen

Partner


Mobile: +45 30 93 44 63

Real Estate

Financial Services

Rikke Beckmann Danielsen

Partner


Mobile: +45 30 93 56 92

Government & Public Services

Niels Stoustrup

Partner


Mobile: +45 30 93 59 15

Industrials

State aid packages

Liquidity scenario analysis

Debt covenant advice and financing

Business restructuring and M&A

Bankable business plan development

Stakeholder management and process control

Impact assessment

Economic modelling and forecasting

Focus areas

Mike Robinson

Partner


Mobile: +45 30 93 00 03


European corporate earnings expectations

Danish, European and World GDP development

Danish 2020 GDP expectations

European market volatility and credit default probability

Government support packages

Deloitte Government Response Portal

Appendices

Page 22

Page 23

Page 24

Page 25

Page 26

Page 27


Note:

Source:

1) Based on analyst estimates for S&P Europe 350 Index constituent companies

S&P Capital IQ

Corporate earnings expectations

Corporate earnings expectations have been severely curtailed since the outbreak

• The selloff in European equity markets, triggered by the

COVID-19 pandemic and the associated economic

slowdown, differs across sectors, ref. page 3.

• To shed light on the underlying drivers of this selloff

across sectors, the chart opposite displays changes in

expectations of stock analysts. In particular, the chart

shows how stock analysts have downgraded consensus

expectations of net income across sectors and time:

− Energy, incl. oil and gas companies, saw its net

income estimates being downgraded by 40%-80%

in 2020-2021 likely due to sharp declines in oil and

gas prices.

− Consumer Discretionary, Financials, and

Transportation are expected to be severely affected.

Their net income estimates for 2020 are, on

average, more than 40% below pre-crisis

estimates.

− Health Care and Real Estate are expected to

weather the storm relatively well, both in the short

(2020) and the long (2023) term.

− Food & Staples Retailing is the only sector whose

expectations for 2020 have improved, albeit the

improvement is marginal.

Change in net income consensus estimates between 31 January 2020 and 27 May 20201

(90%) (80%) (70%) (60%) (50%) (40%) (30%) (20%) (10%) - 10%

Food & staples retailing

Real estate

Health care

Utilities

Communication services

Other consumer staples

Information Technology

Materials

Industrials

Transportation

Financials

Consumer discretionary

Energy

2020 2021 2022 2023


Source: IMF, World Economic Outlook (April 2020)

Danish, European and World GDP development

World Economic Outlook: GDP growth projections for Denmark, Eurozone and World

• IMF is projecting the global economy to contract by

3% in 2020, far worse than the -0.1% growth

experienced during the 2009 financial crisis. The

economic growth forecasts from the IMF assume that

the COVID-19 pandemic fades in the second half of

2020 and that containment efforts can be unwound.

The disruptions are assumed to be concentrated

mostly in the second quarter of 2020 for almost all

countries, with a gradual recovery thereafter, as it

takes some time for production to ramp up after the

shock.

• The global economy is projected to rebound in 2021,

growing at 5.8% as economic activity normalises,

helped by policy support. In comparison, global growth

rebounded to 5.4% in 2010 from -0.1% in 2009.

• Please note that the 2021 rebound depends critically

on the pandemic fading in the second half of 2020,

allowing containment efforts to be gradually scaled

back and restoring consumer and investor confidence.

(4 .9%) (6.5%)

6.0%

(10%)

(5%)

-

5%

10%

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Denmark: GDP growth

Historical Forecast

(0.1%)

(3.0%)

5.8%

(10%)

(5%)

-

5%

10%

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

World: GDP growth

Historical Forecast

(4 .5%)(7 .5%)

4.7%

(10%)

(5%)

-

5%

10%

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Eurozone: GDP growth

Historical Forecast


Sources: IMF, Danish Central Bank, Danish Ministry of Finance, DØRS, Confederation of Danish Industry, Danske Bank, Nordea

Danish 2020 GDP expectations

Latest survey of forecasters suggests a Danish GDP contraction of 5.1% for 2020

• The Danish Central Bank forecasts three scenarios for the Danish economy in 2020. The three scenarios differ by the speed with which containment

efforts are unwound. In the mild scenario, where GDP is contracting by 3% in 2020, restrictions are gradually eased from Easter to a full lifting of

restrictions by October 2020.

• The Confederation of Danish Industry has based its projection of a 7% decline in 2020 GDP on a survey of its member firms.

