As plans are made for easing the coronavirus restrictions, some sections of industry are already opening up. These include housebuilders, as well as those working on infrastructure projects for the Government and local authorities.
‘Non-essential’ retailers, too, are making reopening plans, with trade association the British Retail Consortium (BRC) issuing guidance. All these sectors will have been affected by coronavirus. Most companies will have seen their share prices ravaged.
Some now look good value for investors, while others will be best avoided. Here, we speak to investment experts about where there is investment value to be found.
Opportunity: Shares in housebuilders look cheap as analysts predict a soft landing for the sector when the economy starts to rebound from lockdown
When coronavirus lockdown was announced, many housebuilders downed tools. In the past few weeks, though, several including Redrow and Persimmon have announced they will reopen after the Government made it clear they could do so if social distancing was put in place. Charlie Campbell, housebuilding analyst at Liberum Capital, says that from an investment point of view the sector now looks cheap.
He says: ‘Housebuilders’ shares have fallen by 43 per cent since February 21. We expect a soft landing for house prices as the fiscal and monetary stimuli limit the hit to the economy. We also see good mortgage availability and affordability supporting house prices.
‘So long as we are correct in anticipating a soft landing, we see upside across the housebuilding sector.’
Recent trading updates from Taylor Wimpey, Persimmon and Vistry indicate that demand for new homes has not collapsed. ‘New orders outpaced cancellations,’ says Helal Miah, investment research analyst at The Share Centre. ‘Yet while order books remain encouraging, it’s early days in the crisis in terms of the economic fallout and we will just have to wait and see.’
For those wanting to bag a builder at current low prices, Campbell says his preferred stocks are MJ Gleeson, Persimmon and Bellway. Miah is more cautious.
He says: ‘We do not have any of the housebuilders on our current buy list, but I think investors will have fewer worries with the big two – Taylor Wimpey and Barratt Developments.’
In terms of investment funds with exposure to housebuilders, Darius McDermott, managing director of Chelsea Financial Services, suggests Ninety One UK Special Situations. This fund has added to its holdings in the housebuilding sector during the recent sell-off.
McDermott says: ‘Holdings include Barratt Developments, Taylor Wimpey, Redrow and Bellway, as well as related businesses such as Howden’s Joinery, Travis Perkins and Grafton Group.
Investment in infrastructure – big projects such as railways, airports, schools and power supply – is usually seen as a safe option for investors and tends to provide them with a steady stream of income. The sector has fallen in value, along with the rest of the stock market, but it has been more resilient than most.
Annabel Brodie-Smith, a director of the Association of Investment Companies, says: ‘The average investment trust is down 15 per cent in share price terms since the end of December. But the infrastructure investment trust sector is down on average by eight per cent and the renewable energy infrastructure investment trust sector is down six per cent.’
Giles Frost is director of infrastructure at stock market-listed investment trust International Public Partnerships. He says the pandemic has ‘ushered in an era of big government and nowhere are governments bigger than in the area of infrastructure projects’.
Laura Foll is co-manager of investment trusts Lowland and Law Debenture. She says the Government’s desire to spend on big projects will restart when lockdown ends. ‘Companies exposed to infrastructure will in our view still have a structural tailwind of growth behind them,’ she adds.
Analysts believe the recent market fall represents an opportunity for investors interested in getting exposure to infrastructure. It’s important to pick your investment fund carefully though, especially with regards to the type of projects it is invested in.
Philip Kent, director of fund GCP Infrastructure Investments, warns some infrastructure assets such as airports will struggle in the current climate, but other projects such as public/private partnerships will not.
He says: ‘At a time of unprecedented restrictions on people’s movement and significant changes to the day-to-day operation of the economy, investors should ensure they understand the type of infrastructure any investment in this sector exposes them to.’
Jason Hollands, a director at wealth manager Tilney Bestinvest, suggests operational infrastructure will continue to perform well. He explains: ‘The management of transport networks, power transmission, schools and hospitals is under very long-term contracts, often with an element of inflation-proofing built in.
‘This means they are much less exposed to an overall downturn in the economy than most businesses and offer a fair degree of income stability for investors.’
He recommends Octopus Renewables Infrastructure trust, suggesting the infrastructure around renewable energy ‘looks relatively bulletproof, given the obligations that governments have made to tackle climate change’.
Octopus’s portfolio consists of UK solar farms and Swedish wind farms. Brokers at Stifel have upgraded a number of infrastructure funds on recent market falls. These include GCP Infrastructure Investments which offers investors an attractive income of 6.3 per cent.
Stifel’s Iain Scouller says: ‘We view the shares as insulated at a time of concerns about global growth, given its portfolio of infrastructure and renewables loans, with most cashflows public-sector backed.’
Stifel also likes International Public Partnerships despite the trust having exposure to coronavirus-affected projects such as railways.
RETAIL STILL HAS VALUE, SAY EXPERTS
All investors’ eyes have been on the supermarkets ever since panic-buying replaced leisurely browsing. But stock-pickers believe there’s now investment value among some of the non-essential retailers.
Jean Roche, small and mid-cap fund manager at Schroders, believes pessimism in this area has been ‘overdone’.
She adds: ‘We think avoiding it is a missed opportunity.’ Roche says retailers will have to be smarter to compete with firms such as Amazon and that the companies that thrive will be those which were already making structural shifts before the pandemic hit.
She recommends homeware business Dunelm and Pets at Home as two strong choices. Roche explains: ‘Pets at Home has benefited from being classified as an essential retailer, but has also invested wisely in its online presence as well as stores. It will report profits ahead of market expectations this year.’
Georgina Brittain is manager of investment trust JP Morgan Mid Cap and unit trust JP Morgan UK Smaller Companies. She also holds Dunelm in her funds.
She says: ‘We are confident Dunelm has the potential to emerge stronger.’
Nick Train, of investment house Lindsell Train, suggests investors should hold shares in Burberry. He says: ‘The young are going to party through the 21st Century’s ‘roaring 20s’. Burberry will clothe many of them, particularly in Asia.’
Burberry is a top ten holding in investment trust Finsbury Growth & Income and fund Lindsell Train UK Equity, both managed by Train.