Covid-19 stock round-up: booze boom aids these shares

An upsurge in home drinking is great for these businesses, and there’s better news for others too.

Investors doubled up on Diageo (LSE:DGE) and Naked Wines (LSE:WINE) shares today after the pair shed more light on how lockdown conditions have been impacting the world's drinking habits.

The closure of bars and restaurants in cities around the globe means that Guinness and Johnnie Walker maker Diageo is no longer able to provide sales and profits guidance. The on-trade (pubs/bars/clubs) accounts for an estimated 20% of US sales and about half of Europe business.

However, shares still rose 2% to 2,559p today as Diageo highlighted its ongoing balance sheet strength and a “very slow return” of on-trade business in its key market of China.

Source: TradingView Past performance is not a guide to future performance

The blue-chip's followers will also be relieved to bank today's payment of the previously announced interim dividend of 27.41p a share. As expected, Diageo said the next phase of its three-year buyback programme is now on hold after returning £1.25 billion so far.

In contrast to the difficult conditions facing Diageo, online wine retailer Naked Wines has seen a big upturn in demand from people stuck at home and in need of a drink during the current crisis. Shares rose another 5% today and have now risen by 40% since mid-March.

Source: TradingView Past performance is not a guide to future performance

The AIM-listed company said in a Covid-19 update that it now expects revenues for the financial year just ended to be in excess of £200 million, which is slightly ahead of consensus.

It is seeing higher levels of demand from both new and repeat customers, particularly in the United States. 

CEO Nick Devlin said:

“In the US, especially, I believe the current period could serve as an inflection point for the growth rate of the online category, and as the largest direct to consumer player in the US market we are well positioned as customers move online.”

Naked Wines, which was part of Majestic Wine until last year, is also investing aggressively in new customer recruitment. However, it said it remained mindful that the economic impact of Covid-19 could create consumer uncertainty over the medium-term.

Other stocks to offer encouragement for investors included housebuilder Redrow (LSE:RDW) after it said it was eligible to access £300 million under the Government's Covid Corporate Financing Facility. It also hopes to conclude negotiations with banks about extending its credit facility by another £100 million to £350 million by the end of this month.

The update helped Redrow shares jump 8% to 437p, although analysts at UBS have a target price of 690p after “disproportionate pressure” on the stock due to liquidity concerns.

They added: “We think the announcements are positive and think that the new facilities will significantly improve Redrow's current liquidity position and should significantly reduce the risk of ‘liquidity crunch’ scenario in the short-term.

Redrow has already cancelled £37 million of dividends and said today that around 80% of its workforce have been furloughed under the Government's Job Retention Scheme.

UBS added:

“We think cash generation will pick up significantly as and when the market re-opens - homebuilders tend to be highly cash generative in market downturns.”

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Trainline (LSE:TRN) is another company furloughing staff, with this and other actions allowing it to reduce cash outflows to around £8-9 million a month. With this estimate allowing the rail and coach booking platform to operate through an extended downturn, shares in the recently-listed company rose 1% to 334p. They have risen 65% since hitting a low of 202p on 23 March.

Tool and equipment rental business Speedy Hire (LSE:SDY) has also painted a resilient picture for investors, with strong cash collections in March despite the impact of Covid-19.

It said demand for many products and services had reduced, although many projects were continuing and new opportunities also emerging. This has enabled the group to retain a significant proportion of its revenues at the start of the new financial year.

Speedy has still closed a number of depots and furloughed 50% of staff in the UK as part of a number of cost reduction measures. It remains confident that it can operate within its existing debt facilities and covenant tests should there be a prolonged period of reduced trading activity. Shares in Speedy, which hasn't ruled out paying a dividend in August, fell a penny to 54p.