The long-term investment outlook for scores of UK-listed shares has worsened considerably following the Covid-19 breakout. The coronavirus has raised the risks to money printer De La Rue’s (LSE: DLAR) operations too. No wonder it’s also sunk during the recent stock market crash.
Lockdown measures the world over have, of course, limited our opportunities to use cash. But even among those physical retailers that have remained open, consumers’ use of coins and notes has severely declined amid fears of cross-contamination.
Cash demand is crashing
Data just released from ATM operator Link shows the extent of the drop off. It says cash withdrawals in the UK crashed 60% in the month to 27 April as shoppers rushed to contactless and digital payment methods instead. And it’s a pan-global phenomenon that some predict will run and run.
Link, for example, says 51% of people it has spoken to say they will use payment cards more in future. UK Finance has previously predicted debit cards would account for half of all transactions by 2024. The Covid-19 crisis since then means these estimates will likely require significant changes.
De La Rue’s shares are cheap, as illustrated by its forward earnings multiple of below 3 times. But this is a share whose long-term future is cloaked with too much risk. I’d rather invest my money elsewhere.
Is office demand set to tank?
Derwent London (LSE: DLN), on the other hand, isn’t a share that trades on rock-bottom P/E ratios. Following recent forecast downgrades, it actually trades on a reading of above 27 times for 2020. This reading is, in my opinion, hardly appropriate for a share which faces an uncertain future following the Covid-19 outbreak.
Lockdown measures have already played havoc with this major provider of serviced office spaces in the UK capital. In early April, it said it had received less than three-quarters (73%) of rents for the March quarter. This is down from 98% in the same 2019 period. On top of this, Derwent London said it has ceased construction work on three sites and deferred spending and decisions on future building projects.
Quarantine measures have been rolled back in major territories more recently, of course. But even if this continues, the property giant faces a revenues crash as a traumatic recession envelops the world economy.
It’s likely the company’s profit expectations beyond the short-to-medium term will disappoint too. The lockdown measures have boosted the so-called work-from-home culture and raised employee expectations of such ‘perks’. It’s a phenomenon that many businesses all over the globe may be eager to embrace, not just to reduce costs, but to cushion themselves from the impact of another possible pandemic later down the line.
Both Derwent London and De La Rue have sunk in value during the past three months. The former is down almost a third while the money producer has crashed around 60%. This recent weakness clearly doesn’t provide a decent dip-buying opportunity though. I’d happily invest my hard-earned cash elsewhere.
