Looking for an upswing? Ca sh in on the joys of Staycation Summer...
WITH severe restrictions still hanging over holidays abroad, the UK faces a staycation summer. Whether you’re planning picnics with lashings of ginger beer, lazy days in pub beer gardens or a DIY bonanza, there will be both business winners and losers from our changed spending habits within the next few months.
Fund managers and individual investors are searching out companies that will benefit from the ‘new normal’ over the summer, and beyond. The difficulty, of course, is predicting how well lockdown easing goes in the next few weeks.
‘There are a lot of variables, above and beyond the vagaries of the notoriously fickle British weather,’ warns Russ Mould, investment director at wealth manager AJ Bell. ‘Much will depend upon Government policy and how lockdown is eased, particularly with regard to the two-metre social distancing rule.’
Despite these caveats, investment experts believe there are stocks worth picking.
Joe Healey, investment research analyst at The Share Centre, says: ‘As the inevitability of a summer with fewer people flying and willing to travel overseas looms, there may be opportunities for companies more exposed to domestic tourism as consumers look to stay within the UK.’
Here are some of the experts’ favourite hunting grounds as we head towards a summer like no other.
LEISURE COMPANIES AWASH WITH CASH
WHILE al l hospitality businesses have been hit, some are better placed than others to bounce back once they are allowed to reopen.
David Smith is portfolio manager of investment trust Bankers Investment Trust, running the fund’s UK assets. He works for asset manager Janus Henderson. He says national pub chain JD Wetherspoon has used wisely various business support schemes introduced by the Government to keep costs under control. The company also has the advantage of larger-than-average pub sites, which often have gardens, and already has an app to allow customers to order from their seats in accordance with social distancing.
The pub chain’s shares took a beating when the nation locked down, but have come off lows of £5.59 to stand at more than £11 this week – down from more than £17 in December last year.
Smith says: ‘We don’t expect the company to return to full profitability over the medium term. However, over the longer term we believe it will be one of the winners in its sector. Wetherspoons can continue to provide a value offer to its customers in a safe environment and maintain the investment in its estate.’
When we’re allowed inside for leisure activities again, some may be easier to carry out than others – and if the summer is wet, these may prove popular.
Sue Noffke is manager of investment t r ust Schroder I ncome Growth. She likes Hollywood Bowl which she says has managed the crisis well and is well positioned to reopen. The UK’s biggest ten-pin bowling operator drew up plans to implement social distancing at their sites in mid-February. She adds: ‘This put them on the front foot in managing the situation when t he UK i ntroduced distancing measures in mid-March.’
Plans included closing alternate lanes, encouraging more pre-booking from customers, and temperature-checking staff during shifts. The stock was at £2.84 before lockdown and now stands at £1.68.
Cinemas might prove popular if the summer is wet. Martin Cholwill, manager of Royal London UK Equity Income, owns Cineworld within the £ 1.9 billion fund and believes that social distancing in cinemas will not be as disruptive as some people think because many are usually only at between 20 and 30 per cent occupancy anyway.
Cineworld shares were heavily hit by lockdown, down from £1.90 in early March to 77p this week.
Schroder Income Growth has delivered returns of 19.2 per cent in the past three months, losses of 21.8 per cent over a year, and losses of 5.7 per cent over five years.
The respective figures for Bankers are gains of 40.7 per cent, 8.9 per cent and 72.6 per cent. Royal London UK Equity Income has generated a return over three months of 24.5 per cent, losses of 11.2 per cent over a year and gains of 14.4 per cent over five years. Meanwhile, if the reopening of theme parks excites you, funds Baillie Gifford High Yield Bond and Baillie Gifford Strategic Bond both hold corporate bonds issued by Merlin Entertainments, owner of Alton Towers and Chessington World of Adventures.
Darius McDermott, managing director of Chelsea Financial Services, says: ‘The managers of both Baillie Gifford funds are ‘stockpickers’ – and look carefully at the quality of the bonds they buy. They’ll have done the homework and will be confident that Merlin can weather the coronavirus storm and do well again in the future.’
Baillie Gifford High Yield Bond has delivered an overall return of 21.4 per cent over the past three months and a five-year gain of 22.3 per cent. Respective figures for Baillie Gifford Strategic Bond are 16.9 per cent and 26.5 per cent.
SHARES THAT COULD PROVE WINNERS
JUST because we’re sticking to our own shores doesn’t mean that we won’t be spending money. If hotels, campsites and self-catering companies are allowed to open, they could face a wave of pent-up demand.
‘I never thought I’d say I’d look forward to a camping trip – but it would be a very welcome break from the norm right now,’ says Chelsea’s McDermott.
‘There will be less airline capacity – fewer planes, fewer seats – and higher air fares. So I think
staycations will be popular for a while – not just in the UK, but in many countries.’
AJ Bell’s Mould recommends Whitbread as a potential winner if hotels can reopen soon.
It owns the Premier Inn hotel chain which has been shut to all but essential workers through the pandemic.
He says: ‘If the worst comes to the worst and i ts hotels must remain shut, the company has just raised £1 billion to copper-bottom its balance sheet and enable it to tough out a long period of either limited levels of occupancy or little or no business at all,’
He also likes AIM-listed Applegreen, which has a majority stake in motorway service station operator Welcome Break.
A prolonged lockdown could knock the shares, especially as the company has a lot of debt, although management insists the company has sufficient cash to trade through a lengthy period of low visitor levels.
The shares fell to £ 1.81 at the beginning of lockdown but have since risen in price to £3.43.
Airbnb is likely to be a beneficiary of the move towards socially distanced breaks. Although an unquoted company, it is held by investment trust Scottish Mortgage.
STAY-AT-HOME TREND BOOSTS FOOD STORES
SOME companies will continue to benefit from consumer nervousness about leaving their homes.
Keith Bowman, an equity analyst at wealth manager Interactive Investor, says food delivery giant Just Eat should perform well as families opt to dine at home rather than eat out when allowed to.
He explains: ‘ It has recently agreed to buy US rival Grubhub in a $ 7.3 billion (£ 5.75 billion) deal which would create the world’s biggest food delivery company outside China if the deal goes through.’
Bowman also l i kes Halfords, which has reported bumper trade through the lockdown in response to rising demand for bicycles.
He says: ‘ Its share price is up eight per cent since the beginning of the year, but it could go up further still if the good times keep rolling.’ Just Eat shares have also done well out of lockdown. They hit a low of £59 in March, but are now more than £77.
Supermarkets, including Sainsbury’s, Morrisons and Tesco, will also continue to benefit from a stayat-home mentality.
Alasdair McKinnon, manager of Scottish Investment Trust, says he expects Tesco to keep doing well in the coming months. The company’s shares are up from £2.11 in March to £2.28.