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>>> Initiation
>>> Call
* Bayer May Reach 2020 Earnings Target Despite Virus, Citi Says (+)
* Aurubis on Track for Long-Term Growth, Raised to Add: Baader
* RBC Sees London Office Rents Slumping, Cuts Landlord Estimates
* U.K. Pub Estimates Slashed But Wetherspoon Upgraded: Jefferies
Coronavirus: universities face a harsh lesson
The pandemic is forcing a rethink of a business model built on overseas students who might now stay at home
Nearly seven centuries after the heads of medieval European universities from Oxford to Padua were forced to close during the Black Death and oversee a drop in the quantity and quality of scholarship that lasted for decades, their successors will hope that any potential parallels with the coronavirus crisis will be limited.
For now, academics at hundreds of higher education institutions across the world are focused on responding to the short-term disruption caused by the pandemic in maintaining staff and student welfare, shutting down campuses and adapting to teaching and exams conducted online.
But many fear a broader upheaval, restructuring and even closures — something that critics have long anticipated. The economic and social impact of the pandemic are accelerating changes to admissions, income and working practices which are set to transform the shape of higher education in all aspects — from how it is funded to how lessons are taught.
“Even before we were confronted by coronavirus, higher education was under notable pressures calling for decisions with far reaching impacts,” says Vincent Price, president of Duke University in the US. “There will be institutions that were already struggling which will find it a burden too heavy to bear.”
The large market-oriented university systems in the US, UK, Australia and Canada are particularly vulnerable, as they have raised tuition fees and borrowed heavily to invest in things like sporting facilities and accommodation to attract and house students. That has been underwritten by a belief in continued growth in the number of international students — currently more than 5m worldwide — who pay higher fees than their domestic counterparts.
So dependent has the UK sector become on the overseas market that Universities UK, the body that represents British higher education, has warned of a potential drop in income in the coming academic year of £7bn — a third of all tuition fees — from international students. It also called for £2bn in extra government support for research.
Universities Australia estimates its members will lose up to A$4.6bn in revenues this year — about 14 per cent of income. “This will put at risk 21,000 jobs in the next six months, and more after that,” says Catriona Jackson, its chief executive. “Individual universities are already cutting costs across the board with very substantial reductions in operational spending, deferral of vital capital works, and reductions in senior staff salaries. However, this will be nowhere near enough.”
The country’s opposition Labor party has called for government emergency funding. “Australia cannot afford to let our universities fall off a cliff,” says Tanya Plibersek, its education spokeswoman. “If the federal government fails to act now, some universities could collapse, which would see vital research cut, thousands of jobs lost and leave students hanging in the middle of degrees.”
Although universities are already bracing themselves for a substantial drop in tuition fees — by far the largest share of most institutions’ revenue — from international students, the full scale of it remains unclear. In recent years, a growing middle class in emerging markets, especially China, has led to a surge in admissions. Almost 1m Chinese students are now studying outside the country.
This year, those numbers are expected to fall sharply. Many students have not returned to their colleges since Chinese new year in January. Even as travel restrictions start to lift in the coming months, there are knock-on effects from delays to the local exams and English language tests required for studying abroad, the cancellation of marketing events and delays in visa processing.
“Some universities took on way too much risk in terms of exposing themselves to the Chinese market,” says Martin Parkinson, chancellor of Macquarie University and formerly Australia’s top civil servant. “You might find that the growth in foreign students slows markedly because no one actually wants to leave home. At the end of this process universities are going to have to go through a shake-up of their business models.”
In the medium term, demand is set to be hit further by lingering health concerns and the inability of families to pay fees during the economic downturn. A recent survey of 11,000 students by QS, the educational rankings agency, suggested that nearly half of the students around the world — who were intending to study abroad — now plan to defer. A further fifth said they would switch their planned destination or abandon their plans to go abroad.
Simon Marginson, professor of higher education at Oxford university, argues that the leading English-speaking host countries for foreign students — Australia, the UK and the US — introduced relatively late and low-key controls in response to coronavirus. That may dampen Chinese interest at a time when Asian countries such as South Korea and Singapore are investing, strengthening their reputation and appealing to students across the region.
He argues that there will be a shift from a sellers’ to a buyers’ market, with Chinese students less willing to travel and the downturn affecting the capacity to pay in other emerging nations such as India and Nigeria that make up much of the remaining demand.
“It’s going to be chaos,” Mr Marginson says. “The Chinese won’t want to come and the Indians won’t be able to come.”
