Investors who bought shares in shopping centres, builders, pubs and cinemas when Britain went into lockdown in March would have enjoyed returns of 58 per cent during the following three months (Callum Jones writes).
Those who sold the same basket of equities in June, as Boris Johnson declared the end of “our great national hibernation,” would have seen returns of 40 per cent, according to Jefferies.
Its analysts believe the development of a vaccine “will be savage” for stocks as the City adopts a “shoot first, ask questions later” approach, scrambling to acquire shares hammered by this crisis and offload some of its biggest market beneficiaries.
The market “gets there before the newspapers and the politicians”, the broker observed on Friday.
Jefferies argues the arrival of a vaccine — which it appears confident is a case of when, rather than if — would trigger a rapid response. “The vaccine will offer the market a certainty that normality can resume, at some point,” it told clients.
While any treatment will need to overcome challenges of efficacy, distribution and acceptance, “clear imperatives from governments, employers and schools to get vaccines approved and injected as rapidly as possible” will prompt investors to move fast.
There is light at the end of the tunnel, it suggests, for some of the airlines, multiplexes and event servicers hit hardest by disruption. They also see an abrupt end to the party attended by certain takeaway delivery firms, value retailers and game developers over recent months.
Mediclinic International
Where best to start the search for potential winners than healthcare? Jefferies suggested clients consider Mediclinic, as it believes the widespread rollout of a vaccine would boost the profitability of such service providers.
Shares, battered in recent years following its troubled takeover of Al Noor Hospitals and regulatory changes in Switzerland, have been hammered further in 2020.
Mediclinic was forced to suspend elective procedures in the early days of the pandemic. While it has been gradually reintroducing them, this business still has a long way to go. Avoid
Team17
Shares in the game developer behind the Worms franchise have surged 88 per cent since the turn of the year. Jefferies acknowledges the “lasting benefit” of new recruits during lockdowns, but are apprehensive that Team17’s growth will fall short of expectations in 2021. This year has, after all, set a high bar to clear.
The company acknowledged earlier this month that consumer behaviour is likely to “normalise,” and told the City that revenues and adjusted profits would come in ahead of expectations. At the time, this column encouraged readers to consider acquiring shares; this recommendation still stands. Buy
B&M European Value Retail
As the pandemic bolstered consumer demand for value, shares in this retailer have climbed by a third since January. B&M has been a “clear Covid winner”, Jefferies analysts observed. And yet they justifiably ask whether the sharp rise in sales it has enjoyed is sustainable. This feels unlikely, even if some of its newer customers stick around in the years to come. The vaccine would raise questions over a market capitalisation bigger than Morrisons, and more than double that of Marks and Spencer. Sell
Jet2
This carrier, which specialises in flying people from the north of England to Mediterranean sunspots, is not expected to claw its way back to last year’s sales before 2024.
While passenger levels will not return overnight, a vaccine would provide a significant boost to demand. As Jefferies observed, its business model and balance sheet “will be increasingly appreciated in a structurally changing market”.
Those looking ahead may consider its shares — down almost two thirds since the start of 2020 — cheap. Buy
Numis
Stockbroking firms are a rare bright spot in the gloom that the coronavirus has inflicted on the business world (Ben Martin writes).
While industries such as leisure and hospitality have suffered a crippling drop in demand, brokers have gained from a rise in activity. The beneficiaries include Numis, the independent broker and investment bank, which told shareholders yesterday that it would enjoy a big jump in profits.
Numis is a well-known name in the City. It was formed through the merger of Hemsley & Co Securities with Raphael Zorn in 1989 and employs about 285 staff in London and New York. Listed on London’s junior alternative investment market, it is led by Alex Ham and Ross Mitchinson, its co-chief executives.
It expects to post annual revenues of more than £150 million, compared with £111.6 million last year, after a strong performance during the last six months of its financial year, which ends tomorrow. Pre-tax profits are forecast to be “materially higher” than the £12.4 million it generated last year. Mr Mitchinson said that it had been the best six months in Numis’s history in terms of revenues. Its shares edged up 2p or 0.7 per cent to 295p.
Numis’s investment banking division has been boosted by the group’s work on a string of fundraisings for corporate clients during the crisis. Companies that have come under financial pressure have been bolstering their balance sheets by raising cash, generating fees for brokers. Numis said this line of business had more than offset the drop in work on mergers and acquisitions and stock market listings during the pandemic.
The smaller equities division benefited from a surge in trading activity earlier in the year when the coronavirus first erupted. While it said this had receded during its second half, the business still put in a robust performance.
The outlook remains uncertain, though. Numis said there had been a rise in chances to work on listings in its pipeline. Yet a disorderly end to the Brexit transition period on December 31 may deter some companies considering a flotation from going ahead. The US election could also put a brake on deals.
ADVICE Hold
WHY Deal flow potentially stifled
