Shopping Trolley | finnCap Consumer quarterly sector note - Jan 2021
Stumbling into the light | To read this note in full, please subscribe to our Research Portal here
Stock markets boom: Stock markets have continued into the New Year in the same exuberant vein, with investors focusing on the roll-out of COVID-19 vaccines, a Brexit deal and a Democratic clean sweep of the US Congress and the White House. The simple call is to buy the consumer space. But it’s not that straight-forward; support falls away in March and April, and too many companies will perish unless further support and a clear roadmap are given. Other companies will survive, but too much debt will give them the economic equivalent of long-COVID, others will bounce back quicker. Some companies are having a good pandemic, some have been in the right place at the right time, while others have enjoyed a structural shift in their favour. New companies have started to appear to feed on the remains of those in trouble.
Stumbling into the light: While markets remain fixated on a rapid vaccine-driven recovery, companies remain fixed on shorter-term survival. Business support has not kept pace with the intensification and increasing duration of trading restrictions, and it will be key for government to provide a ‘stimulus bridge’ to the mass vaccine, post-COVID world if huge damage is to be averted for many consumer businesses teetering on the edge of collapse. A premature withdrawal of the monetary and fiscal support could be a further disaster. The vast majority of the £280bn in support measures paid so far is scheduled to end in the spring, with the VAT cut and business rates relief finishing on 31 March. The furlough scheme is set to close a month later. This effectively sets up a cliff-edge when the emergency measures are withdrawn.
Post-COVID world – the big themes: We identify six big themes: (1) Hospitality could see a period of super-normal trading once trading restrictions start to ease after Easter as expected. This view is based on a major reduction in supply and pent-up consumer demand. (2) ‘Stay-at-home’ stocks should continue to perform well in the shorter term. (3) Pure online retailers have performed strongly, with the secular tailwinds turning into a strong gale; the extent of the shift online has been extraordinary. (4) E-commerce is not the only solution for retailers under pressure. Others have looked to develop concessions with partners, something supermarkets are good at doing. For retailers who still run physical assets, physical retail needs to be a high-touch, sensory-driven experience to remain relevant. (5) We expect a benign pricing environment for 2021 and stretching into 2022 for many cost lines, especially the major costs of labour, rent and energy. (6) The pandemic has thrown up acquisition opportunities and we expect stronger companies, private equity and overseas buyers to snap up mispriced assets before the anticipated second-half recovery becomes too entrenched.