The trend will be compounded by domestic demographic pressures. In both the US and the UK, the number of people in their late teenage years preparing to enter university is currently in decline. For those in lower income families fresh economic hardship could potentially reverse recent progress in improving access to higher education.
Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share wiIncome from other sources is also under threat. Many UK universities are facing demands for fee reductions from students frustrated at the loss of face-to-face teaching since the outbreak of the pandemic. They are losing revenue from accommodation, conferences and training programmes, as well as investment income for those few with endowments.
Moody’s, the credit rating agency, downgraded its outlook for US public universities to “negative”. It warned in April that funding to US public universities — which receive about a quarter of their income from state legislatures — was particularly vulnerable as tax revenues fell.
“Public universities are at greater risk of lower funding from the government than their international peers, with state funding accounting for approximately 25 per cent of revenues,” it said. “Pressures may lead to cuts in university funding as states direct resources towards more essential services, such as healthcare.”
Rebecca Winthrop, from the Brookings Institution think-tank in the US, says: “If this doesn’t cause a shake-up [in education], I’m not sure what will. I don’t know if it will be a temporary bump, but 2020 will have a big impact. There is a huge question about what the [US] federal government will do to prop up higher education.”
Alongside tuition, the funding squeeze is affecting higher education’s other core function: research, the reputation of which is central to the international rankings which in turn help attract students and academics alike. With both domestic student tuition fees and research funding below many institutions’ operating costs, international student fees have provided a cross-subsidy that is now under threat.
Alice Gast, president of Imperial College London, which has been on the forefront of modelling the effects of the virus, says governments need to stop relying on other income such as international student fees to underwrite the full costs of important academic work.
“We need as a society to support research. This crisis has made that very clear,” she says. “It will cause us to reflect on how we support research and make sure we are not relying on cross subsidies.”
UKRI, the UK’s main official research funder, has extended project deadlines by six months, offering a short-term lifeline to many postgraduate researchers. Less certain is how far the government will be able and willing to meet its more ambitious pledges to step up support for research and development, in part to compensate for withdrawing after Brexit from the EU’s planned €94bn Horizon Europe fund for scientific research.
Other income sources have also been undermined. Leszek Borysiewicz, chairman of Cancer Research, the UK charity, says his organisation has so far trimmed £43m from its budget this year as a result of coronavirus, and that other charities supporting academic research will suffer, whether from falls in investment income or donations from fundraising campaigns.
Amid the gloom, Peter Mathieson, vice-chancellor of Edinburgh University, points to fresh recognition of the importance of higher education. “The extent to which our governments have been listening to expert scientific advice is very welcome,” he says. “It has become very evident how universities are contributing to the response with extraordinary research and at incredible speed.”
He cites colleagues at Edinburgh working on Covid-19-related drug research and clinical practice. Other universities have donated protective equipment, launched virus testing units and set up overflow treatment centres for the National Health Service.
It will not just be the shape of the institutions that changes due to the pandemic but also the content of higher education, says Leon Botstein, president of Bard College — a liberal arts institution in New York. He argues that the transformations brought about by coronavirus could increase demand for higher education in general and for both the humanities and applied subjects such as healthcare.
“The problem is much more than a financial collapse. It’s a cultural shock about what kind of community we live in. There is a recognition that education is wealth creating, not a welfare giveaway,” he says.
For David Van Zandt, president of the New School in New York, as for many of his peers, the concern is whether domestic and international students return for the next academic year.
“For most places, next Fall is the make or break. We don’t know if it will be back to business as usual or we’ll be partially open. But the virus is an accelerator, like gasoline thrown on to burning embers. This is going to bring about a lot of changes in higher education that probably needed to be made.”
Those changes are likely to include cutbacks, mergers and possibly even closures in a sector that has grown so fast in the past few years. But perhaps some universities can take comfort from the legacy of their forebears.
At Cambridge, for instance, interest after the Black Death turned from theology to more applied subjects such as medicine, and the redistribution of wealth led to an increase in endowments and the creation of new colleges.
“Pandemics tend to leave a major mark,” says Sir Leszek, a former vice-chancellor at Cambridge. “People have different imperatives and whole disciplines evolve. But historically when universities have come through, it is because they have adapted to changes in society.”
Asian stocks retreated, with South Korean shares underperforming, and the dollar climbed after news that the U.S. is monitoring information surrounding the health of North Korea’s dictator.
