London-listed companies are bracing themselves for the lockdown to be enforced in England starting on Thursday.
Just like the first period of closures seen earlier this year, the most impacted sectors will be those which are already struggling: hospitality, non-essential retailers and leisure, while essential shops are likely to thrive.
However, schools, colleges and universities will stay open and childcare will be allowed, meaning parents will be able to remain economically active.
The government has also extended the furlough scheme to help employers cover 80% of the staff salary and the mortgage holiday scheme for six months.
The new measures are expected to shave upwards of 6% off November GDP, according to ING Economics, following a forecast 1% contraction in October.
For the fourth quarter as a whole, the dip could be around 1.5% if most restrictions are lifted in December, or over 2% if they last longer, although it is not estimated to be as high as the 25% fall in March and April.
Busy times ahead for grocers…
The obvious winners will once again be the supermarkets, with shares in Tesco PLC (LON:TSCO) and J Sainsbury PLC (LON:SBRY) already up 3% to 211p and 208.1p respectively on Monday, while Wm Morrison Supermarkets PLC (LON:MRW) added 1% to 164.55p.
Online grocery superstar Ocado Group PLC (LON:OCDO) jumped 11% to 2,516p, helped by a trading update where it lifted guidance for the full-year underlying profit after strong performance at its UK retail business.
“Sales could improve for this sector over the coming month, but costs are also likely to be higher as companies likely reintroduce measures to help keep customers safe and crowds under control,” said Russ Mould, investment director at AJ Bell.
“The key threat to this potential sales rally is the weather. People might be less willing to queue in the autumnal wind and rain and so supermarkets may not see as strong a hike in sales as they saw during the spring when the weather was more favourable.”
Motor fuel demand is likely to drop again, according to analysts at Shore Capital, although it should not be as depressed as in the first lockdown since the construction, the education sector and manufacturing segments are still open.
…and food manufacturers
The food supply chain shifts are more subtle, as people shift their eating to home, affecting companies such as Cranswick PLC (LON:CWK), Hilton Food Group PLC (LON:HFD) and Premier Foods PLC (LON:PFD).
Those who cater for the out-of-the-home channels, such as Greencore PLC (LON:GNC), face another month of challenges, which could be “terminal for many, many businesses” according to ShoreCap.
Associated British Foods PLC (LON:ABF) is forecast to benefit in its grocery division, thanks to demand for staple products such as Dorset Cereals and Pataks, to offset the huge hit management anticipate for its Primark stores.
Non-essential retail on the spot
The FTSE 100-listed group guided for a £375mln cash burn since the fast-fashion stores will have to close in November, with 57% of the chain’s total selling space shuttered from Thursday.
“The company may well regret its resistance to creating an online presence, as it can’t make up the shortfall in digital sales,” analysts at Hargreaves Lansdown commented.
“It’s easier for the company to assess the potential damage given that Primark sales took a huge hit earlier in the year during the first lockdown. Pent up demand for fashion saw customers flood back in the summer but that profit would be wiped out, if doors are locked during the key Christmas period.”
Non-essential retailers will have to further focus on their online capabilities and learn from the first lockdown to offset some of the losses from the upcoming closures of stores.
According to ShoreCap, car dealer Motorpoint PLC (LON:MOTR) and home retailers DFS Furniture PLC (LON:DFS) and ScS PLC (LON:ScS) emerged as success stories earlier this year and can hope to do so again.
Essential retailers to continue good run
“Beyond the supermarkets, those retailers that have ‘essential’ status should again benefit from a shift in demand from the lockdown plus the elevated footfall from those working from home,” the broker said.
“In this respect it leads us to also be more optimistic for those retailers accessible by motor car, especially on retail parks and district centres over say high streets and town centre shopping centres; for Central London where footfall was down by circa 60% prior to this new lockdown with the absence of tourists and international business people, it is a particular body blow.”
Pure-play to shine with online Black Friday on the schedule
Pure-play retailers such as AO World PLC (LON:AO.), ASOS PLC (LON:ASC) and boohoo Group PLC (LON:BOO) are likely to see another stellar set of sales, especially with a solely online Black Friday on the schedule.
However, some offline retailers may have procured stock for this event that may be difficult to sell through, which could be a potential working capital challenge, ShoreCap noted.
“Accordingly, Amazon will most probably be licking its lips at this time as the British government provides the group with another upward lever to demand,” analysts commented.
“As such, structural change to the British retail industry, which was also subject to acceleration in lockdown I, has been given more fuel still.”
More struggles for hospitality and travel
While shops and restaurants may be equally suffering if forced to close, retailers could “probably” make up for some of the November losses in December depending on how restrictions are lifted, Berenberg said last week.
For restaurants, hotels and the entertainment sector, lost output cannot be recovered that easily.
J D Wetherspoon plc (LON:JDW) has announced plans to clear out stock by selling all real ale for 99p per pint until it shutters on Wednesday night.
Pubs were allowed to sell alcohol to take away during the previous lockdown, which was a lifeline for many, while this time it is not permitted.
Other pub groups Marston’s PLC (LON:MARS), Fuller, Smith & Turner PLC (LON:FSTA), along with fellow leisure operators Cineworld Group PLC (LON:CINE) and Gym Group PLC (LON:GYM) saw their shares continue to fall on Monday, having been hit hard in the first lockdown, along with others caught in the crossfire such as Trainline PLC (LON:TRN).
“The November national lockdown should take 8% off full-year life-for-like sales, less any takeaway or delivery sales, resulting in current year profit before tax downgrades,” Peel Hunt noted.
“However, current year profit before tax is not relevant for valuation purposes. What is more important is that the extended Coronavirus Job Retention Scheme should help to save jobs, and that there is plentiful liquidity amongst almost all the quoted operators to cope with four weeks of lockdown.”
Hotels are allowed to remain open for those travelling for work and a limited number of exemptions, such as essential workers.
Airlines will be under pressure again, with Ryanair PLC (LON:RYA) announcing it will not refund November flights if they are not cancelled despite the ban on non-essential travel.