Why I think Royal Dutch Shell (and these other stocks) could struggle in a post-Covid-19 world

Scores of UK-listed stocks stand to suffer considerably following the Covid-19 tragedy. Royston Wild explains why Shell isn’t the only one that could lose.

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Young woman wearing face mask while walking in the streets of London

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It looks likely that Workspace Group (LSE: WKP) is in for a lot of pain following the Covid-19 crisis. The business has already had to offer customers affected by government-imposed quarantine measures a 50% reduction in their rents. Lockdown measures will be loosened at some point, but the office space provider is set to suffer from falling client demand in the upcoming recession too.

The impact of the coronavirus breakout threatens to damage revenues at Workspace over a much longer timeline. Why? Well the need for millions of workers to clock in and operate from home has likely quickened the rate at which the home working revolution will being adopted.

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Companies the world over are already putting systems in place that will enable their employees to perform remotely in case of another crisis like the one Covid-19 has created. It’s a development that has made shared work spaces and centralised offices that bit more redundant. I don’t think that a slightly-elevated forward price-to-earnings (P/E) ratio of above 20 times reflects Workspace’s muddy earnings outlook, in both the near term and beyond.

Stay out of Town

Town Centre Securities (LSE: TOWN) is another property owner that stands to lose from a likely surge in remote working in the wake of the coronavirus. The prospect of subdued demand for its office space is only one part of the problem for this small-cap though.

Retail assets and car parks form significant parts of Town Centre Securities’ bricks and mortar portfolio too. They are properties which have suffered a significant drop in footfall during the ongoing lockdown. And they are assets whose long-term outlooks have taken a whack because of the mass adoption of e-commerce by housebound Britons.

Most recent data from the British Retail Consortium shows that online sales in March rocketed 18.8% on an annual basis. The internet has long cast a shadow over the likes of Town Centre Securities. But the Covid-19 tragedy has exacerbated its troubles as new users flock to do their shopping online.

I don’t care about this stock’s low forward P/E ratio of around 11.5 times. It’s a share whose long-term profits outlook is becoming increasingly scary.

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Another Covid-19 crisis

Fossil fuel producers like Royal Dutch Shell (LSE: RDSB) also stand to suffer in the post-coronavirus landscape. It’s not just a near-term demand crash that they need to fear either. It’s a renewed drive to cut greenhouse gasses in the wake of the pandemic.

Experts have noted that some of the areas most affected by Covid-19 happen to be some of the most polluted, like Wuhan in China and Lombardy in Italy. It’s a connection that scientists made during the SARS outbreak at the beginning of the century too. And it’s a theme that could see global governments become even more determined in their drive to cut carbon footprints.

Shell’s forward P/E ratio of 23 times is sky high considering its growing profits problems, though its reduced 3.6% dividend yield takes the edge off a bit. Still, it’s not a share I’ll be touching with a bargepole. I’d much rather invest my money elsewhere.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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