Equities declined across Asia-Pacific markets, with benchmarks in Seoul, Sydney and Shanghai down over 1% and Hong Kong more than 2%; Japan’s Topix saw more modest losses. U.S. futures surrendered gains and were down more than 1% at one point. While the yen traded flat, the dollar climbed against most major currencies. Treasuries were little changed.
US After Hours IBM -3.3% trades lower on earnings but STLD +10.8% and EFX +4.8% jump on earnings
Nikkei -1.93% Hang Seng -2.28% CSI -1.65% Shanghai -1.32% Shenzen -1.48%
Eur$ 1.0840 CNH 7.0969 CNY 7.0851 JPY 107.48 GBP 1.2409 CHF 0.9701 RUB 75.66 TRY 6.9471
S&P -0.33% Nasdaq -0.23% EuroStoxx -1.89% FTSE -1.98% Dax -1.85% SMI -1.05%
Macro :
- ‘Ugly’ Earnings Will Show Which Miners Can Survive a Downturn
- Goldman Says Selling Options ‘Unusually Attractive’ for Earnings
- Austria Now Subsidizing the Wages of Every Third Worker: Presse
- Oil Spirals Below Zero in ‘Devastating Day’ for Global Industry
Keep an eye on :
- ADYEN NA : *ADYEN 1Q NET REV. UP 34% TO EU135.5M, EBITDA MARGIN DOWN TO 47%
- ADYEN NA : Adyen Makes New Hires, Earnings Buoyant in Surprise Results
- ASSAB SS : Assa Abloy Seen Emerging Stronger From Crisis, Jefferies Says
- AXA NO : Axactor SE First Quarter Revenue EU55.6 Mln, -24% Y/y
- PRSM LN : Blue Prism to Offer 9.09m Shares at GBP11/Share via Investec
- BYG LN : Big Yellow Group to Offer Up to 8.34m Shrs Big Yellow Orders Below GBP9.83 Per Share Risk Missing: Terms
- CA FP : Carrefour Cuts 2019 Dividend Proposal 50% to EU0.23/Share
- CHR DC ; Chr. Hansen Agrees to Buy Austria’s HSO to Expand in Probiotics
- BN FP : Danone Withdraws 2020 Forecast Amid Coronavirus Uncertainty
- DBK GY : Deutsche Bank Expects More Share Sales If Crisis Persists: FAZ
- DRW3 GY : Draegerwerk Offering Prices 1m Shares at EU76.50/Share
- FABG SS : Fabege First Quarter Rental Income SEK711 Mln, -1% Y/y
- FDJ FP : FDJ 1Q Stakes Down 5% to EU4.1B on Covid; Cuts Dividend by 30%
- FLOW NA : Flow Traders First Quarter Net Trading Income EU495.0 Mln
- FME GY : VFMCRP, Cara: Positive Data From KALM-2 Phase 3 Korsuva Trial
- IMPN SW : Implenia Targets Medium-Term Ebitda Margin of 6.5%
- MTU FP : Manitou to Partially Restart Production Sites in France, Italy
- ML FP : Michelin Begins Gradual Europe Factory Restart, Except in Russia
- KN FP : Natixis Sees 1Q Capital Loss on Coface Stake Sale of EU112 Mln
- NOD NO : Nordic Semiconductor Sees 2Q Revenue $75 Mln to $85 Mln
- NOVN SW : Novartis: Siponimod Data Shows Disability Delay in SPMS Patients
- PHARM NA : Pharming Plans Ruconest Trial With Up to 150 Patients With Covid
- POM FP : Plastic Omnium First Quarter Sales -2.2%
- SAP GY : SAP Breaks Up Co-CEO Role After Virus Brought Leadership Problem
- SRT GY : Sartorius Sees Full Year Sales +15% to +19%
- DIM FP : Sartorius Stedim Biotech Raises FY Forecasts
- SIKA SW ; Sika First Quarter Sales CHF1.81 Bln, +10% Y/y
- SKAB SS : Skanska Posed for Profit Rise, Little Virus Hit Yet: 1Q Preview
- STERV FH : Stora Enso Oyj 1Q Operating Ebit EU180.0 Mln, Est. EU134.5 Mln
- SUN SW : Sulzer First Quarter Orders CHF993.8 Mln, +1% Y/y
- TEL2B SS : Tele2 First Quarter Adj Ebitda SEK2.54 Bln, Est. SEK2.62 Bln
- TRYG DC : Tryg 1Q Pretax Loss DKK372 Mln, Est. Loss DKK351.7 Mln
- TUI LN : German Travel to Mediterranean for Summer Possible: Funke
- VPK NA : Vopak Says Contango to Help Occupancy Rate Coming Quarters (1)
- VOW3 GY : Volkswagen to Keep Brazil Factories Closed Through April: Rtrs
- WIEV AV : Wienerberger First Quarter Ebitda EU106 Mln
After Hours Summary: IBM -3.3% trades lower on earnings but STLD +10.8% and EFX +4.8% jump on earningsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: ACC +13.6%, STLD +10.8%, WES +7.7% (withdraws FY20 guidance), EFX +4.8%, CCK +1.5%, SJM +1.3% (raises FY20 EPS and revenue guidance), TBK +0.3%
