Coronavirus has brought the economies to a halt, shocked the financial markets and frightened investors everywhere.
Massive government intervention brought some peace to equities last week, but shares are still about a third lower than at the beginning of the year, and dividends are also increasingly threatened.
Midas’ recommendations shared the pain, some significantly more than others. So what should shareholders do? The temptation may be to cut back – and many have – but equity investing should be a long-term process of selling, while other panic rarely turns out to be the best strategy.
Roll with it: Markets are jittery, but once people can socialize again, they’ll return to Hollywood Bowl sites
FREE TIME: PIN HOPE ON HOLLYWOOD BOWL
Midas recommended Hollywood Bowl in December 2017 when the shares were £ 1.89. They had risen to £ 3.12 early this year.
Last week they closed at £ 1.53 and had fallen below 70p earlier this month. While stocks are so terribly low, the current price doesn’t take much into account the company’s strength or its prospects.
Hollywood Bowl has increased sales, profits and dividends over the past three years, and a recent trading update showed strong growth from September to February, before Covid-19 broke out.
Importantly, the company’s CEO, Stephen Burns, genuinely cares about its 2,100 employees, which should bodes well for the future. Most workers take advantage of the government’s 80 percent pay guarantee, but Burns adds that through March and April, while some staff are paid in full until May.
All sites are now closed, but the group had already taken steps to mitigate the risk by making fewer lanes available, turning off amusement machines, and performing deep cleaning on a regular basis. In the week before the sites were closed, everyone in the group was alternately cleaning, including Burns and his colleagues.
Not only have they interfered with the workforce, they have also shown financial support for the company and have bought more than 30,000 shares with their own money since the beginning of this month.
Midas verdict: Hollywood Bowl shares have been cruel in recent months, but they should recover. Bowling is an inexpensive form of entertainment and Hollywood Bowl is the largest operator in the UK, with a strong balance and experienced managers.
As soon as people are allowed to socialize again, the lanes are an obvious place to go. Stick to these stocks.
All market sectors have been looked at, some industries are fierce, some are nearing it, and others are benefiting positively from the ripple effects of Covid-19. Ahead, the main question is which companies will get stronger and leaner and which will have permanent scars?
TRAVEL: AIRPORT FOOD GROUP HAS GREAT MONEY AID
SSP Group keeps passengers fed and watered at airports and train stations around the world. It manages eateries like Upper Crust, Ritazza, Burger King and Yo! Sushi, but also smarter restaurants and health-conscious cafes.
Life was pretty good for this company until the corona virus brought travel to a halt. Last week, CEO Simon Smith admitted that like-for-like revenues in the UK, Europe and North America are about 80 percent lower than this time last year and the outlook is very uncertain.
In response, Smith pulled out all the stops. The units are closing, the workforce is declining, rents are being discussed and senior staff are receiving substantial salary cuts.
A final dividend of 6 pence, due to be paid last Friday, has been postponed to June and the company is asking large shareholders to waive their rights to keep money in the company.
The first half-year dividend for 2020 has also been canceled. At the same time, Smith obtained a £ 112.5 million bank loan and raised money in the stock market by issuing £ 216 million worth of new shares at £ 2.50 per share. All of these measures should keep the company going until at least the end of SSP’s fiscal year in September, and Smith is optimistic that the company will return as soon as the corona virus fades.
However, the closure has raised questions about whether people will resume their previous travel habits. Some may be tied up for money, others may feel less enthusiastic about flying to foreign climates, and companies may decide that video conferencing is cheaper and easier than international meetings.
Midas verdict: The SSP shares were £ 2.98 when Midas recommended them in 2015. Last year we suggested that investors sell half of their shares at a price of £ 7.07. Shares were £ 7.00 early this year.
They are now £ 2.99. Supporters of the company have been able to comfort with the price hike since the announcement of the financing package, but inventory has still fallen and prospects are difficult to predict. Now is not the time to sell, but shareholders should keep a close eye on this stock in the coming months.
PROPERTY: REAL ESTATE HAS BRIGHT OUTLOOK
Real estate investors were quite a disappointing investment even before the Covid-19 disaster.
