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It's The Lockdown Trade That Keeps On Delivering

Tyler Durden's Photo
by Tyler Durden
Wednesday, Jan 13, 2021 - 5:00

By Michael Msika, macro commentator at Bloomberg Markets

In the midst of the value and cyclical stocks re-rating, food delivery shares -- winners during last year’s lockdowns -- are showing renewed strength. While vaccine prospects are keeping hopes of an economic rebound alive, surging Covid-19 cases and tighter restrictions may fuel the pandemic trade for a little while longer.

Since Dec. 14, a basket of lockdown winners is up 11%, outperforming the Stoxx 600 and European cyclicals by 7 and 5 percentage points, respectively. Food delivery stocks such as Just Eat Takeaway and Delivery Hero, as well as online retailers THG and Zalando, are all up between 16% and 20%.

“The lockdowns implemented in mid-December in Germany, Netherlands and in the U.K. will continue over at least half of the first quarter with a real risk of a new lockdown in France or at least further curfews,” says Bryan Garnier analyst Clement Genelot. He sees e-commerce as being “a structural winner of Covid,” with no significant step-back in online penetration post-pandemic. HelloFresh is his top pick for the first quarter.

The lockdown trade had lost momentum in late autumn, when signs of vaccine progress and the U.S. election results spurred a rotation into value and cyclical stocks. With restrictions spread more unevenly across Europe this time around, corporate updates may shed light on which companies are faring better than others.

First up is Just Eat Takeaway’s trade statement, due tomorrow. JPMorgan analyst Marcus Diebel recommends buying the stock, citing continuously strong order momentum across the portfolio as measured by the bank’s food delivery data tracker.

Bank of America analysts including Adrien de Saint Hilaire are “incrementally bullish” on Just Eat Takeaway and German peer Delivery Hero, expecting annual revenue growth of about 20% and 40% in the next three years, respectively. The industry is now beyond “peak losses” as delivery starts to scale and the market rationalizes, they write.

The industry may also see more deal activity. A $1.6 billion capital raise announced by Delivery Hero last week gives the company more firepower for M&A, Barclays says.

That said, short interest has been on the rise since the beginning of the year, and remains at elevated levels for all food delivery stocks. After 2020’s strong rally, the analyst consensus also indicates little to no upside, except for Just Eat Takeway.

The increasing reliance on online services may last beyond the current crisis, according to many analysts. Goldman Sachs see Europe’s digital economy at a “tipping point,” identifying leading players. Among them are Adevinta, Allegro, Asos, Boohoo, Embracer, Entain, Farfetch, Flutter, Just Eat Takeaway, Ocado, Prosus, Spotify, Stillfront and Zalando. As for food delivery stocks, Goldman sees their double-digit growth continuing into 2021 and beyond.

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