Companies trading higher in after hours in reaction to news: GVA +4.8% (wins $245 mln subcontract by Fluor Marine), SGMS +2.6% (wins new 6-year contract with South Carolina Education Lottery), CERS +2% (announces expansion of BARDA contract), CHH +0.8% (announces workforce reductions)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: IBM -3.3%, GO -1.7% (guides Q1 revs higher, but also announces stock offering by selling shareholders), HXL -1%, ZION -1%, CDNS -0.6%
Companies trading lower in after hours in reaction to news: CACC -6.7% (delays 10-Q, sees likely adverse impact from COVID-19), CWEN -4.1% (to acquire and invest in a portfolio of renewable energy projects), DRI -2.9% (announces $400 mln stock offering), TW -1% (files for 10.95 mln share common stock offering), ALB -0.7% (appoints J. Kent Masters as Chairman and CEO), SAP -0.1% (co-CEO Jennifer Morgan will depart, Christian Klein will continue as sole CEO)
Closing Stock Market Summary
The S&P 500 declined 1.8% on Monday, although that was relatively modest given the implosion in the oil market where the expiring May contract for WTI crude closed negative for the first time ever. The Dow Jones Industrial Average declined 2.4%, the Nasdaq Composite declined 1.0%, and the Russell 2000 declined 1.3%.
Specifically, WTI crude futures for May delivery collapsed 306%, or $55.83, to -$37.63/bbl ahead of tomorrow's expiration, as no one presumably wanted to take physical delivery given the well-documented storage constraints and lack of demand. The negative price also indicated that producers are paying someone to take their oil.
The historic, and mind-boggling, occurrence appeared to spoil an intraday rebound in stocks, which started to accelerate losses heading into the futures settlement time at 2:30 p.m. ET. Around that same time, it was also reported that a vote to replenish the small business loan program was delayed in the Senate due to ongoing negotiations.
All 11 S&P 500 sectors closed in negative territory, near session lows, with the energy (-3.2%), real estate (-3.7%), and utilities (-3.9%) sectors leading the retreat. The health care (-0.8%) and communication services (-0.9%) sectors declined less than 1%.
It should be noted, though, that the WTI futures curve did show escalating prices amid expectations that prices should rebound with production cuts and hopefully increased demand. For instance, the June WTI crude futures contract settled at $20.30/bbl, although that was still an 18.9% decline.
Back to stocks, Walt Disney (DIS 102.26, -4.37, -4.1%) and Boeing (BA 143.61, -10.39, -6.8%) underperformed the broader market following a pair of analyst downgrades and negative-sounding reports. Disney is reportedly suspending pay for 100,000 employees, while a GE leasing subsidiary canceled 69 orders of Boeing's 737 MAX.
U.S. Treasuries finished mixed with longer-dated maturities continuing to show relative strength. The 2-yr yield increased one basis point to 0.21%, while the 10-yr yield declined three basis points to 0.63%. The U.S. Dollar Index increased 0.2% to 99.98.
Investors did not receive any economic data on Monday. Looking ahead, investors will receive Existing Home Sales for March on Tuesday.
- Nasdaq Composite -4.6% YTD
- S&P 500 -12.6% YTD
- Dow Jones Industrial Average -17.1% YTD
- Russell 2000 -27.3% YTD
IBM beats by $0.04, reports revs in-line; withdraws FY20 guidance due to COVID-19
Reports Q1 (Mar) earnings of $1.84 per share, $0.04 better than the S&P Capital IQ Consensus of $1.80.
Cloud & Cognitive Software up 5 percent (up 7 percent adjusting for currency)
Systems up 3 percent (up 4 percent adjusting for currency)
Global Business Services flat (up 1 percent adjusting for currency)
IBM is withdrawing its full-year 2020 guidance in light of the current COVID-19 crisis. The company will reassess this position based on the clarity of the macroeconomic recovery at the end of the second quarter.