The stock market has a pretty clear view on the winners and losers from the Autumn Budget are. But have investors got it exactly right?
In a couple of cases, I think they might have it wrong. In particular, a pair of FTSE 250 stocks have gone up, but I don’t think the Budget was particularly helpful for either of them.
Hospitality
One stock that moved higher was JD Wetherspoon (LSE:JDW). The FTSE 250 pub chain finished the day up over 4%, but I think this is a short-term positive and a long-term negative.
JD Wetherspoon’s focus on using its scale advantages to provide customer value has served it well over the last year. And it’s forged ahead in the last year as competitors have struggled.
As a result, the company has a bigger advantage over its rivals than it had a year ago. But I think the relief measures in the Budget threaten to reverse that.
Put simply, my view is that other operators stand to benefit more from lower business rates. If I’m right, the risk is that this creates strong competition that wouldn’t otherwise have been there.
From a long term perspective, that’s not a good thing for JD Wetherspoon. And while it remains the cheapest pu chain out there with its appeal so far undamaged, I think the overall balance of the Budget helps the competition.
I can see why the market reacted positively, but my view is that this is a company that really shines in adversity. And since I don’t think the Budget created this, a higher price makes me less inclined to buy the stock.
Supermarkets
To support the high street, the Chancellor also introduced a higher tax targeted at online retailers. Specifically, it takes aim at the warehouses they use for their distribution bases.
Supermarket Income REIT (LSE:SUPR) owns supermarkets, not warehouses. But I think it might find itself caught up in the higher costs associated with the latest measures.
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The tax works by increasing the business rates multiplier for properties above £500,000. And I think a lot of the company’s portfolio might fall into that category.
Supermarket Income REIT itself doesn’t pay the higher costs – its tenants do. But I think there’s a good chance the effects show up in the firm’s ability to increase rents.
That’s one of the risks of having a concentrated tenant base. The firm generates the vast majority of its rental income from a few major UK supermarkets and that limits its negotiating power.
For the time being, though, Supermarket Income REIT’s rental contracts still have a long time left on them. So while this Budget wasn’t helpful for the company, dividend investors might still be interested.
Judging for ourselves
The stock market has a clear idea of who the winners and losers were. But I think investors should take a closer look at the situation and judge it for themselves.
Shares in both JD Wetherspoon and Supermarket Income REIT finished the day higher than they started. In my view, though, neither company is obviously in a stronger position.
I do think there were some clear winners from this year’s Autumn Budget. But investors need to look a bit more closely to figure out what they might be.
