Bill Gates predicted recently that things could be “back to normal” by the end of 2021. Markets suspect it may be sooner. Talk of Pfizer and BioNTech’s vaccine has dispelled coronavirus gloom in the City almost as quickly as it gathered in March when office workers were told to stay safe and home.
Shares in the UK’s largest office landlords Land Securities and British Land have rebounded, outperforming the wider market.
Landsec’s shares rose about a quarter in two days despite less than uplifting half-year results uncloaked on Tuesday. Revenues and rents over the six months to September fell close to 40 per cent, it said. The group wrote nearly £1bn off its net asset value. The brightest spot was its decision to resume paying a dividend.
Now, though, it seems we might soon have a vaccine allowing workplaces to reopen in the new year, assuming the difficulties of storing and distributing the vaccine are surmounted. A combination of vaccine, treatments and testing will help overcome employees’ fear of crowded spaces. Working in the office could become the norm again.
That’s a much-needed shot in the arm for the City, facing lasting damage as a financial centre, as well as for Landsec. More than two-thirds of Landsec’s properties are Central London offices. Nearly a fifth of Landsec’s estate is in, or close to, the Square Mile.
Rent collection and prices have been holding up there. Nonetheless, cracks have been showing. In September, before employees were urged again to stay home, occupancy peaked at just 15 per cent. The take-up of available City office space had fallen to less than a third of pre-Covid levels on average, said property adviser Ingleby Trice.
Even with a vaccine on hand, the pandemic will feature on the risk-lists of employers and insurers for decades. Non-compliant office spaces will have to be redeveloped. But there is a shortage of grade-A developments of the kind that make up the bulk of Landsec and British Land’s portfolios and meet post-pandemic standards on access, overcrowding and air conditioning. Mike Prew, Jefferies analyst, reckons about 40 per cent of all buildings are “Covid durable”.
Rising unemployment and Brexit will deplete the hoped-for crowds on City streets at lunchtime. Shops will continue to be hollowed out by Amazonian online shopping. Landsec must still find ways of improving returns from its retail estate.
Nonetheless, it is in a sweeter spot than it has been for a while.
If stock market investors fail to recognise its value in a low-yield world, then private equity will.
Premier Foods has second chance
Turnrounds, like Ernest Hemingway’s description of bankruptcy, can happen gradually, then suddenly. Investors waiting for Premier Foods to fix itself have required limitless patience, yet transformation this year looks almost as instant as its gravy granules.
Premier shares were close to a record low of around 18p in March on worries that its tired brands were incapable of supporting debt and pension liabilities. They have since jumped more than fourfold as UK lockdown measures spurred stockpiling and panic buying, which introduced reluctant home cooks to the convenience of Oxo stock cubes and Sharwood’s stir-in sauces.
Newish chief executive Alex Whitehouse had the confidence to raise guidance with interim results on Tuesday, though he rightly cautioned that recent performance had been exceptional. Cheaper media rates allowed Premier to boost TV advertising while packet sauces met a need for what the company called “repertoire expansion”, by which it means helping shoppers break the monotony of their own limited cooking skills.
None of these trends is guaranteed to outlast the virus. What matters more is that they have allowed Premier to accelerate balance sheet repair.
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Debt has been a tenacious legacy both of the company’s private equity ownership and an acquisition spree that followed its 2004 float. A decade ago Premier was sinking under nearly £2bn of net borrowings. That figure now sits at £383m, or a relatively comfortable 2.3 times ebitda. With a £5bn pension fund in surplus following a rejig in April, the company is in sight of making its first dividend payment since 2008.
Some of the credit here should go to Gavin Darby, Mr Whitehouse's predecessor, even though investors seemed unable to forgive his rejection of a takeover approach in 2016 from US spice miller McCormick. It took until June of this year for Premier to climb above the 65p a share McCormick had offered. The wait for a re-rating might not have been so long had Mr Darby not clung on until 2019.
As the shares near 100p, the bid is ancient history. Yet, post-pandemic, life gets tougher. Much depends on finding an international appetite for Mr Kipling cakes, currently being trialled in Australia and Canada, and on zeitgeist-chasing product launches such as vegan beef stock. A share price retracement of about 10 per cent on Tuesday suggests caution. That is fair, though it should not distract from the fact that Premier has at long last found a way out of the bargain bin.
Premier Foods: firstname.lastname@example.org
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