What effect has the opening up of the economy had on investment company investee companies?
Alasdair McKinnon, Manager of the Scottish Investment Trust, said: “Share prices don’t wait for the fact, so the increased activity from July’s reopening brought no real fireworks to stock markets. Well before July, we had been adding to companies where we saw pent-up demand and strong balance sheets. While the rampant pinging of instructions to self-isolate highlights that a full reopening of the economy will not be a linear process, the direction of travel is clear – consumers are keen to get out and spend when it is safe to do so. We view our holdings in US restaurant chain Cheesecake Factory, US theme park operator Six Flags and UK-based hotel group Whitbread as major beneficiaries of the reopening.”
Abby Glennie, Co-Manager of Standard Life UK Smaller Companies Trust and Aberdeen Smaller Companies Income Trust, said: “We have limited exposure to lockdown stocks that have been unable to operate through Covid restrictions. One name we do own (through Standard Life UK Smaller Companies) is Jet2 and they continue to be challenged by the uncertainty around international travel. We believe their strong balance sheet will see them through this period of inactivity, with the potential to gain market share through their strong brand, customer service and offering. As the operating environment normalises, we believe they will be well placed to expand, both through number of aircraft and locations. However, the start/stop reopening of the travel industry has been a frustration for them, driving an inability to make commitments to a reopening schedule.
“Hollywood Bowl is another business which has faced months of uncertainty, with bowling highly restricted in the reopening schedule. Now the business is operating well – just in time for summer holidays where they have the potential to trade well, particularly in poor weather. They had a very low cash burn and a strong balance sheet, which steered them through COVID well. We are pleased that they are able to return to more normal operations now restrictions have been relaxed. They used the lockdowns to their advantage, taking the time to evaluate the estate and proposition, introducing menu changes and encouraging a shift to pre-booking online, all of which have been positive changes for the business.”
Gervais Williams, Co-Manager of The Diverse Income Trust, said: “Although the opening up of the economy has been somewhat patchy, with various pandemic challenges remaining, many UK companies that cut their dividends last year have reinstated them during the second quarter this year. The biggest exceptions to the improving trend have been the dividend income from many of the major energy stocks and some consumer businesses. Overall, the revenue per share of The Diverse Income Trust has greatly improved, and it has maintained an unbroken dividend record despite the pandemic, albeit that this has involved drawing on past revenue reserves to some degree.”
