It is remarkable how much emphasis is placed on short-term results by investors and (especially) market commentators.
The likes of CNBC's Squawk Box love to plaster incendiary headlines across the screen, while reporters bellow at each other about, for example, Apple's latest quarterly sales miss in China or why we are all fools for not owning Bitcoin.
I realise that this hyperbole makes for much more popular viewing than a measured run-through of a company's balance sheet and cash flow prospects, but the Squawk Box approach certainly does not help with long-term investment decision making. It also seems to me that bad news is much more likely to make the headlines.
Time for some good news
This brings me to my view that we are in fact nearing a period in which the short-term headlines for most businesses are going to look really quite spectacular as we lap the worst of the 2020 Covid-19 economic hit. I am yet to see more than a few column inches given to this and expect that we will see some real positive surprises as we head into the middle of 2021.
Take ‘boring' old RELX for example - for as long as I have followed RELX, the Anglo-Dutch media business and owner of publications such as the Lancet, it has been possible to set one's watch by RELX's revenue growing organically at +3-4%. RELX performed relatively well in 2020 but was still knocked sufficiently off-course by Covid that revenue fell 12% in the first half and is predicted to fall 8% over the year as a whole with their Exhibitions division essentially closed during the period.
Now, if you look at this the other way and assume that RELX manages to return to 2019 levels of revenue, then the growth number for 2021 would be +9%, triple RELX's ‘normal' rate. Analyst consensus is for a more pessimistic +7% growth in 2021, but this is still double RELX's normal growth and the rate will likely remain elevated into 2022 as delayed business picks up again.
Taking this to extremes, one can look at London pub company, Young & Co. Sales for Young's are predicted to have fallen a whopping -57% in 2020, comfortably their worst year ever for sales decline. I realise that we are not likely to be allowed back to the pub for a while yet, but let's assume that in 2021 Young's returned to two-thirds of its 2019 level - this would be 84% growth in 2021.
Broker consensus is for an even more impressive 135% growth (possibly these numbers are yet to be adjusted for Lockdown 3.0). As with RELX, I have a strong suspicion that there will be plenty of pent-up demand rolling into 2021 as thirsty customers will likely be frequenting many a Young's establishment once we are back out and vaccinated.
Here are just two examples, but there is a long list of businesses that I am confident will quickly return to previous levels of trading once we have managed to return to life as we knew it.
I certainly cannot tell you if that will be this quarter or the next or the next… but it strikes me that when this day does come, we are going to be seeing some truly exceptional results reported by those businesses that were hit hard but have managed to survive 2020.
I for one am looking forward to seeing them roll in, as they will herald a return to day-to-day life no longer dominated by the pandemic and provide a supportive backdrop for markets more widely.
First seen in Portfolio Adviser.