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The UK economy is struggling to pick up speed. According to the latest data from the Office for National Statistics (ONS), the economy grew by just 0.4% in October, meaning it remains well below the size it was before the pandemic. And we can expect to see more of the same next month, when November’s figures are more likely than not to come in lower still, after the effects of the second nationwide lockdown hit home.
None of this is surprising in itself. We all know - after all, we can see it all first hand on any high street in the country - how the pandemic has ravaged some sectors of the economy. The shuttered shops and boarded up restaurants are proof enough. Now, with the tier system keeping trade muted or non-existent at pubs and restaurants in particularly virus-hit parts of England in Tier 3, you have to wonder how many of these businesses will survive.
The economy remains fragile, and with increasing businesses closing, unemployment can only continue to rise. Some bounce-back is possible - as we saw after the record economic contraction in April of 19.5% rebounded swiftly - but it is clear that growth has slowed again, with October's GDP growth figure down from the 1.1% seen in September.
And you can see it being played out in the latest results we have had in from some of the high-profile companies to have updated the market on past and current trading.
Package holiday operator TUI (TUI) is in dire straits right now. With summer bookings in its markets and airlines business down 83% it couldn’t be anything else. Unless the international holiday and travel sector can reopen soon, it is likely to stay that way for some time yet.
Revenue for the year ended 30 September fell 58% as a result of the Covid-19 restrictions over the summer months, but the travel operator is doing what it can and taking steps to be "stronger, leaner, more digitalised".
The pandemic is forcing change, and for companies that move with it and change for the better, they could come up stronger, leaner and poised for greater recovery. Or as TUI put it: optimised investments and accelerated digitalisation will increase agility and strengthen TUI's competitive position.
Packaging group DS Smith (SMDS) hit the proverbial nail on the head when it talked about responding to customers’ needs. It has just reported a 9% rise in revenue in the second half of the financial year.
The firm's reported revenue rose to £2.9 billion while its adjusted operating profit rose by 34% to £230 million in the six months to 31 October 2020. Profit before tax was up 54% to £97 million, while its free cashflow increased 16% to £207 million.
Covid hasn’t left it untouched, but instead has accelerated structural mega-trends in commerce and sustainability, and it has obviously been helped by commerce sales up around 30% in the period.
What is evident from all the companies navigating these difficult times with any degree of success, is an emphasis on going with the flow, to an extent. Cost-cutting is paramount to many. It’s a phrase that crops up time and again and so too is responding or adapting to customers’ needs. Those key phrases can help switch focus on an otherwise bad set of results to something more future forward and positive-looking.
UK rail and bus operator FirstGroup (FGP) is another example. On the face of it the company, which posted a £100 million pre-tax loss for the six months to end-September is being severely adversely affected by the pandemic, which has hit commuter and leisure traveller numbers hard. But this loss is less than the £187 million in the same period a year earlier, and in spite of revenues sliding 12% to £3.1 billion. Which means it has adapted to the pandemic crisis and is actually doing better than it was before its hand was forced.
Now, as chief executive Matthew Gregory, says: “While the outlook remains uncertain due to the pandemic, we performed ahead of our expectations in the first half, have taken prudent action to reinforce the balance sheet and are confident in the resilience of the group.”
The lesson from this situation, across all sectors, is that stock picking is key. Taking an active approach, homing in on individual stocks and spending time looking out for these indicators that show that while on the face of it, things are dire, there are also huge strides being made to stay the course and come out on top, is the way to spot the survivors.
The headline numbers - much like the GDP figures - show what was happening yesterday, but as an investor, looking at what is now underway and which could turn a bad situation around, is a better way to filter out the companies worth investing in today.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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