Trading hurdles at this summer’s Games
LOOKING ahead to the start of the Olympic Games, there is no end of attempts to make tie-ins – official or not – with the festival of sport. But who are going to be the real winners and losers in business this summer?
Much was made of the effects of the Jubilee celebrations on high street retailers and increased consumer spending, but will we see a similar boost during the Games?
Of course, the first companies that you might look at are the official Olympics sponsors. Although in many cases they have a legal monopoly on their products within Olympic venues, they are mostly enormous multinational companies – no matter how many swimming pools worth of Coca-Cola are sold to spectators, it is unlikely to register as anything bigger than a carbonated bubble on overall global Coke sales and profits.
But what about listed companies closer to home? On 6 July 2005, the day that it was announced by the International Olympic Committee that London had won its bid to host the 2012 Olympic Games, the FTSE rallied by a trivial 19 points. This was in the heady days before Lehman’s downfall, before Northern Rock and before bundling up sub-prime mortgages and selling them on was seen as a risky thing to do. A 19 point rally didn’t really signify much. In any case, the Paris Bourse also jumped on the announcement of London winning, perhaps breathing a sigh of relief. Additionally, much of the FTSE is internationally focused, and heavily weighted to mining and financials, two sectors unlikely to be given much of an Olympic boost.
But it is worth taking a look at sectors such as construction, hospitality, travel, security and retail for opportunities to gain from a potential high jump in performance.
HOSPITALITY
According to Brenda Kelly, senior market strategist at CMC Markets, Whitbread and Greene King could be worth a look during the Games. “Whitbread experienced a surprisingly strong start to 2012 due to its expansion of the Premier Inn and Costa Coffee chain – recently breaking above the 2,000p level for the first time.” This strong rally may mean that the Games is already factored into the price. Kelly adds that a pull back towards the 200-day moving average could be on the cards with 1,896p a likely price target.
Greene King has fared well in tough conditions this year, with its price rising through a four-year high as revenues jumped 9.4 per cent to £1.14bn. Food sales were a large part of this, and the Games may help to keep price action elevated. But it might struggle on this front this summer. While the European Cup had football fans hitting Greene King pubs, the Olympics tend to attract a different type of fan. Kelly thinks that it has been overbought recently, so profit taking is very likely. She thinks a pull back to 547p, if not 530p is the potential target in the near future.
SECURITY
G4S has been in the headlines after its disastrous staffing shortfall ahead of the Games, resulting in the army having to step in to cover the shortfall. But Kelly points to Aggreko as a company likely to see better fortunes. The global leader in temporary power supply won the contract to provide power for 39 venues at the Games. Additionally, despite the challenging macro climate in the domestic market, the company has expanded internationally and is gaining exposure in markets like Brazil, Chile, Argentina and Mozambique and expects to see a 17 per cent increase in revenues.
“Recently breaking below its 200-day moving average at the 2,033p level, the price action has started to turn slightly negative, which could well see the share price head towards the 1,838p level – a 61.8 per cent retracement of the up move from last October’s lows at 1,520p,” says Kelly (see chart, below). “The price action needs to get back above the 2,033p level to reduce the downside risk,” she says.
TRAVEL
It is the budget end of the travel industry’s spectrum that will be in focus this summer. EasyJet is currently benefiting from lower fuel prices and should see increased passenger numbers over the summer as tourists flock to the Games. EasyJet’s share price has recently broken three-year highs, but is struggling to make headway above 548p. “It is interesting to note that the price gapped down from this level in late 2007,” says Kelly.
National Express is another low-cost travel provider hoping to benefit from the Games. It has lost £15m a year in senior citizen subsidies, but demand from festival goers and football fans may help to temper this loss. “The price action dropped to a low this year below 180p, but should find support at 200p,” says Kelly. “The 200-day moving average remains a key target, with the coincident 220p likely to cap upside in the short term.”
TOO MUCH TOO SOON
While many high street retailers – as well as the Chancellor, George Osborne and London Mayor Boris Johnson – may be hoping that the Games will bring a consumer spending high jump to match that seen during the Jubilee, it is likely that it will fall short of expectations. “I don’t think similar celebrations will attend the Olympics, and with the weather remaining decidedly soggy there will be little opportunity for sport-themed barbecues,” says Christopher Beauchamp, markets analyst at IG Index. “Retailers doubtless have their fingers crossed, but I fear that another consumer spending bounce is off the cards.”
Traders hoping to cash in from the Games should keep an eye on individual companies, but the majority of competitors may have peaked too early.