Analysts look for bounce back value after lockdown exit announcement

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City analysts have mostly expressed optimism on the economy’s bounce back after Boris Johnson announced the roadmap out of lockdown on Monday.

However, businesses are demanding strong financial support ahead of Rishi Sunak’s presentation of the budget on March 3.

READ: Boris Johnson announces April reopening of pubs, restaurants and shops

According to the new plans, retailers and hospitality venues could reopen as early as April 12, followed by cinemas, hotels, theatres and concert halls in May if it all goes well.

As of June, weddings and indoor gatherings of six people could be reintroduced, while large events such as concerts may resume with the use of rapid testing.

The government will release updated guidance for international travel on April 12 so UK residents can plan for the summer, with restrictions not removed before May 17, although companies were inundated with requests on Monday.

TUI (LON:TUI) had its best day of bookings in over a month, while Thomas Cook saw traffic rocketing 100% on its website.

Flight and holiday bookings zoomed up 337% and 630% respectively for easyJet (LON:EZJ), the company reported.

Meanwhile, representatives of the hospitality sector said they were “obviously devastated” that its reopening will be so far away, with venues closed for nearly 200 days with just a couple of weeks of heavily restricted trading in December.

“A major package of financial support is imperative if hospitality is to survive,” said Kate Nicholls, chief executive of trade body UKHospitality.

“This delay in reopening will make the job of survival all the more difficult for businesses only just clinging onto existence. It is much more than just an inconvenience for many employers in our sector, it is another delay that they cannot afford and, for too many, will not be able to survive… The job for the government now is to make sure that our sector survives this further period of closure intact.”

Savings to save the day

Analysts at Peel Hunt expect a strong recovery, considering the extent of lockdown and the pace of vaccine roll-out, and the newsflow to be progressively positive.

“After the highest GDP fall (9.9%) of the major economies last year, we now expect the sharpest recovery,” the broker commented.

UK residents are estimated to hold £125bn of additional savings in their pockets which they couldn’t spend on leisure, retail and transport.

The opportunity to spend some of these ‘forced savings’ should more than offset the impact of higher unemployment levels and lower spending from those impacted financially by the pandemic, Peel Hunt reckons.

However, most of the cabinet are estimated to remain cautious, as they will want to avoid U-turns while mutations of the virus remain a threat.

Citigroup’s travel analysts were also cautious.

“We remain startled by the complacency priced into the European airline share prices which still appear to be hoping for more than 50% of 2019 supply levels in the short haul Europe leisure market this summer (2021). We are decidedly more downbeat.”

Who is primed for recovery?

Banks and other lenders will have still significant upside gearing to a UK economic recovery, Peel Hunt’s analysts suggested, with Lloyds Banking Group (LON:LLOY) and NatWest Group (LON:NWG) providing exposure to the wider UK economy and trading at distressed multiples of recovered earnings.

Barclays (LON:BARC) has only half of its business in the UK but should also bounce further, as concerns over credit quality in its Barclaycard unsecured lending book would reduce, and it should benefit from expected continuing strength in debt and equity issuance through its investment banking arm.

Lloyds and NatWest are also the top picks from Citi’s banking team for investors seeing value in the sector.

In the much-distressed retail sector, Peel Hunt forecast there will be market share winners, a return towards ‘normal’ shopping trends, continued spending on homes and a rebalancing of online penetration and store demand.

AO World (LON:AO.), Naked Wines (LON:WINE), Moonpig (LON:MOON), Dunelm (LON:DNLM) and Pets at Home (LON:PETS) are expected to emerge out of lockdown as market share winners after boosting their customer base over the past few months.

WH Smith (LON:WHSM) and Superdry (LON:SDRY) will benefit from a return to previous shopping patterns, while Topps Tiles (LON:TPT), DFS (LON:DFS) and ScS (LON:SCS) will continue to rely on home improvement demand since working from home practices are here to stay.

In transport, Go-Ahead (LON:GOG) and Stagecoach (LON:STG) are seen as benefitting most from a relaxation of UK travel restrictions and social distancing requirements, and offer downside protection, as the government has pledged support for as long as it is needed, while FirstGroup (LON:FGP) and National Express (LON:NEX) are predicted to benefit to a lesser extent, as their largest operations are outside the UK.

EasyJet and British Airways owner IAG (LON:IAG) shares are expected by the broker to outperform Ryanair (LON:RYA) and Wizz Air (LON:WIZZ) because the latter two have already priced in some recovery.

Looking at the leisure names, analysts at Liberum chose their top picks on the assumption that they will be able to resume trading in the second quarter.

City Pub Group (LON:CPC), Gym Group (LON:GYM), Loungers (LON:LGRS), Restaurant Group (LON:RTN) and Ten Entertainment (LON:TEG) are anticipated to be in healthy shapes based on their post-covid earnings growth potential.

“As we emerge from lockdown, we expect the well-financed operators to benefit from the unique opportunities presented by reduced supply and pent-up demand,” the Liberum team said.

“Challenges remain with the majority of indoor venues not opening until 17 May at the earliest, but the anticipated extension of government support measures, set to be announced next week in the budget, should be supportive.”

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