Midas advised the Midlands-based real estate company in 2014 at 52 pence. At the beginning of the year, it was 55p and last week it closed at 34p. The company was plagued by Brexit-related concerns in 2016, and shares have clearly hit hard in recent weeks.
reaction seems exaggerated. Real Estate Investors is a very conservative company led by Paul Bassi, a veteran in the real estate market. The firm’s tenants are deliberately spread across several sectors, with NHS offices leading the pack, as well as other government agencies.
There are also retailers, restaurants and hotels in the mix, but most tenants are responsible for a fraction of the group’s total revenues. Reassuringly, Bassi’s portfolio is 96 percent rented out, and when quarterly rents expired last week, no one has defaulted or even suggested. Real Estate 2019 results released this month showed solid progress and a total dividend of 3.8 pence was proposed.
Once paid, shareholders will have received more than 15p in dividend payments per share in the past five years, offsetting the poor performance of the stock price.
Midas verdict: Real estate tenants may have a hard time as the effects of the coronavirus increase in the coming months. But the company is financially strong, the Midlands have made progress, and the long-term outlook is bright. At 34p, this stock is cheap – and yields returns of over 10 percent.
FOOD: BUY FRENZY BOLSTERS INCOME
Food retailers have grown tremendously in recent weeks. Shoppers have panicked: pasta, drinks and toilet rolls are flying off the shelves and online delivery services are flooded.
The frenzy should boost revenues across the supermarket industry, but will also spill over to certain suppliers. For example, Hilton Food Group unveiled an optimistic trade statement last week, saying that the numbers for 2019 exceeded expectations and that the current year has started well. Hilton offers Tesco all of its beef and lamb roasts, steaks, chops, and more specialized goods, such as barbecue-ready burgers or Bolognese sauce.
As the company has focused on red meat throughout its 26-year history, it has recently expanded to include fish, vegetarian and vegan products in response to changing consumer tastes.
Hilton operates in several countries outside of the UK, including Australia and New Zealand and much of Northern Europe. In any place, the group usually works with one large supermarket group so that it can build a relationship with them and become a partner, not just a faceless supplier.
The strategy clearly produces results. CEO Philip Heffer is optimistic about the future and is doing reasonably well in the present. All over the world people are shutting down eating more at home and the good weather here is likely to encourage barbecue enthusiasts to light their grills, especially since eating out is no longer an option.
Midas verdict: Midas advised Hilton Food Group back in 2008 when the shares were £ 1.85 and again in 2013 when the price had gone up to £ 3.05. The stock closed at £ 10.24 last week, compared with more than £ 11 at the beginning of the year.
Existing investors eager to make a profit may choose to sell a few shares, but they may not be completely sold out. This is a solid, well-managed company and the 2019 dividend, forecast at 22p, looks fairly safe.
HEALTH: YOUR GENE COMBATS THE CRISIS
Your gene health makes a direct contribution to the fight against the coronavirus. Last week, the diagnostic specialist revealed that the Novacyt medical group is helping to make Covid-19 test kits.
The tests provide results within two hours, so hospitals can quickly find out if suspected patients and medical personnel have the virus. Demand is increasing day by day from countries around the world, including the US where authorities gave emergency approval for the tests last week.
Tens of millions of tests are expected in the coming months. Not only can Novacyt satisfy all these anxious customers, so it has turned to just two other companies to help, including Yourgene from Manchester.
The decision is a clear endorsement of Yourgeny’s facilities and ability to produce advanced diagnostic materials. The company will build production in the coming weeks and may play a greater role over time. Midas recommended Yourgene at the beginning of the year when the stock was 13.75p.
It is one of the few stocks that has surged since 14.50 pence, up more than 5 percent. The group usually focuses on tests for Down’s syndrome, cystic fibrosis and male infertility, but it uses resources to help fight Covid-19.
Midas verdict: Medical companies around the world are working to combat the spread of the coronavirus, and Yourgene, a small AIM company, is at the heart of these efforts. The company is at the forefront of the advanced medical diagnostic industry and its shares should continue to gain ground.
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