Amazon up, airlines down: The lockdown 2.0 winners and losers

Essential retailers and streaming services stand to gain once again, but travel and leisure firms are staring at a bleak winter

Lockdown

As England descends into a second lockdown, companies across the spectrum are bracing for another major hit to their bottom line.

The first lockdown provides a guide as to which firms could be the winners this autumn. But the experience of the spring, combined with shifting government rules, may help some companies weather the storm a little better this time around. 

Consumer industry

By Simon Foy

In the consumer goods sector, the winners of a second lockdown will be those geared towards staple products, such as fresh produce and primary proteins, according to Roland French, an analyst at Davy. 

This will include companies such as fruit and veg group Total Produce, pork producer Cranswick and large consumer goods firms such as Unilever

As the public eats in (rather than out) to help out, suppliers to UK supermarkets, such as Hilton Food Group and Premier Foods, will also benefit from strong demand.

Analysts at Shore Capital note that food factories were previously cited as hotbeds for Covid-19, which could potentially have an impact on supply. 

“Public Health England needs to get a grip on risk assessment around the challenge to the public from coronavirus from employees at food factories, and the risks of diminished food supplies and food security from overzealous actions,” they add.

Losers in the sector will be those serving the "on-the-go economy", such as sandwich maker Greencore and hummus and ready meal maker Bakkavor. 

French says: “Clearly on-the-go consumption occasions will be negatively impacted via lower footfall, though schools, universities and construction will remain open. Footfall in city centres will fall once again and there will be an increased propensity to work remotely.”

He adds that producers will have some “muscle memory” from the spring lockdown and will therefore be able to adjust capacity more quickly. However, balance sheets will be further stretched, and investors will keep a close eye on companies' liquidity and covenants.

Finance

By Michael O'Dwyer

The market volatility unleashed by the pandemic drove a boom in business for online trading platforms and spread betting firms. Punters and professional investors flocked to the likes of Plus 500, CMC Markets and IG Group in the hope of making major gains from wild swings in share prices, leading to a string of profit upgrades. Plus 500’s share price is up 62pc this year

Matt Brief, chief product officer at IG Group, says that trading activity more than doubled over the weekend compared to a week earlier as Boris Johnson placed England into a national lockdown and investors’ eyes turned to the US election. Weekday trading, which accounts for most of trading firms’ revenues, is understood not to have been significantly affected so far. 

Banks have been on the frontline of the crisis, handing out Government-backed loans to businesses and granting loan repayment holidays to consumers. However the fortunes of UK-focused banks such as Lloyds are closely tied to the economy, and rolling lockdowns are likely to result in more job losses and greater numbers of customers defaulting on loans

John Cronin, banks analyst at Goodbody, says: “While governments seem willing to leave the taps on to support businesses and households... the inevitable resulting business failure and structural uplift in unemployment poses a threat.” 

The uncertainty caused by a second lockdown could also thwart bankers’ campaign for regulators to allow them to restart dividends.

Meanwhile the effect of further lockdowns on insurers will vary from firm to firm. Hiscox, one of the insurers dragged into an industry-wide legal battle, said on Monday that its $387m (£298m) net exposure to Covid claims remained unchanged. 

Beazley, its rival, warned in September that a second wave could double its Covid-related losses to $340m.

Construction and property

By Ben Gartside

A second lockdown has brought wails of despair from commercial landlords, with shopping centres such as the West End particularly exposed. 

Ros Morgan, chief executive of the Heart of London Business Alliance, warns that by locking down until Christmas the West End will be brought to its knees.

Shoppers wearing protective face masks on Regent Street, London Credit: Dominic Lipinski/PA

Melanie Leech, chief executive of the British Property Federation, agrees that the lockdown will hurt landlords across retail, hospitality and leisure sectors the most due to the importance of the Christmas period. 

In a trading update on Tuesday, office landlord IWG tried to talk up continuing demand for flexible working space, but admitted that "the impact of the pandemic has been greater than we imagined".

Other parts of the property sector may be more insulated by the crisis. This time around, ministers have been clear that construction work can go ahead with Covid-secure measures in place, prompting cautious share price rises in the likes of Barratt, Berkeley and Persimmon. 

