The FTSE All-Share and AIM indices have suffered relative year-to-date falls of 24% and 20%, yet 150 companies across the two have fallen over 40% across the same period and may be set for “the greatest snapback”, according to the latest research from Peel Hunt.
These "fallen stars" are found across a variety of sectors from consumer to financials, healthcare to housing, real estate to retail, however, Peel Hunt acknowledges that "a number of assumptions" were made to create the framework that highlighted these particular firms.
With such uncertainty, the firm has described this list as "an opportunity to identify where we think the market is ignoring the recovery potential or overestimating the long-term threat to business".
There are several key drivers which informed the report, such as a "broad loosening" of lockdown conditions to arrive by the end of June, a gradual return to work and maintenance of social distancing for the remainder of the year, as well as no further outbreaks that "warrant a material lockdown".
The report also assumes government will turn from "protecting economies and businesses" to "rebuilding and sustaining recoveries" through pro-growth agendas which see governments "step up" investments across a range of industries, with a particular focus on construction, healthcare and defence.
A reduction in VAT should be considered by the UK Government, according to Peel Hunt, along with a reduction in, or holiday from, stamp duty. Helicopter money, a reduction in employment taxes and a pause in rents for the hospitality sector were also suggested, with Peel Hunt suggesting these would come at a much lower cost than a "permanent reduction in economic activity".
It also anticipates job support schemes to remain in place, perhaps in a moderated form, to avoid the return to work being "blighted" by mass redundancies.
When it comes to the shape of the recovery, Peel Hunt have avoided the 'V', 'U' or 'W'-shaped recoveries, instead it has assumed the recovery to be a "Nike swoosh", whereby the "economy stopped abruptly and will recover steadily, but gradually".
The firm's final assumption sees UK GDP falling 13% in 2020, in line with the OBR estimates, and 2021 remains 5% below expectations while oil demand increases but remains relatively cheap at $30-40/barrel. Inflation also remains subdued and interest rates are unchanged, while unemployment climbs rapidly to 6% from 3.8% the year before, a figure of 700,000 more unemployed.
If all of these assumptions hold true, the below firms are expected by Peel Hunt to enjoy the greatest snapback:
- Consumer - Bakkavor
- Financials - Paragon, Provident Financial
- Healthcare - UDG, Shield Therapeutics
- Housing, Building Materials and Merchants - McCarthy & Stone, SIG
- Industrials - Elementis, Melrose, RHI Magnesita
- Metals & Mining - Atalaya Mining, Central Asia Metals
- Oil & Gas - Cairn Energy, Tullow Oil
- Real Estate - Workspace Group
- Retail - Halfords, Joules
- Support Services - Mears, Signature Aviation
- Technology - accesso
- Transport - Go-Ahead
- Travel & Leisure - The Gym Group, Whitbread