Trains, boats and planes, not to mention buses, should be an obvious route to benefit from the resumption of life as we knew it.
But the way ahead is anything but clear. Metaphors such as ‘buckle in for a thrill ride’ may be cliches, but they sum up the confidence necessary to venture into such shares, which Richard Hunter of Interactive Investor rates a ‘high-risk recovery play’.
It might seem capricious to be looking at transport shares when Portugal has just been knocked off the green list and stocks have taken a hammering as we explain in our market report today.
Ready for take-off: Travel firms are hopeful vaccines roll outs will unleash a huge pent-up demand
But often the best time to invest is when prices are at a low point – it can be darkest just before the dawn.
As shown by data for the most sought-after stocks on investment platforms, the adventurous seem ready for some thrills and spills, on the basis that vaccines will eventually unleash huge pent-up demand for travel – and that resilient businesses will exploit the opportunities now appearing.
Ryanair argues that it can increase market share across Europe. This optimism has propelled Easyjet shares from 460p in November to 934p today.
But UBS says that the recovery is already in the price, dashing hopes for a return to 1796p, the price in mid-June 2018.
There is an increasing focus on the challenges confronting transport companies. The Government’s travel traffic light system, combined with the expense of testing, is making holidays abroad unattractive for many families.
The planned near-nationalisation of the rail system will result in massive upheaval and many employers seem content to make working from home a near-permanent arrangement.
Airline passenger numbers this year are forecast to be about 52 per cent of their pre-pandemic level.
Since January, shares in IAG, owner of British Airways, have leapt 23 per cent to 196.34p.
But they are only likely to rebound to 447p, their level at the start of the pandemic, if executives – the most lucrative clientele – quit Zoom.
Airline passenger numbers this year are forecast to be about 52 per cent of their pre-pandemic level
Analysts’ 12-month target prices for IAG shares (the highest is 280p) reflect the scepticism over a near-term surge in such passengers.
The worldwide industry’s losses are forecast to total almost £34billion this year, compared with almost £90billion in 2020.
But some savings will be wiped out by the rise in the cost of the tradable carbon credits they must buy to cover emissions.
These credits are predicted to become even more expensive. Almost every assessment of prospects for the airlines uses the word ‘uncertainty’.
Now this word is also being applied to the rail industry, following proposals for reorganisation under a new operator, Great British Railways (GBR).
This news caused a sharp decline in the shares of Trainline, the ticketing app, which may face not only a fall in commission income but also competition from GBR’s own app. Yet Trainline contends that its app is a ‘huge differentiator and hard to replicate’.
Directors of Trainline have also been buying the shares. Are they betting their technology will end up powering the GBR app, given the Government’s poor record on such ventures, or on a new age of the train?
The lack of clarity over what lies ahead may be seen, in some circles, as normal in the rail sector, helping to explain why the GBR plan has had little effect on shares in First Group.
Ryanair argues that it can increase market share across Europe, ‘especially where competitor airlines have substantially cut capacity or failed
The company is selling off some of its US bus businesses to focus on its Great Western Railway and other franchises.
The row over this disposal may have overshadowed the emergence of something resembling cheer over the outlook for UK bus and train companies.
Even an environmentally-driven small shift away from car use – which typically accounted for 60 per cent of commuting journeys – could boost Go Ahead, National Express and Stagecoach, whose shares have already started to revive.
Despite the various doubts, the conviction that we will wish to go back to far-off destinations and to the workplace will incline some investors to take a flutter on transport shares.
You may already be backing such an outcome, in a small way, if you have money in the popular Baillie Gifford European Growth, which has a stake in Ryanair. The value-oriented Aurora trust holds this stock, along with Easyjet.
If you would like to back 21st century transport in all its forms, the iShares Transportation Average ETF may be worth a look.
Next month the fund will begin to track the S&P Transportation Select index whose constituents include the Union Pacific and Kansas City Southern railroads.
Currently the fund is linked to the Dow Jones Transportation Average Index, the world’s oldest, set up in 1896 and now seen as out of pace with today’s trends. This is a reminder that transport is set to take a new direction.
But, and my apologies for another metaphor, there is as yet no roadmap.
Share of the week: Ted Baker
Ted Baker is publishing its year- end results on Thursday and analysts expect to see a loss of £65.2million, with revenue at half of pre-pandemic levels.
The luxury fashion retailer has struggled more than other peers during the pandemic due to existing issues as a bricks-and-mortar retailer and its reliance on wedding, party and going out frocks, heels and suits.
But now that lockdown has eased investors should be feeling more upbeat.
Analysts at Hargreaves Lansdown said: ‘Top of mind will be how online sales are doing. The pandemic only accelerated a seismic shift towards online shopping, one that Ted was fairly unprepared for.
‘But the level of success of the newly launched digital platform will offer an insight into how turnaround efforts are doing.
‘We’d like to see online sales making up a reasonable chunk of sales, even as lockdowns unwind,’ they said.
‘Another key measure of Ted’s turnaround efforts will be inventory management.
‘The group has been bogged down by piles of unsold inventory, which had to be discounted, and in turn, weighed on margins.
‘At the year-end, the group expects to have fully transitioned to a leaner model with product lifecycles slashed by a third.’ Ted Baker shares closed down 3.6 per cent, or 6.2p, at 168.3p yesterday.
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