Demand for warehouse and storage space remains high, particularly as the Christmas season approaches and companies prepare for any Brexit disruption to supply chains. 

Over the first lockdown, market leader Segro enjoyed higher letting figures and occupancy levels, and "good demand for space - both for warehouse space and new developments", according to chief executive David Sleath. 

London Metric’s Andrew Jones believes the trend will continue. “One of the bigger challenges for retailers will be the availability of stock. If you apply it to 26-mile queues on the M20 [because of Brexit], and a second wave of a pandemic, people will want deeper and larger inventories,” Jones says.

Self-storage companies are also well positioned; Lok’Store reported revenue and profit growth over the lockdown period, while Warehouse REIT’s half year results published on Tuesday saw similar improvements.

Industry and support services

By Alan Tovey

As in the previous lockdown, the Government is encouraging manufacturers to keep on working, so theoretically the latest set of controls shouldn’t affect the sector.

The reality is that they will be hit. Ultimately manufacturers make things that need to be sold, and closing shops will hit demand. Even businesses that supply to industry and avoid retail markets are likely to see a slowdown as the economy seizes up.

The automotive sector is most at risk. Many car companies operate on a build-to-order model, meaning that if dealerships are shut, then people aren’t ordering cars. This can quickly lead to factories halting production.

The automotive industry has taken a beating from coronavirus as car sales collapsed Credit: Owen Humphreys/PA

While dealerships will be able to operate “click and collect” sales, many people are reluctant to make what is their largest purchase after housing online.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), says: “ UK car factories and suppliers need showrooms open; and if dealers are forced to close, the impact on manufacturing could be quick and severe. Click and collect services cannot replace the showroom.”

The car industry operates on thin margins and manufacturers will be reluctant to build vehicles on spec, hoping to find customers for them later. Shutdowns will quickly be felt through car companies' long supply chains.

The SMMT estimates 615,000 car sales have been lost in the UK so far this year because of coronavirus, at a cost of some £21bn. It predicts registrations will fall below 1m for the first time since the financial crisis.

However, because 80pc of UK-built cars are exported, the hit might not be so hard as in the first lockdown. Not as many countries have shut their economies to combat the virus, meaning foreign demand may keep factories operating. That said, export rules under Brexit may complicate this silver lining.

On the positive side, outsourcers may enjoy some upside from the lockdown, with companies such as Serco and G4S supporting the Government’s efforts to introduce mass testing.

Packaging manufacturers such as FTSE 100 companies DS Smith and Mondi are also in line for a boost. With many shops shut, consumers are likely to go online, driving demand for their boxes as people have goods delivered to their door.

Media and events

By Ben Woods

Broadcasters are poised for more pain from a second lockdown after the pandemic took a chomp out of advertising income earlier this year.

ITV and Channel 4 triggered emergency cost-cutting measures at the height of the crisis, with advertising industry sales expected to fall by £37bn during 2020. 

Companies slashed their advertising budgets to protect their cash in the face of a stuttering UK economy. 

But advertising spend has rebounded in recent months, prompting Channel 4 to pencil in a "significant financial surplus" for this year. 

Gill Hind of media consultancy Enders Analysis says broadcasters will have factored in more pandemic disruption, but are still expecting their finances to come under strain.

"We have got the second lockdown, but we have also got the impact of Brexit coming through in January," she says.

Crunch moments surrounding Britain's departure from the European Union "have always had an impact on the advertising market", Hind adds. 

She also expects a lack of advertising from the travel industry to put pressure on spending during the first three months of the year. 

While broadcasters continue their losing streak, the streaming giants will keep racing ahead as thousands of furloughed workers binge on boxsets.

More than a fifth of British homes bought a new streaming subscription during the first lockdown, according to data from Kantar. 

Around half of those were for Disney+, the entertainment giant's new streaming service, which has amassed more than four million UK subscribers since launching in March. 

Meanwhile, the UK events industry remains in a state of paralysis, with live music venues still shut since the first lockdown.

Ministers were warned last month that 170,000 jobs could be lost from the sector without further government support.

