Will life ever be the same again? Yes, except where it is different. I believe that the UK, like other countries, will try to get back to normal. However, life cannot be quite the same after such a dramatic upheaval and investors should be considering which companies and sectors will bounce back and which may be consigned to history.
A good case in point is coach operator National Express (NEX), which had been doing well, as its trading update indicated. In the first two months of this year, revenue grew an impressive 17% with all parts of the business trading strongly. March, not surprisingly, saw “a significant fall in revenue” but even so group revenue rose 8.9% for the quarter as a whole, boosted by an 87% leap in revenue from German Rail after the inclusion of new contracts. UK figures reflect the onset of social isolation; North America was still ahead but much worse is to come there.
Even as lockdowns are relaxed, businesses will take time to get up to full speed so there will be fewer people in Europe and the US travelling to work in the immediate future.
We need, however, to look further into the future. We will surely see some employers and employees deciding that work really can be done from home. Business people may also stick to meeting online rather than in person.
However, not all work can be done remotely. While revenue at National Express may not get back to previous levels, it should see high single digit growth by next year. The shares slumped from 470p in January to 105p in mid-March and despite a bounce back they are still at only half their valuation at the start of the year.
I may be biased as a suffering shareholder but I think the punishment has been overdone.
The Dunelm Conundrum
Something similar can be said about homewares retailer Dunelm (DNLM). Several times over the past couple of years I have bemoaned my failure to buy shares before yet another sparkling trading update sent them higher. I blamed my aversion to retailers for my reluctance to make a commitment.
Lucky me. The shares halved from £14 to less than 700p as the country shut down, bringing Dunelm’s expansion to a dramatic halt. The question is, will the previous growth in sales, achieved in contrast to much of the high street and some close rivals, be resumed in due course?
On the one hand, people who have lost jobs or seen income plummet will not have spare cash to buy items that are not essential. On the other, after sitting at home staring at the same furnishings for several weeks they will be all the more keen to ring the changes.
Dunelm initially shut down all stores and online operations but it has embarked on a phased resumption of online deliveries that will be fully functional next week. Already it has seen demand significantly ahead of online orders before the lockdown, although that no doubt includes some sales that would normally have been made instore.
As with National Express, I believe there will be a return to growth, even if the trajectory is lower than previously. I have at last taken a stake with part of my new ISA allowance.
I urge all investors to consider taking opportunities in the current depressed market. While I very much doubt that there will be a V-shaped recovery, there will be a slower recovery nonetheless. An awful lot of bad news is priced into the stock market.
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