Stock markets held up well on Tuesday despite the UK entering its third national lockdown as the closures of various industries had already been priced-in by investors.
Several UK focused businesses saw their shares sell-off at the start of the week in anticipation of what Prime Minister Boris Johnson would announce, but stock movements revealed some surprises.
“Given the severity of the lockdown restrictions announced by the Prime Minister, one might have expected a repeat of last year’s trends with lockdown losers slumping on the stock market and beneficiaries rallying. That’s not entirely the case this time round,” said Russ Mould, investment director at AJ Bell.
In fact, tour operator TUI (LON:TUI), baker Greggs (LON:GRG) and pubs group Fuller Smith & Turner (LON:FSTA) were in the green, despite being in the sectors with most to lose from widespread closures.
The FTSE 250 index was given a boost after Chancellor Rishi Sunak announced £4.6bn in support for businesses in retail, hospitality and leisure, although it swiftly trimmed its gains over the afternoon.
Stock movements aside, companies in these sectors are expected to be once again the losers of the first quarter of the new year.
Among the big fallers so far this week, airlines like EasyJet (LON:EZJ), entertainment venue operators such as Rank (LON:RNK), along with pub companies including JD Wetherspoon (LON:JDW) and Mitchells & Butlers (LON:MAB), though some shares were already bouncing back on Tuesday.
“With the vaccines being rolled out, a lot of investors are continuing to ignore the short-term impact of the latest lockdowns, and look forward to more normal times ahead,” said market analyst Fawad Razaqzada at ThinkMarkets, with the Chancellor's new measures also providing fuel.
For the UK's food system, the Shore Cap analysts reckon that the continued working-from-home practices will boost suburban food systems and curtails those if central business districts and travel hubs, so companies such as Upper Crust owner SSP Group (LON:SSPG) will take another substantial hit.
The food & beverage channel will see "devastation" following ten months of struggle plus a wipe-out Christmas, with hospitality players exposed to central business districts and travel hubs are especially negatively impacted, while community-based operators are expected to be the first and greatest to benefit.
Companies are expected to cut costs and issue more cash calls to survive.
Meanwhile, the British grocery retail sector will see continued strong demand, with larger baskets and fewer transactions persisting and online dominating.
Sainsbury’s (LON:SBRY), Tesco (LON:TSCO), Morrisons (LON:MRW) and Ocado (LON:OCDO) are set to continue to thrive, while in the supply chain the likes of Cranswick (LON:CWK), Hilton Food Group (LON:HFG) and Premier Foods (LON:PFD) will remain busy.
In the transport sector, analysts at Liberum said the third lockdown will have similar implications to the second, with passenger transport volumes likely to decline to lesser degree than in the first lockdown but more than in the second due to schools and universities closing.
Home delivery volumes are likely to see their recent strong growth sustained for longer.
“We see clear opportunities in the public transport operators where there is a limited link between volumes and profits in the short term, and where we remain optimistic about long-term recovery potential,” they noted.
FirstGroup (LON:FGP) and National Express (LON:NEX) earn the majority of their revenues and profits outside the UK, so investors will have to wait and see what happens in those territories, while Go-Ahead (LON:GOG) and Stagecoach (LON:STG) are protected in terms of earnings due to the nature of their contracts, while ticketing platform Trainline (LON:TRN) is expected to suffer for a while.
Conversely, home deliveries will benefit the likes of Royal Mail (LON:RMG), DX (LON:DX.) and Wincanton (LON:WIN), with other logistics and freight specialists like Clipper Logistics PLC (LON:CLG) and Xpediator PLC (LON:XPD) also reporting strong momentum during the previous lockdown.
Many of the companies who will feed these delivery specialists will be retailers, with pure-play online names such as AO World (LON:AO.), boohoo (LON:BOO) and Naked Wines (LON:WINE) set to shine over the next months, according to analysts at Peel Hunt, although fellow fashion e-tailer ASOS (LON:ASC) may not be doing so well as it struggles to keep up with momentum.
Moving on to the pharma sector, it seems that we’ll still need masks, COVID-19 tests and treatment even if the vaccine is being rolled out.
Stocks such as Novacyt SA (LON:NCYT), Sensyne Health PLC (LON:SENS), Omega Diagnostics Group PLC (LON:ODX), Avacta Group PLC (LON:AVCT), genedrive PLC (LON:GDR) and Braveheart Investment Group PLC (LON:BRH) were victims of a sell-off in November, when Pfizer’s jab delivered positive final-trial results, but have been on a recovery path since.
Similarly, outsourcing giant Serco (LON:SRP) is in a healthy shape thanks to its contract to work on the UK’s test-and-trace system, although it has been criticised for missing its targets but bagging the money anyway.