• The Economic Councils project two scenarios for the Danish economy. In the optimistic scenario, the economy rebounds relatively quickly, and GDP

declines by 3.5% in 2020. In the pessimistic scenario, a second wave of COVID-19 emerges during the fall, and new containment efforts and

restrictions are activated; new aid packages are introduced. In this scenario, GDP contracts by 5.5% in 2020.

• Nordea updated its economic outlook for Denmark and the Nordic countries on 27 May 2020. Nordea expects the Danish GDP to contract 5% in 2020

before rebounding 4% in 2021. Previously, Nordea expected a 3% fall in output in 2020.

• The Danish Ministry of Finance has also updated its forecast, expecting a 5.25% contraction in national output in 2020 (compared to an earlier

prediction of -4.4%).

2.3%

3.9%

0.9%

(0 .5%)

(4.9%)

1.9% 1.3%

0.2% 0.9%

1.6% 2.3%

3.2% 2.0% 2.4% 2.4%

Median; (5 .1%)

(12%)

(10%)

(8%)

(6%)

(4%)

(2%)

-

2%

4%

6%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Denmark: GDP growth and 2020 market expectations

Historical (IMF) Danish Central Bank Ministry of Finance

The Economic Councils IMF Confederation of Danish Industry

Danske Bank Nordea Median


Note:

Source:

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%

Thomson Reuters Eikon

Market volatility and European credit default probability

Equity market volatility remains elevated and comparable to the levels observed during the global financial crisis

• The VSTOXX Index measures 30-day implied volatility

of the EURO STOXX 50 equity index and reflects

investors' uncertainty about future equity market

moves.

• As shown, the coronavirus induced an increase in

volatility to a level comparable to that experienced

during the global financial crisis in 2008. Since then,

volatility has declined, but still remains elevated and

comparable to the levels observed during the global

financial crisis.

81

74

29

2008 2016 2018 20212019

10

2012

0

2011 2014 20202013

50

20

40

80

30

2007 2009

60

2010 2017

70

90

100

2015

VSTOXX Index1

Vola

tility

index

• The chart opposite shows the development in the

implied default probabilities based on the 5Y iTraxx

European Crossover spread of Credit Default Swaps and

an assumed recovery rate of 40%. It measures default

probabilities on a portfolio of sub-investment grade

corporate debt in Europe.

• With a current default probability of about 30%, we are

at the highest level since the European debt crisis, but

still below peak financial crisis levels.

• As the index reflects cost of debt, any refinancing will

be costly for leveraged companies, even though interest

rates are close to being record low.

40

0

60

50

10

20

30

70

20142008 202120162010 20172012 2018 20202007 2009 2011 2013 2015 2019

%

50.2%

30.2%

43.3%

61.7%D

efa

ult p

robability in %

iTraxx Europe Crossover index: Default probability2


Sources:

In some countries, including Denmark, aid packages also include credit measures like state-guaranteed loans.

Danske Bank, Deloitte Covid-19 portal as of 5 May 2020

Government support packages

Massive state aid packages are launched to counter economic fallout from COVID-19

• The various lock-down measures in response to COVID-

19 have halted economic activity in certain sectors and

harshly disrupted others. The resulting job losses and

bankruptcies may crate major economic strains for

millions in Europe and worldwide.

• Gigantic state aid packages have been launched across

the world to counter the impact of the economic crisis.

• EU finance ministers agreed on a EUR 540bn (3.5% of

EU GDP) emergency support package for countries hit by

the coronavirus. The measures aim to provide safety

nets for workers, businesses and sovereigns.

• As these state aid packages are launched, governments

sharply increase debts to finance the increased spending

levels. On this background, the questions about the

following issues have started start to emerge:

− The sustainability of government debt funding

− The impact on inflation from sharp increases in

government spending

France

Greece

EU

Canada

New Zealand

Austria

Finland

2%

5%

22%

China

Denmark

Germany

Italy

Japan 20%

Norway

Portugal

Spain

Sweden

Switzerland

17%

The Netherlands

2%

8%

UK

USA

10%

9%

6%

6%

1%

4%

17%

10%

21%

4%

4%

12%

21%

13%

13%

3%

4%

7%

10%

State aid packages relative to GDP

FiscalCredit


• 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.

Deloitte Government Response Portal

Database of financial, tax, business and social measures announced by governments globally

Access the portal!

https://www2.deloitte.com/global/en/pages/about-deloitte/articles/covid-19/covid19-government-funding-portal.html



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Deloitte Economics’ Coronavirus Impact Monitor · 24 Feb 9 Mar 23 Mar 6 Apr 20 Apr 4 May 18 May 1 Jun 0.0 20,000 1.0 2.0 3.0 4.0 5.0 6.0 0 5,000 10,000 15,000 ... IMF World Economic