On Tuesday a sombre UK prime minister ratcheted up pandemic restrictions. Boris Johnson is no longer Britain’s cheerer-upper-in-chief. But amid the gloom, some UK businesses have an opportunity to shine.
The largest of these are already well-known. The cancer drugmaker AstraZeneca was the sole UK company to appear in a Financial Times analysis of the 100 companies that most increased their stock market value during the pandemic. It is co-developing a Covid-19 vaccine, though it will not profit from it until after the pandemic. Ocado, another heavyweight, has more than doubled its market value to £21bn this year. Its technology facilitates the move of grocery shopping online, which is being accelerated by lockdowns.
A greater reliance on e-commerce is good for sales at online retailers such as the electrical goods seller AO World and the fast fashion company Asos. Though richly valued at around 20 times forward ebitda, both companies should do well if shoppers stay away from bricks-and-mortar stores.
The renewed push to working from home will create demand for DIY stores, as people spend money saved from entertainment and travel on improving their dwellings. Homeworking also requires employees to have laptops and other equipment. The IT services company Computacenter has increased its profit guidance three times since May.
Stuck at home, people will look to online gambling and gaming businesses for entertainment. Shares in Dublin-based London-listed Flutter Entertainment are up almost a quarter this year, while those of the spread betting group Plus 500 have risen by almost three-quarters.
The market value of the Cambridge-based video game developer Frontier Development has already doubled to £1bn this year, but could go further given its promising programme of new releases. Fans of fantasy war game miniatures are driving sales at Nottingham-based Games Workshop, though the shares are hardly cheap at 34 times forward earnings.
The problem, of course, is that these are already crowded trades. The best returns may well come from a different direction. Anything that reduces the economic damage caused by Covid-19 restrictions would be hugely valuable. If the vaccine frontrunners stumble, the “moonshot” plan to carry out millions of rapid Covid-19 tests a day will become more urgent. The necessary technology does not yet exist. But companies capable of cracking this will be worth backing.
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