Britain is heading for a massive rebound in economic activity according to City brokers that seemingly only a surge in cases of the Indian variant of coronavirus can halt.
Berenberg’s chief economist Kallum Pickering forecasts 6.8% UK GDP growth this year and 5.5% next year, which would be the highest sustained GDP growth since the early 1980s.
Three factors support Pickering’s bullish multi-year outlook for the UK economy: Pent-up household demand, the transition to a more modern economy and less political uncertainty.
Morgan Stanley, meanwhile, believes there is even more money saved up and waiting to be spent by consumers than presently estimated.
The US bank estimates excess savings in mid-April totalled around £170bn looking at savings accounts and Bank of England data
While there is uncertainty around how this excess wealth is spent and if coronavirus has pushed the population towards prudence, it too sees the consumer driving the recovery.
Berenberg adds that based on its analysis there should be a 25% jump in corporate profits over the next two years and in turn that should be good for shares in UK consumer-facing businesses.
To identify some that might best, the broker has run five screens or filters based on metrics comprising: Value; revival; earnings recovery; inflation beneficiaries and inflation beneficiaries with good finances.
Stocks that appear on multiple screens include Biffa PLC (LON:BIF), Greggs PLC LON:GRG) JD Sports PLC (LON: JDs), Marks & Spencer PLC ( LON: MKS); NatWest Group PLC (LON:NWG), Shell (LON:RDSB) and St James Place PLC (LON:STJ).
Biffa is the UK’s largest waste management provider. Its core collections business was affected by the pandemic, with waste collection volumes falling to c55% of pre-COVID-19 levels. As the UK economy continues to reopen, these volumes should continue to recover, driving both revenues and profitability, said Berenberg.
Greggs is already exceeding 2019 levels of sales, despite some restrictions remaining in place. While the shares are not cheap, the broker expects a double-digit earnings growth over the next three years and anticipate the multi-year expansion story will continue well into this decade
JD Sports demonstrated a remarkable recovery last year, significantly outperforming sports retail and brand peers. However, despite being perceived as a “lockdown winner”, it has not traded like one and, with the shares remaining broadly flat versus pre-pandemic levels. JD is best positioned for a strong and fast recovery given its regional mix and growing evidence of accelerating consumer demand for sneakers.
The negative reaction to NatWest’s first-quarter results reflected elevated near-term expectations rather than poor performance. NatWest’s net interest income trends remain supportive and the broker takes comfort from the bank’s strategic progress and strong capital return prospects
Shell should gain from rising oil demand as the world heads back to work, boosting refining margins and potentially oil prices further. Cash generation is strong, which should drive lower gearing and a return to buybacks later this year/early in 2022.
While the individual screens threw up other candidates, Berenberg added that in its view UK investors would do well owning this basket of stocks over the next six to 12 months.