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Home / Blog / blog / Trader’s Corner || Pub chain in good spirits; Dettol maker cleans up || 1-5-20

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Trader’s Corner || Pub chain in good spirits; Dettol maker cleans up || 1-5-20

Budget pub chain, JD Wetherspoons revealed it expects to be pouring pints again by the end of June, and that it has raised £141m to boost its liquidity.

Share prices were up by nine per cent at one point this week, now standing at 974.22 at the time of writing.

The funds have been raised by issuing new shares at around 900p each, representing around 15 per cent of the firm’s equity.

Wetherspoon’s also revealed that 99 per cent of its 43,000 strong workforce has been furloughed and it has obtained a £50m loan under the Government’s Coronavirus Large Business Interruption Loan Scheme.

The pub chain said that if it was able to reopen in late June, it expected to see a sales decline of 26 per cent for the year ending in July. Founder, Tim Martin, was initially slammed however for suggesting that his pubs would reopen so soon and in the firm’s half yearly statement he clarified these claims saying: ““We have no insight whatsoever as to when pubs might reopen and no information from, or hotline to, the government.”

“We’ve made an assumption, just for planning purposes, that pubs might be allowed to reopen in June but we don’t know more than anyone else.”

So, is now a good time to snap up stock in the cheap-as-chips pub chain? Analysts think that Wetherspoons will fare well after the current crisis with Peel-Hunt describing the firm as ‘a long-term winner in the sector.’ The analysts upgraded Wetherspoons from ‘hold’ to ‘buy’ although it cut its target price from 1550p to 1200p saying: “Yesterday, we participated in a conference in which panellists predicted that one-third of London restaurants could go into administration. Against this backdrop, JDW could benefit from a large drop in competition.”

Dettol manufacturer Reckitt-Benckiser is cleaning up in the current crisis, recording a stellar first quarter including a 50 per cent jump in online sales. Shares in the household goods giant, whose portfolio also includes Lysol and Nurofen, jumped more than four per cent, now standing at 6,630p at the time of writing.

The group’s like-for-like sales surged 13 per cent in the first quarter, beating analysts estimates of 5.3 per cent, as consumers stocked up on health and hygiene staples.

The company’s new CEO Laxman Narasimhan stated the medium-term outlook for Reckett-Benckiser also remained unchanged, saying: “At this stage, it is uncertain how quickly this will change in the months ahead. Improved penetration and usage, particularly for products like Dettol and Lysol, may well sustain, although we will likely see some unwinding of “pantry load” as we work our way through the crisis.”

Most analysts are impressed by the Dettol manufacturers growth though, and think it has a good chance of sustaining the gains. Russ Mould from A J Bell said: “Although sales were lifted by stockpiling as the crisis took hold, it seems likely that some of the changes to consumer behaviour in the wake of the pandemic will be lasting. This could provide some extra pep to the recovery plan being delivered by Narasimhan.’

Some have pointed out that the shares look quite pricey, trading at 18.34 times earnings but Reckitt-Benckiser does have a 2.7 per cent yield and it is one of the few firms standing by its dividend in the current pandemic. The general consensus seems to be that with a coronavirus vaccine still looking a long way off, the cleaning frenzy could continue and this stock may be a good long-term bet.

Oil giant Shell has slashed its dividend for the first time since World War II in the wake of the recent collapse in oil prices.

Shell’s quarterly dividend has been cut by 66 per cent to $0.16 per share, as oil prices fell to as low as $56.60 per barrel. Share prices in the oil magnate fell by as much as 7.2 per cent in the wake of the news, now standing at 1,246.20p at the time of writing.

With Shell’s investors often holding the stock for the dividend payouts, how worrying is this news?

Shell reported a $24m loss for the first three months of 2020, compared to a $965m profit for the previous quarter, largely impacted by falling oil prices. Hargreaves Lansdowne noted that ““while this is very unwelcome news for income investors, given that Shell is one of the largest dividend payers on the entire stock market, it may be better news for the long-term health of the business.”

Others agree, pointing out that if Shell wants to evolve and meet its goal of reducing its net carbon footprint to zero by 2050 it will need to invest more in renewable energy products. While the dividend cut might be a disappointment for many investors, shares in Shell are up 50 per cent from its March lows, suggesting it could still produce long-term yields.

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

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