Hold on to these stocks – their price could come bowling back
Markets are down by a third and our tips have been hit too, but don’t panic...
CORONAVIRUS has brought economies to a standstill, sent financial markets into shock and panicked investors far and wide. Massive government intervention provided some respite for equities last week but stocks are still around a third lower than at the start of the year and dividends are increasingly under threat, too.
Midas recommendations have shared the pain, some considerably more than others. So what should shareholders do? The temptation may be to cut and run – and many have – but equity investing is supposed to be a long-term process and selling while others panic rarely turns out to be the best strategy.
Looking across market sectors, some industries have been savaged, some are just about coping and others are positively benefiting from the ripple effects of Covid-19. Further out, the key question is which firms will emerge from stronger and leaner and which may be permanently scarred?
TRAVEL: AIRPORT FOOD GROUP HAS A BIG HELPING OF CASH
SSP Group keeps passengers fed and watered at airports and train stations around the world. It manages eateries such as Upper Crust, Ritazza, Burger King and Yo! Sushi, as well as smarter restaurants and health-conscious cafes.
Life was pretty good for this business, until coronavirus brought travel to a virtual standstill. Last week, chief executive Simon Smith admitted that like-for-like revenues are around 80 per cent lower than this time last year in the UK, Europe and North America and that prospects are highly uncertain.
Smith has pulled out all the stops in response. Units are closing, staff numbers are reducing, rents are under discussion and senior staff are taking big salary reductions. A final dividend of 6p, due for payment last Friday, has been deferred until June and the company is asking big shareholders to waive their entitlements so cash can be kept in the business. The first half dividend for 2020 has been cancelled too.
At the same time, Smith has secured a £112.5 million bank loan and raised money in the stock market by issuing £216 million of new shares at £2.50 a share.
All these measures should keep the business afloat until at least the end of SSP’s financial year in September, and Smith is optimistic that, once coronavirus ebbs away, the company will bounce back.
The lockdown has raised questions however about whether people will resume their former travel habits. Some may be strapped for cash, others may feel less enthusiastic about flying to foreign climes and businesses may decide that video conferencing is cheaper and easier than international meetings.
MIDAS VERDICT: SSP shares were £2.98 when Midas recommended them in 2015. Last year, we suggested that investors sell half their stock at a price of £7.07. The shares were £7.00 by the beginning of this year. They are now £2.99. Supporters of the business can take comfort from the price increase since the finance package was announced but the stock has still tumbled and the outlook is hard to predict. Now is not the time to sell but shareholders should keep a close eye on this stock over the coming months.