Retail industry

By Laura Onita

The usual players that did well during the first lockdown are likely to thrive again. The tills will be ringing at supermarkets across the country as Britons stay at home and prepare for Christmas, albeit a more subdued one than usual.

Amazon is already a clear winner, having provided essential deliveries to consumers during the first lockdown. It stands to benefit further from the 'Black Friday' extravaganza that falls at the end of November. 

The likes of Halfords, discounter B&M, B&Q and Pets at Home are likely to rake in more sales as they fall into the "essential" retailer category.

Clothing and fashion retailers are likely to suffer more than most as they have to shut stores for 27 days.

Next has already warned that a two-week lockdown in England, Scotland and Northern Ireland in November would cause a drop in full-price retail sales of nearly £60m.

Primark, which does not sell online, expects to miss out on £375m of sales this month.

Both retailers, however, are in a much better position financially than Marks & Spencer, and indeed John Lewis, which are banking on a strong Christmas to turn their fortunes around.

Non-essential retailers will strive to refrain from discounting products as much as possible, although the prospect of unsold stock could be much worse.

Debenhams and House of Fraser are in a precarious position, with the former already in administration and the latter discounting heavily as already weak footfall vanishes for a month.

Debenhams collapsed into administration earlier this year Credit: DANIEL LEAL-OLIVAS/AFP

Transport and travel

By Oliver Gill

There will be few winners among public transport and travel companies.

Boris Johnson’s decision to ban all non-essential travel will come as a hammer blow to the airline sector, which is among the hardest hit by the pandemic.

Virgin Atlantic boss Shai Weiss says: “The aviation industry has been all but grounded since March; and with the new international travel restrictions, the sector’s ability to recover is severely hampered further.”

There is hope that the month-long travel hiatus could provide fresh impetus for ministers to implement a new testing regime – one that could facilitate a resurgence of travel in the New Year.

However, this will require a change of mindset in Westminster. Ministers are “significantly underestimating the efficacy of passenger testing”, Weiss says.

“If the introduction of testing is delayed, it will result in further distress across the travel, tourism and aviation industries, urgently driving the need for sector-specific support... Failure to collaborate will be devastating.”

Airport testing has become commonplace in many international airports such as France's Charles de Gaulle Credit: Christian Hartmann/REUTERS

Public transport has been bankrolled by taxpayers since March, meaning operators are comparatively well insulated from the new restrictions. The train network was effectively nationalised and bus companies have received hundreds of millions of pounds to keep services running.

In a low-key hearing of the Public Accounts Committee last month, Whitehall officials let slip that the cost to the Exchequer of keeping trains running will be nearly £10bn for the year to March 2021.

Arguably one winner of Lockdown 2.0 is Transport for London, which recently sealed a £1.8bn bailout from Westminster. Weeks of wrangling were set aside shortly after midnight on Sunday, with the Department for Transport left with little choice but to hand over the money to keep the Underground, trains and buses running. 

It was not all good news, however. Sadiq Khan, TfL’s chairman, has had to agree to a slew of concessions such as fare rises and the axing of Crossrail 2.

Hospitality and leisure industry

By Simon Foy

The leisure sector was hammered during the spring lockdown, but there will be more of a mixed bag this time round

Pubs and restaurants will be forced to shut again, but the latter will move quickly to offer deliveries and click-and-collect services. Takeaway companies such as Dominos are expected to be a lockdown winner. 

Analysts at Peel Hunt said listed companies in the sector would have adequate liquidity to cope with the loss of sales, but added that the impact could be “dire” for many independent operators unless there is additional support.

Despite the role they play in maintaining peoples’ physical and mental wellbeing, gyms will also be closed for the duration of the lockdown.

Peel Hunt analysts took a swipe at the Government’s decision to shut them again: “We thought the physical and mental health of adults mattered.”

However, they added that the brief nature of this lockdown may encourage more gym users to retain their memberships this time around, helping companies such as the Gym Group.

Bookmakers may fare better this time around, largely due to the continuation of professional sport. Nonetheless Ladbrokes owner GVC warned the City it would take a £34m hit as a result of the “circuit breaker” forcing its shops to close.