Pandemic Progress
All,
We are growing increasingly cautious about retail’s spring/summer business and travel and tourism this year. In particular seasonal retailers - think apparel - could face a disastrous write-off of their spring/summer collections, which should be difficult to move off the shelves in May, or - as it increasingly seems - June.
Overall, the third wave of Coronavirus continues to worsen on the continent. While the UK have taken their next step towards a normalisation, where up to six people are able to meet, Germany will almost certainly enter another hard lockdown in the short term. Italy remains in a hard lock-down and unlike Germany will go ahead with a total shutdown over Easter. Paris and regions of France remain in Lockdown. Ireland is applying the highest restrictions and Spain - except for the islands, like the Netherlands remains under nationwide curfew until at least May.
The UK appear to be the notable exception, sticking to PM Jonson’s laid out plan. The country is further advanced in its vaccination strategy, although all is not as it seems. The Graph below shows the UK’s purchase portfolio of Vaccines. Of the three that have actually been approved so far, the largest by far is the Oxford/Astra Zeneca. That vaccine - Martha and your’s truly have received it last weekend - requires a time span of three months before the second injection is given (in contrast to three weeks for most others predominantly used on the continent). So until vaccine recipients can count as fully vaccinated, the continent has some 2.5 months to catch up. Incidentally, that would be in June.
Europe continues to be the hardest hit region by flight seats available/cancelled.
Most countries’ air traffic remains at higher levels than a year ago (March was just the beginning and levels had dropped further). Except for tourism from Germany to Mallorca (Spain), international flights are only making a slow recovery. And if Germany does return to a hard lock-down, that segment should dive down yet again.
Note that for Europe, the domestic segment is far smaller than for China or the US with practically all flights of over 1h being international.
In particular, German and Italian apparel retailers come to mind where lock-downs had been eased, possibly leading to purchases of inventory, but then reinstated after all. We have taken a short position in (Easter focused, but newly cash-vaccinated) Takko recently and would be interested in discussing any other names in the space.
We have also been eyeing a position in the TAP SSNs on the proviso that Portugal has few options other than full insolvency to attack the bonds. However, current developments in the underlying business are not encouraging.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003