The second national lockdown which comes into effect on Thursday will once again separate the stock market’s coronavirus winners from the losers.
When the first lockdown was imposed, stocks fell in unison, before winners began to appear. Online businesses stood out, from retail to gambling to takeaways. Will the same companies thrive this time or will there be a new wave of winners?
As Christmas approaches, the shift to online shopping is sure to accelerate, and the sector’s existing leaders will benefit. One is Asos, the online clothing company, whose shares have risen fourfold since March lows.
In recent financial results, it announced 19pc sales growth for the year to Aug 31 and profits before tax of £140m, four times higher than last year. Joe Healey of The Share Centre, a stockbroker, said Asos continued to defy the gloomy retail environment, highlighting the strength of its online-only business model through the pandemic.
“It has been sheltered from the retail tornado that Covid created, involving store closures and reduced footfall,” he said.
“During the pandemic, Asos has focused on the areas of the business it can make more efficient. This has grown profitability and built a foundation on which it can build and improve margins, which will be key for the future.”
Analysts at Bank of America were less optimistic. They said the firm had failed to meet expectations and rivals were growing more quickly. Its reliance on the “20-somethings”, who will bear the brunt of lockdown-related job cuts is also a challenge.
It does not take a stock market genius to realise that more lockdowns would be good for Ocado, the online grocer. Matt Hancock, the Health Secretary, has said things will get worse before they get better, so shoppers will become more reluctant to go into shops and risk catching the virus. The appeal of home delivery will grow.
Investors know this, of course, and Ocado is richly valued. Oliver Brown of RC Brown Investment Management said its strength lay in its potential to sell its “virtual supermarket” software to other companies.
“Ocado is expensive, but it has been winning big contracts with other supermarkets that are well behind in their own delivery ambitions, such as Kroger, the American chain. If you want an American-style tech giant with lots of potential, Ocado is the British company to buy. But if it disappoints, the shares could fall, as expectations are high,” he said.
Ocado’s shares have been rising steadily all year and have now doubled. Its sales grew by 27pc in the first half of 2020 and the arm of the business that sells software to other companies grew by 58pc.
Delivery giant Just Eat has grown into a £15bn company by linking restaurants to their customers. Unsurprisingly, it is having a good year. Its financial results last week showed that orders rose by 46pc in the three months to Sept 30 compared with the same period last year.
It has signed up McDonald’s and Greggs, and its acquisition of American rival Grubhub was approved by shareholders earlier this month. Investors have been cheering the news: the shares have gained 60pc since March 12, when the first lockdown was announced.
As with Ocado, investors have to pay a high price for so much growth, and if the firm fails to meet expectations, the shares could fall sharply.
Investors now have a chance to own shares in the NHS’s provider of digital mental health support to children and young people: Kooth joined Aim, the junior market, last month. It is not a household name like Ocado, Asos or Just Eat, but should be a lockdown winner as health services move online.
Ken Wotton, a fund manager at Gresham House, said it had grown its sales by 38pc annually over the past three years and had seen more demand as a result of Covid-19 and lockdowns.
“The company addresses an increasingly recognised clinical need and a priority area for NHS spending,” he said. “With scope to expand its offering into adult support, corporate well-being and overseas markets, Kooth has the potential to deliver long-term growth and leadership in the critical area of mental health.”