It comes hard for an optimist to say it, but getting carried away by the possibility of an early Covid-19 jab and rushing unheeding into shares is not a sensible reaction. Hope has to be tempered with reality.
A good example is pubs chain JD Wetherspoon (JDW). While its chairman has created a fair number of enemies with his forthright style, one ought to feel some sympathy for a business that, through no fault of its own, was shut down for weeks, allowed to open only with restrictions, then suffered spasmodic closures in different parts of the country and is now back in lockdown across England and the Republic of Ireland. Pubs in Wales and Scotland are open but under heavy restrictions.
In the 15 weeks to November 8, the first weeks of its financial year, like-for-like sales slumped 27.6%. Just as things were starting to improve, October saw the imposition of new restrictions that took trade significantly lower.
There is no doubt that Wetherspoons will hold out until better times return. It raised £137.7 million through a share placing in April and £48.3 million through loans in August. Cash burn is currently £14 million a month.
It may be some time before life gets back to normal and, as Martin says, the regulations governing hospitality are a muddle. A lot of lost ground needs to be made up.
Wetherspoon shares slumped from 1,725p just before Christmas to 560p in March, which admittedly allowed for an awful lot of bad news, but we have indeed had a lot of bad news. The subsequent recovery to around 1,120p is surely quite far enough for now.
Safe as Houses?
Pints not drunk are gone forever. Homes not bought can be bought next year; homes not built can be built next year, notwithstanding reported bottlenecks in the supply system.
So while building sites were closed for part of the lockdown period and sales operations suspended there is plenty of scope for housebuilders to recover lost sales. Persimmon (PSN) reports sales running at record levels yet the recovery in its share price has levelled off since July at a plateau well below February’s high.
Taylor Wimpey (TW.), in which I hold a stake, says confidence in next year’s performance has increased and results will be materially ahead of analysts’ expectations. Yet the share price performance has been even more disappointing than at Persimmon.
I hold shares in three companies in this sector and I believe it is currently heavily underrated.
Advertising Budgets Stretched
Television company ITV (ITV) has been in slow decline for several years as subscriber services have cranked up competition and lured away advertising.
Chief executive Carolyn McCall sees encouraging signs in the third quarter. She sees more than I do. Viewing figures for the first nine months of this year were up only 2% despite the enforced boredom during lockdown and other restrictions.
Advertising trends are improving but the fourth quarter will be up only slightly on last year and productions were still not back to normal even before the latest lockdown. As businesses feel the pinch, advertising budgets are going to be limited and will therefore be spread more thinly.
Five years ago the shares were trading around 270p. They are now about 90p, having dropped below 60p twice this year. Even in the unlikely event of a bumper Christmas the long-term trend is undeniable.
WH Smith (SMWH) is harder to call. The latest update was pretty grim as expected, since the transport outlets that were doing so well have been hit particularly hard by the slump in air and train journeys.
It will come good again but heaven knows when. Talk of life in this country returning to normal by next summer looks wildly optimistic to me, and I am a born optimist. I will be hanging on to my once high-flying holding but I can’t honestly advise others to buy in.
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