Hopes for a swift exit of lockdown have been dashed by new research showing that infections have soared 50% between January 6 and 15 compared to the same period in December.
Data from Imperial College London this week suggested that the rate of new infections in England was not dropping ten days into lockdown, with London showing figures twice as high as the rest of the nation.
The government was initially looking to start easing restrictions in mid-February, however Boris Johnson said on Thursday it was “too early to say” when it could happen.
“We’re seeing the contagiousness of the new variants that we saw arrive just before Christmas. There’s no doubt it does spread very fast indeed,” he was quoted as saying by The Guardian.
Consumer-facing companies will have to perhaps endure a longer period of depressed demand than expected, while those who emerge on the other side will be the ones with a solid cash position.
According to Berenberg, food retail and manufacturers, general retail and beverages are set to be the fastest sectors to bounce back, while it will take longer for hospitality, leisure and travel.
Pandemic winners to capitalise on growth
The broker’s favourite picks are stocks that already did well during the pandemic thanks to the shift to online shopping or an ‘essential retailer’ denomination, namely ASOS (LON:ASC), Ocado (LON:OCDO) and Pets at Home (LON:PETS). They are expected to continue expanding as they deliver high returns and good margins.
Similarly, some food and beverage names have held up well in the past few months and could continue capitalising on that growth.
For example, Greggs (LON:GRG) has remained open during lockdown and sales were only down 24% in December despite the heavy restrictions, suggesting can swiftly return to pre-pandemic trading levels when lockdown ends, while it continues to have significant expansion opportunity ahead.
Fevertree (LON:FEVR) has had an impressive retail performance during the pandemic, which should support its on-trade sales once the channel reopens, especially in newer markets where the strong rate of sale in the off-trade could be utilised to attract bars and restaurants to stock the brand.
In the manufacturing space, Hilton Food Group (LON:HFG) is likely to continue performing well while the pandemic continues, although trading may get tougher when restrictions ease since most of its revenue comes from meatpacking for major retailers.
Supermarkets Tesco (LON:TSCO) and Marks and Spencer (LON:MKS) will benefit once the high COVID-19 safety costs plummet, while M&S was forced to address its weaknesses during the pandemic and Berenberg reckons it should emerge as a much stronger business.
Competitor Sainsbury’s (LON:SBRY) was upgraded to ‘hold’ from ‘sell’ as analysts believe its banking arm is now providing fewer risks though they’d rather see it sold to a third party.
Quick bounce back for some
In leisure, retail and travel some firms are forecast to outshine their rivals when restrictions are lifted to some degree.
Hollywood Bowl (LON:BOWL) can keep customers safe with dividers between each lane and will be attractive as a low-cost family activity, proven by the fact that it experienced demand beyond its capacity during many days last summer.
Moreover, around half of its revenues are also contracted so it gets paid regardless of the extent to which passenger numbers have recovered.
Elsewhere, DFS Furniture (LON:DFS) has already showed it is able to rapidly recapture lost demand as a result of temporary store closures, having reported order intake growth of 69% in the 6 weeks to mid-July following the initial lockdown.
Pressure for Next and Domino's
Somewhat surprisingly, Berenberg has retail powerhouse Next (LON:NXT) among its least-preferred names due to extreme volatility in the fashion sphere, and competitors closing their shops could make the high street less attractive.
In fact, analysts think that its share price rally was underpinned by the goal to make online sales 65% of the total over the next few years, however it is “a flawed interpretation of the business” since it overlooks the 500-strong store estate in the UK.
Domino’s Pizza (LON:DOM) is also on the broker’s black book despite it reaped some benefits from the takeaway fever during lockdowns.
However, the volume of pizzas it sold has declined and it will face more competition once restrictions are rolled back.
In fact, less competition has been one of the silver linings of the crisis and some sectors – especially non-food retail, pubs and restaurants, travel – will benefit from it even after the pandemic.
Among long-term lessons, Berenberg concluded, managers have discovered permanent cost efficiencies and renegotiated rental agreements, while the economy as a whole may be facing a business rates reform.