It’s no mystery why the Shaftesbury (LSE: SHB) share price has exploded 42% since 5 November. A series of successful vaccine breakouts since the autumn, and the impressive rollout of these virus combatants since then, have raised hopes that shoppers and workers will flood back into its retail, leisure and office spaces en masse.
The London-focused property play is expected to endure a 45% earnings fall in this fiscal year to September. But City analysts anticipate a near-90% bottom-line bounceback in financial 2022. Can the Shaftesbury share price keep on chugging higher then?
Four key issues for the Shaftesbury share price
There are several things I’d consider when looking at the Shaftesbury share price:
#1: A worsening Covid-19 crisis. The government’s plan is to gradually reopen the economy with all lockdown restrictions set to end by 21 June. However, the emergence of a third wave on these shores is something prime minister Boris Johnson is publicly predicting. And it could scupper that re-opening roadmap for British businesses.
#2: The end of furlough schemes. The Local Data Company says more than 11,000 stores in the UK closed in 2020. It predicts that another 18,000 could disappear this year following the collapse of high-profile retailers such as Debenhams and Topshop and the slimming down of retailers such as John Lewis. But the worrying news doesn’t end here as the body warns that the end of the government’s furlough support schemes later in 2021 could create even more casualties over the next two years.
#3: The rise of homeworking. It’s been suggested the national lockdowns of the past year have prompted a sea change in the way modern workers go about their business. And it’s led to speculation that demand for office space, like those operated by Shaftesbury, might fall as flexible working practices become the norm.
#4: High valuation. The recent Shaftesbury share price explosion makes the company look mighty expensive. At current prices, the UK property share trades on a forward price-to-earnings (P/E) ratio of 130 times. This sort of sky-high valuation leaves Shaftesbury in danger of a sharp share price correction if trading performance worsens and predictions of a strong earnings bounceback start to look wobbly.
I won’t suggest Shaftesbury is a basket case. All of its properties are located in key entertainment, tourist and shopping districts including Soho, Covent Garden and Chinatown. The streets around these timeless areas will be packed out again when the Covid-19 crisis finally ends. Furthermore, lots of the company’s tenants are niche retailers whose long-term outlooks are much stronger than much of the broader retail sector.
Still, in my opinion, Shaftesbury’s rocketing share price factors in all of the good news regarding the end of lockdowns. And, as I say, this leaves this UK share in danger of slumping again if news flow on this front worsens. With the business facing significant long-term headwinds like e-retail and the rise of homeworking, I’d rather buy other stocks for my ISA right now.
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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.